“If our government is allowed to conduct commercial activities: providing a necessary product or service (including a government guarantee), it can ALWAYS create legal or other barriers against private-market competitors and generate monopoly profits for politicians to spend…
…These monopoly profits are nothing more than a hidden tax on individual Americans and/or American institutions. The Federal Reserve, Fannie Mae and Freddie Mac, FHA and VA loans, federal student loans, the Export-Import Bank, federally-insured banks, and the U.S. Post Office are all commercial activities that are more appropriately conducted 100% by the private sector. Our government has enough on its plate: national defense, foreign policy, national infrastructure, public education, domestic security and safety, enforcing the Constitution and our criminal and civil laws and maintaining our legal system, Medicare and Medicaid, Social Security, welfare programs, maintaining our national lands and securing the environment and our wildlife, etc.. I believe with all my heart and mind that it’s un-American and anti-free market capitalism to have our government conducting commercial activities and earning a monopoly profit, as a result.”, Mike Perry
November 5, 2015, Binyamin Appelbaum, The New York Times
Congress Split on Tapping Fed or Banks to Fund Roads
WASHINGTON — The banking industry scored a surprise victory on Thursday when the House voted to pay for part of a new highway bill by draining a rainy-day fund at theFederal Reserve rather than cutting federal payments to some of the nation’s largest banks.
The Senate, scrounging for road-building money, voted earlier this year to reduce the Federal Reserve’s annual dividend payments to large commercial banks, saving about $17.1 billion over the next decade. The House was to follow suit, but after loud protests from the big banks, its final version of the highway bill preserves those dividends and instead requires the Fed to provide $59.5 billion over 10 years instead of putting the money into an account intended to cover potential losses.
Now congressional negotiators must decide which to hit, the Fed or the banks.
The House vote, by a margin of 354 to 72, is a triumph for banking industry lobbyists who bitterly opposed the Senate’s plan, warning of terrible but unspecified consequences. But some independent experts criticized both measures for picking on a pair of popular villains rather than raising infrastructure funds in more logical ways, for example, by raising the federal gas tax.
“They’re both bad,” said Aaron Klein, director of financial regulatory reform at the Bipartisan Policy Center, although he noted Congress has a history of tapping the Fed’s reserves.
Even the author of the House plan sounded apologetic. “This is not perfect policy, but it is much better than the alternative,” Representative Randy Neugebauer, a Texas Republican, said on the House floor early Thursday. Mr. Neugebauer said he hoped that future transportation funding “comes from transportation users and not completely unrelated sectors of our economy.”
The Senate plan rewrites a deal with the banking industry that dates to 1913, when Congress created a Federal Reserve System of 12 regional institutions to pool the reserves of commercial banks, freeing up money for lending in good times, providing a backstop in bad times and creating a clearinghouse to improve the flow of financial transactions. Membership is voluntary for most banks; those that join must buy shares in the local reserve bank and get a 6 percent annual dividend.
The Senate plan would cut that dividend to 1.5 percent for banks with at least $1 billion in assets. Proponents describe the current arrangement as a sweetheart deal that has outlived its purpose.
“How many of my colleagues or their constituents have a safe investment that pays this well?” Representative Maxine Waters, a California Democrat, asked on the House floorThursday morning. “Most of my constituents are lucky to earn a penny a month on their bank accounts.”
The banking industry and its allies, however, see the changes as a breach of faith. Janet L. Yellen, the Fed’s chairwoman, warned of “unintended consequences” at a July Senate hearing, including the possibility that some smaller banks might leave the Fed system. Most of all, opponents have seized on the argument that the federal government should not penalize banks to build roads.
They rallied support in two crucial ways. First, they also proposed to strike a measure from the Senate plan that raised $1.9 billion by increasing the fee that mortgage borrowers must pay on loans guaranteed by the government-owned housing finance companies Fannie Mae and Freddie Mac. This drew support from Democrats opposed to what one termed a “tax on homeownership.”
Second, they identified an even more lucrative source of funding: the Fed itself.
The Fed transfers most of its profits to the Treasury Department each year — it has contