MyGovCost News & Blog

Wasteful Federal Consumer Financial Protection Bureau Will Hurt Consumers


Monday May 9th, 2016   •   Posted by K. Lloyd Billingsley at 5:00am PDT   •  

Wolf 416x358As we observed in “Financial Crisis and Leviathan,” a deep recession, widespread unemployment, and fathomless debt were the prevailing conditions when the Obama administration created the federal Consumer Financial Protection Bureau in 2011. The CFPB was based on the premise that consumers were unable to look out for themselves without help from the federal government. CFPB defender Paul Krugman captured this sentiment when he wrote, “Don’t say that educated and informed consumers can take care of themselves,” and “even well-educated adults can have a hard time understanding the risks and payoffs associated with financial deals.”

As the New York Times reports, the CFPB now proposes a rule that would allow customers to bring class-action lawsuits against financial firms. Opponents of the rule told the Times it would lead to an upsurge in litigation and spell the end of arbitration, which businesses tend to favor. The U.S. Chamber of Commerce said in a statement that “The proposed rule is a wolf in sheep’s clothing,” and that “the agency designed to protect consumers is proposing a rule that will end up hurting them.” If so, it wouldn’t be the first time, and taxpayers might note the irony. Those well-educated and informed consumers supposedly too dim to protect themselves from financial fraud are now fully qualified to launch complex legal actions and competent to assess the risks and payoffs.

Taxpayers might also recall that the CFPB was created with no hint that government policy, regulation, or failure could have played any role in the financial crisis. CFPB backers also avoided mention of the Community Reinvestment Act, despite considerable evidence that the 1977 Carter-era law, with its promotion of lax lending standards, was a key part of the problem. The CFPB thus confirms the federal government’s zeal for expansion at any time, at any cost, and without any regard for need or performance. No new federal agency, however useless, is ever temporary. And as the CFPB class-action caper suggests, such agencies tend to become more troublesome and wasteful, not less.

Bailing Out the Wrong People


Saturday May 7th, 2016   •   Posted by Craig Eyermann at 8:10am PDT   •  

IMG_20151002_163527685 When a government’s public debt grows too large, so much so that it needs to be bailed out in order to continue functioning, who do you suppose benefits the most from the bailout?

If you said “the government”, or “the people”, you’re wrong. In reviewing the series of bailouts of Greece from 2010 through 2015, a recent study by the European School of Management and Technology (ESMT), a business school based in Berlin, found that nearly all of the money that was spent by the European Central Bank, the International Monetary Fund, and the European Commission (together called the “Troika“) to bail out the Greek government as it repeatedly defaulted on its national debt obligations in 2010, 2012 and again in 2015, went to the big European banks that had loaned it money. Via Global Research, Greek news outlet Ekathemerini reports:

Some 95 percent of the 220 billion euros disbursed to Greece since the start of the financial crisis as loans from the bailout mechanism has been directed toward saving the European banks. That means about 210 billion euros was eventually channeled to the eurozone credit sector while just 5 percent ended up in state coffers, according to a study by the European School of Management and Technology (ESMT) in Berlin.

“Europe and the International Monetary Fund have in previous years mainly saved the banks and other private creditors,” concluded the report, published yesterday in German newspaper Handelsblatt. ESMT director Jorg Rocholl told the financial newspaper that “the bailout packages mainly saved the European banks.”...

The economists who took part in the study have analyzed each loan separately to established where the money ended up, and concluded that just 9.7 billion euros – less than 5 percent – actually found its way into the Greek budget for the benefit of citizens.

“This is something that everyone suspected, but few people actually knew. That has now been confirmed by the study: For six years Europe has tried in vain to put an end to the crisis in Greece through loans, and keeps demanding ever harder measures and reforms. The cause of the failure obviously lies less on the side of the Greek government and more on the planning of the bailout programs,” the German daily concluded.

There’s an old saying about debt that was immortalized by billionaire oil baron J. Paul Getty: “If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.”

That saying has just been proven true with the identification of the primary beneficiaries of the Troika’s multiple Greek government bailouts.

The reason it is important to recognize this today is because, once again, Greece is approaching fiscal and economic ruin. The Wall Street Journal describes why all of the previous actions that Greece has taken on the behalf of its lenders have failed:

Back in May 2010, a heavy austerity program in Greece was inevitable. The country had lost control of its finances. No lender was willing to finance the status quo. Greece’s primary budget deficit, which excludes interest, was over 10% of its gross domestic product.

Over the next five years, Greek governments enacted spending cuts and tax increases worth a total of 32.3% of GDP, a scale of austerity far beyond that seen in any other European country during the financial-crisis era. The budget recorded a small primary surplus of 0.7% of GDP in 2015, an improvement of nearly 11 percentage points since the dawn of the crisis.

But two-thirds of the fiscal effort was needed just to offset the impact of Greece’s collapsing economy, which crippled tax revenues. The IMF said in 2013 that creditors had underestimated how hard the radical austerity plan would hit the economy. As GDP shriveled, Greece’s debt burden rose, keeping the country from regaining solvency.

What is important to recognize here is that one of the actions that the Troika demanded from Greece – sharp increases in the nation’s top income tax and value added tax rates – is primarily responsible for most of the nation’s collapsing GDP. The Troika’s “solution” has ensured that Greece’s debt problems can never, ever be truly resolved.

At this point, only one member of the Troika, the International Monetary Fund (IMF), recognizes that the main beneficiaries of the Greek government bailout are the ones in most need of sharing the pain. The Financial Times reports on a leaked letter sent by IMF head Christine Lagarde to Europe’s finance ministers, which the FT‘s Peter Spiegel describes as being the equivalent of the IMF putting “the gun on the table” in demanding that European banks finally accept losses on their failed loans. Here’s the section of Lagarde’s letter that drives home that reality (emphasis ours).

I understand the urgency of the situation in the case of Greece and Europe as a whole, and our common objective is to quickly agree on a way forward. This requires compromises from all sides, and we have contributed our part by focusing conditionality on what we see as the absolute minimum, leaving important structural reforms to a later stage. However, for us to support Greece with a new IMF arrangement, it is essential that the financing and debt relief from Greece’s European partners are based on fiscal targets that are realistic because they are supported by credible measures to reach them. We insist on such assurances in all our programs, and we cannot deviate from this basic principle in the case of Greece.

The IMF’s Lagarde is telling the biggest beneficiaries of all the Greek government bailouts that her organization will not participate in another bailout unless they write off significant portions of the bad loans they made, and thereby reduce Greece’s debt burden. Not just because they are just as responsible for the existence of those bad loans, but also because of their bad decisions in ensuring that Greece could never regain its solvency.

Or rather, because they have been made whole by the Troika’s bailouts while Greece has been left in ruins.

Puerto Rico Officially Defaults on Its Debt


Monday May 2nd, 2016   •   Posted by Craig Eyermann at 5:50am PDT   •  

US-bankruptcy-court-puerto-rico-seal The shell game is officially over – today, the U.S. commonwealth government of Puerto Rico will default on making $442 million in payments to its creditors. USA Today reports the news:

Puerto Rico Gov. Alejandro García Padilla said Sunday afternoon in a televised address that he had ordered the island’s Government Development Bank not to make certain payments owed Monday, stacking another round of missed payments on multiple previous defaults.

“This was a painful decision. We would have preferred to have had a legal framework to restructure our debts in an orderly manner,” García Padilla said. “But faced with the inability to meet the demands of our creditors and the needs of our people, I had to make a choice. I decided that essential services for the 3.5 million American citizens in Puerto Rico came first.”

Puerto Rico was expected to default on about $422 million in bonds Monday, plunging the U.S. territory deeper into arrears, Moody’s Investor Service said last week in a report.

The article goes on to summarize the current debate in the U.S. Congress on how to address the issue:

Generally, Republicans are opposing anything that sniffs of a bailout without concessions on pensions, while Democrats are pressing for greater protections for unions.

Last week, Washington Post columnist George Will described the positions being taken by the opposing sides in that legislative debate.

Puerto Rico’s approximately 18 debt-issuing entities have debts—approximately $72 billion—they cannot repay. The Government Development Bank might miss a $422 million payment due in May, and the central government might miss a $2 billion payment in July. Congress will not enact a “bailout,” meaning an infusion of U.S. taxpayers’ money.

But some Democrats—perhaps anticipating a day of reckoning for their one-party state of Illinois, and nurturing their indissoluble marriage to government employee unions, some of which have helped reduce Puerto Rico to prostration—want to reward the San Juan government’s self-indulgence. They favor pouring more Medicare, Medicaid and other benefits into the island. They also favor giving protection of unionized government employees’ pensions priority over payments even to holders of general obligation bonds guaranteed by the territory’s constitution. Although Puerto Rico’s per capita income ($11,331) is about half that of the poorest state (Mississippi, $20,956), Democrats oppose allowing Puerto Rico to lower the hourly minimum wage. A full-time job at the U.S. minimum, $7.25, which applies to the island, is two-thirds of the average islander’s wage, which increases unemployment and hence immigration to the mainland. Some Democrats even want the earned-income tax credit and child tax credits paid to Puerto Ricans even though they do not file personal federal income tax returns.

Sen. Orrin Hatch (R-Utah) may also have his eye on Illinois and other states subjugated by the axis of the Democratic Party and government employee unions. He wants legislation for Puerto Rico to require U.S. state and local governments, almost 60 percent of which last year failed to make full pension contributions, to honestly state their pension liabilities. Puerto Rico has a $44 billion unfunded pension liability.

In these debates, it is important to remember that what is happening in Puerto Rico today is the result of the previous actions of the politicians and bureaucrats who have allowed Puerto Rico’s solvency problems to escalate to the level they have. Everybody has known this day was coming for a long time. The tragedy is that the people in charge all these years never seriously prioritized instituting the reforms that could have averted the growing crisis that they instead kept trying to put off just a little farther into the future.

No One-Stop Shop with Government


Monday May 2nd, 2016   •   Posted by K. Lloyd Billingsley at 5:20am PDT   •  

ComputerTablet Beach_MLCalifornia is a high-tech state and that leads Zócalo Public Square columnist Joe Mathews to wonder: “Why, in this Internet age, doesn’t my state offer a one-stop shop where I can renew my driver’s license, register to vote, pay my taxes and buy passes to a state park?” This one-stop shop, says Mr. Mathews, is “one of the oldest ideas in California governance” and pops up in commission reports. One, from the Little Hoover Commission, wants a one-stop shop that would enable Californians “to manage all their business with the state.” For Mr. Mathews, however, “the effective California one-stop shop exists only in the realm of myth,” and he knows why this is so:

“California has too many governments – literally thousands of them – that demand compliance with their own separate rules as a way to protect their very existence. Indeed, our governing system seems designed with the opposite of one-stop shopping as its guiding principle. California has more permitting and licensing agencies than most other states, all sorts of regional bodies and the California Environmental Quality Act, which can kill almost any worthwhile project.” Mr. Mathews decries government “dysfunction” and laments “the very inefficiencies that make one-stop shops nearly impossible here.” On top of all that, California politicians and bureaucrats, “have no real interest in doing the hard work of consolidating agencies and making things clearer for taxpayers.”

Those taxpayers should not conclude that Mr. Mathews is an advocate of limited government. He is co-author with Mark Paul of California Crackup: How Reform Broke the Golden State and How We Can Fix It. As a review by Lauren Kaye noted, the author’s solutions are for the most part “conventionally liberal and statist,” and “their stock villain” is Proposition 13, which they claim “unhinged California.” Actually, the 1978 voter-approved measure limited government’s ability to hike taxes but did not mandate any government spending or create any new government agencies.

Six years after California Crackup, Joe Mathews laments that California has too many governments, state agencies, and regional bodies, but he fails to call for the elimination of a single one. He shares the ruling-class view that government can always get bigger but never smaller. That is why dysfunction and inefficiency prevail, and why the government one-stop shop “exists only in the realm of myth.”

Why Government Subsidies Fail


Friday April 29th, 2016   •   Posted by Craig Eyermann at 6:49am PDT   •  

A very cool YouTube video from Burton Folsom on why private investors are so much more successful at realizing technological achievements than are the kinds of schemes that are subsidized by the government:

In addition to being very personally invested in the outcome of their endeavors, there is also a big difference in the skills of the people who work toward great achievements between private investors and government funded one. The kinds of skills it takes to get government subsidies, whether in the form of grants, tax credits or special protection from real world competition, are very different from the kinds of skills that are actually needed to be genuinely successful in business, invention and real life.

A Government Money Pit Grows Wider


Thursday April 28th, 2016   •   Posted by K. Lloyd Billingsley at 5:45am PDT   •  

SacSkyline_MLAs we noted in March, the Sacramento headquarters of the California State Board of Equalization, known among reporters as a “24-story money pit,” sprung two leaks during heavy rains. Floors 10 and 22 both had a history of leaks and other troubles, but these were apparently unaddressed, despite more than 20 reports calling for action. Even those fixes, however, would have been insufficient. In addition to leaky windows, the building features mold, burst pipes, falling glass, a bat infestation, and traces of toxic substances. Over two decades bureaucratic bosses have spent some $60 million on the building, but in 2014 the cost to fix everything was another $30 million – excluding the cost of moving employees during repairs. Now the intrepid Jon Ortiz of the Sacramento Bee shows how the BOE problems have led to even more waste.

The BOE board had their offices on the 23rd floor of the structure, but in 2007 water leaks forced a cleanup of floors 22 and 23, so the board had to leave the building. Jerome Horton, BOE chairman, moved to the ninth floor of the U.S. Bank Tower. Then last fall Horton moved to the 21st floor, which offers a view of the Capitol Mall and full-length glass walls bearing the BOE seal. Horton took the opportunity to redecorate. As Mr. Ortiz notes, he packed the lavish suite with more than $118,000 of designer furniture including 24 white leather chairs, 21 cabinets with glass doors and “top-silver undertrim,” eight metal coat racks. “With delivery and installation of $12,000,” Mr. Ortiz explains, “taxpayers spent slightly more than $130,000 to outfit Horton’s office.” Other board members were much less extravagant but Ortiz finds it unlikely that any of it would have been necessary if the board members still had offices in the BOE headquarters.

The $60 million to fix that building would not have been necessary if the building had been properly constructed. It wasn’t, because politicians were looking the other way, and there’s no recourse because politicians were asleep at the switch, allowing the statute of limitations on defective construction to run out in 2002. Assembly members have considered a new facility costing $500 million, plus the debt on the BOE building, in the range of $70 million. As this disaster confirms, government money pits have a way of getting deeper and wider.

TSA Endures Despite Failure


Monday April 25th, 2016   •   Posted by K. Lloyd Billingsley at 9:56am PDT   •  

TSA Airport_MLOn a recent trip, this writer found that employees of the federal Transportation Security Administration were courteous and professional, but that is not always the case. As we noted, the TSA sometimes forces passengers through the screening process twice on the same trip, before a connecting flight, with no warning and no explanation. So the TSA can also do a bang-up job of making air travel more miserable than it should be. As they take off their shoes and belts, travelers might recall that the TSA is also a miserable failure at its appointed task.

The TSA is part of the Department of Homeland Security but as we noted last year, in tests at dozens of airports, a DHS security team was able get weapons, mock bombs and other items past TSA security. The failure rate was a full 95 percent, but DHS boss Jeh Johnson claimed that the numbers were “out of context” and refused to release the full report because the information was “classified.” That term generally means “embarrassing to the government,” and TSA lapses are nothing new. Since 2004, the DHS has turned up a number of persistent security failures, and at airports such as Atlanta and San Diego, hundreds of TSA employee security badges have gone missing. Also missing were reports of TSA bosses being fired over such lapses, or any second thoughts from politicians about establishing the Transportation Security Administration in the first place.

The TSA, like the DHS, is a bureaucratic response to the problem of terrorism. Despite performance, the federal government generally maintains a policy of no bureaucracy left behind, and bureaucracies are subject to mission creep. As we noted in 2013, the TSA has deployed VIPR – Visible Intermodal Prevention and Response. VIPR squads have rousted people at train stations and other transportation hubs, actions that go beyond the TSA’s original mission of airport screening, and which civil liberties groups said amount to warrantless searches in violation of constitutional protections. No word whether the VIPR squads have succeeded in stopping any terrorist attack, and overall the TSA record on that front is also rather sketchy. So travelers have much to consider, even if TSA screeners manage to be courteous and professional.

Bureaucrats Behaving Badly: HUD Edition!


Monday April 25th, 2016   •   Posted by Craig Eyermann at 7:06am PDT   •  

hudseal_teal_1 The U.S. Department of Housing and Urban Development (HUD) has the mission to “create strong, sustainable, inclusive communities and quality affordable homes for all.” To do that, the U.S. government entity has established a five point agenda:

  • Strengthen the housing market to bolster the economy and protect consumers
  • Meet the need for quality affordable rental homes
  • Utilize housing as a platform for improving quality of life
  • Build inclusive and sustainable communities free from discrimination, and finally, to
  • Transform the way HUD does business

In practice, HUD has historically failed to achieve hardly any of these objectives particularly well. So much so that in many ways, HUD may be considered to be the prototype for the institutionalization of corruption in the federal government, which comes at the expense of the program’s intended beneficiaries and U.S. taxpayers, both of whom are cheated in the process of the agency’s daily operations.

Two cases in point were recently reported by Luke Rosiak of the Daily Caller News Foundation. In the first story, it appears that an employee of the Department of Housing and Urban Development used their insider connections within the federal government to put themselves first in line ahead of a very long list of poor Americans seeking housing assistance from HUD.

A Department of Housing and Urban Development (HUD) employee was given subsidized housing project units in two states to occupy simultaneously, even as thousands of other impoverished citizens languish for years on long waiting lists, The Daily Caller News Foundation has learned.

That kind of corruption is sad, but at least the offender was caught, which should be a good thing, right?

Not necessarily. The bigger problem demonstrating the extent of the institutionalization of corruption within HUD came as a result of what happened after the offender was caught:

Immediately after federal officials caught the offending employee, HUD promoted her to manage the awarding of millions of tax dollars in grants, even though she lied to criminal investigators about double-dipping in the benefit programs her department administers.

Worse, tolerance for the corrupt actions of its employees would appear to extend all the way up to top of HUD’s management, whose response to the scandal to date is perhaps best described as being so ineffective and wasteful that it has only succeeded in more deeply embedding outright corruption within the federal government department.

A HUD spokesman claimed that federal officials took corrective action in the case by deploying an internal ad campaign for the department’s employees, using the expensive trademarked slogan “if you see something, say something.” The spokesman said simply that HUD has conducted “ethics training” classes for its employees when asked about the Virginia prosecutor’s observation that housing project paperwork didn’t ask key questions required to prosecute those charged with stealing housing benefits.

The spokesman said “the behavior cited in this OIG report is disturbing, disappointing, and in no way reflective of the hard work or values of thousands of HUD employees,” even though all of the HUD grantees and employees involved helped the Mathis fraud occur and none received significant punishment.

The spokesman also said HUD Secretary Julian Castro has “advised HUD employees to work with the IG’s staff to eliminate waste and mismanagement.” Yet the employee who lied to the IG about her own fraud was promoted.

The second story revolves around the actions by the U.S. Congress to counteract the runaway corruption at the Department of Housing and Urban Development by recent political appointees.

A federal agency will be breaking the law unless two of its top Obama administration appointees repay part of their salaries to taxpayers after barring another federal employee from telling Congress how higher-ups were allowing multi-million dollar frauds as part of a political deal.

The Government Accountability Office (GAO) determined Tuesday that the two Department of Housing and Urban Development (HUD) political appointees refused to let an employee speak with the House Committee on Oversight and Government Reform about a major scandal....

The GAO said that unless HUD’s associate general counsel and a deputy assistant secretary personally return three weeks’ worth of compensation, the department would be knowingly retaining “improper payments” on its books in violation of the law.

In all cases, unambiguous misconduct on the part of the Department of Housing and Urban Development’s bureaucrats came as they put their own interests ahead of those of regular Americans. In that sense, it is the same old story that we’ve seen play out time and time again at the Department of Veterans Affairs, the Environmental Protection Administration and the Internal Revenue Service.

The only difference is that now we have a fourth federal government department or agency in the running for the title of which has institutionalized corruption to the greatest extent within its ranks during the Obama administration.

Who Is Second Worst?


Friday April 22nd, 2016   •   Posted by Craig Eyermann at 6:46am PDT   •  

By any fiscal measure, the government of Puerto Rico is the worst off of all state or territorial governments within the United States.

But which U.S. state or territory is the second worst off?

4-12-16 backlog breakdown

In discussing the state of the city of Chicago, City Journal‘s Aaron Renn makes a strong argument that it is Illinois:

Fiscal problems are commonplace these days among local governments, but Chicago’s are particularly grim and far predate the Great Recession. Cook County treasurer Maria Pappas estimates that within the city of Chicago, there’s a stunning $63,525 in total local government liabilities per household. Not all of this is city debt; the region’s byzantine political structure includes many layers of government, including hundreds of local taxing districts. But pensions for city workers alone are $12 billion underfunded. If benefits aren’t reduced, the city will have to increase its contributions to the pension fund by $710 million a year for the next 50 years, according to the Civic Federation. Chicago’s annual budget, too, has been structurally out of balance, running an annual deficit of about $650 million in recent years.

As dire as Chicago’s finances are, those of Illinois are in even worse shape. The primary cause, once again, is pensions, which are underfunded to the tune of $83 billion. Retirees’ future health care is underfunded an additional $43 billion. There’s a lot of regular debt, too—about $44 billion of it. And Illinois, like Chicago, has run large deficits for some time. Despite raising the individual income tax 66 percent and the corporate tax 46 percent in 2011, the state is projected to end the current fiscal year with an accumulated deficit of $5.2 billion. While California has made headlines by issuing IOUs to companies to which it owes money, Illinois has taken an easier route: it just stopped paying its bills, at one point last year racking up 208,000 of them, totaling $4.5 billion. Some businesses have gone unpaid for nine months or even longer. Unsurprisingly, Illinois has the worst credit rating of any state. Unable to pay its bills, it is de facto bankrupt.

What accounts for Chicago’s miserable performance in the 2000s? The fiscal mess is the easiest part to account for: it is the result of poor leadership and powerful interest groups that benefit from the status quo. Public-union clout is literally written into the state constitution, which prohibits the diminution of state employees’ retirement benefits. Tales of abuse abound, such as the recent story of two lobbyists for a local teachers’ union who, though they had never held government jobs, obtained full government pensions by doing a single day of substitute teaching apiece.

Although the article was published in June 2012, virtually every aspect of Renn’s argument holds true today. Since it was written, to deal with its spending problems, the city of Chicago has imposed a massive property tax increase on its residents in a bid to come up with enough money to stave off its future bankruptcy for a bit longer.

Chicago last month approved a $543 million property tax increase, phased in over four years. With Illinois residents already paying an effective property tax rate of 2.32 percent (in 2013, the most recent year Census data is available), the increase will likely displace New Jersey’s long-standing record of the state with the nation’s highest property taxes (2.38 percent on average, in 2013).

Rahm Emanuel, Chicago’s Mayor, said the move was forced by large pension obligations, eroding credit ratings, and a legacy of expensive borrowing. Chicago’s combined taxes and fees will now be the highest of any Illinois city, and its property taxes higher than Los Angeles, New York, Washington, and Houston.

In the meantime, the state of Illinois now has over $7 billion of unpaid bills as it continues to run up its spending without even having a budget as the state’s legislators, who are largely representing the interests of the state’s public employees unions, refuse to compromise on a budget that would constrain the growth of their lavish benefits in any way, demanding instead that the state follow Chicago’s example and hike its taxes to sustain their spending for a little longer.

Like Chicago, the amount by which taxes might be increased in Illinois will never be enough to become solvent given the state legislature’s spending priorities.

National Debt as a Weapon


Tuesday April 19th, 2016   •   Posted by Craig Eyermann at 5:27am PDT   •  

national_park_service_9-11_statue_of_liberty_and_wtc_fire Today, President Obama is traveling to Riyadh, Saudi Arabia to meet with that nation’s new king for the first time.

But there’s a problem. There is legislation currently making its way through Congressional committees on Capitol Hill that threatens the interests of Saudi Arabia’s government, in that if it becomes law, would expose the government of Saudi Arabia to the risk of liability in U.S. courts for any supporting role it may have had in the September 11, 2001 terrorist attacks on the United States. And to incent President Obama to keep it from becoming law, the Saudi government is threatening to sell off its entire estimated $750 billion stake worth of U.S. government-issued debt securities. Reuters reports:

The Saudi Arabian government has threatened to sell of hundreds of billions of dollars’ worth of American assets should the U.S. Congress pass a bill that could hold the kingdom responsible for any role in the Sept. 11, 2001 attacks, the New York Times reported on Friday.

The newspaper reported that Saudi foreign minister Adel al-Jubeir told U.S. lawmakers last month that “Saudi Arabia would be forced to sell up to $750 billion in Treasury securities and other assets in the United States before they could be in danger of being frozen by American courts.”

What might expose Saudi Arabia to that kind of risk? Namely, there are 28 pages in the U.S. government’s official report on the 9/11 terrorist attacks that have been kept secret for years, which may be declassified as part of that legislation. Those 28 pages are reported to describe the role of Saudi Arabia’s government in that incident as something very different than what the U.S. government has been presented to the public. NBC News reports:

When the president leaves for a trip to Saudi Arabia on Tuesday an unresolved issue will go with him: did the Saudis play some role in supporting the hijackers responsible for the attacks on September 11th?

The question is being raised in the wake of a renewed push to declassify 28 pages of a 838-page congressional report on the worst terror attack on American soil.

The so-called “28 pages” are locked away in a secure basement room at the Capitol and although they can be read by members of Congress, the pages remain classified.

The pages are described as including information uncovered by U.S. intelligence and law enforcement authorities of how the 19 terrorists who executed the most dramatic terror attack on the United States in history were supported by the government of Saudi Arabia and a number of its wealthy citizens and even its charitable organizations.

What could make Saudi Arabia’s threat to sell off its holdings of U.S. Treasuries an effective one is the impact it would have on the market for U.S. Treasuries. If Saudi Arabia’s government chose to simply dump them on the market all at one time, the impact would be highly disruptive, where the dramatic increase in supply would cause the value of all U.S. Treasuries to plummet.

That loss of value would be seen in the yields, or interest rates, for U.S. Treasuries, which would spike upward. That impact would then propagate across the entire U.S. economy, because most consumer interest rates are linked to the value of those debt securities. The outcome would be that borrowing money in the U.S. would suddenly become much more costly for U.S. businesses and consumers, which would have a negative impact on economic growth if not offset.

Saudi Arabia accumulated its very large holdings of U.S. government-issued debt securities because it loaned a tremendous amount of money to the U.S. government over several decades. Its estimated $750 billion stake would represent just over 5.4% of the publicly-held portion of the U.S. government’s total public debt outstanding as of April 14, 2016, and 3.9% of the total U.S. national debt as a whole.

While those percentages may seem small, such an action by the Saudi government would have an outsized impact because of its effects on the margins of the market for U.S. government-issued debt securities.

In effect, the Saudi’s are seeking to compel the U.S. government into compliance with their preferences by weaponizing their holdings of the U.S. national debt, regardless of the interests of regular Americans. Any nation or institution with similar or larger holdings is capable of exercising that kind of threat.

To date, both the Bush and Obama administrations have accommodated the wishes of Saudi Arabia’s government to keep the 28 pages documenting its role in the September 11 attacks a secret as they have both chosen to prioritize other interests.

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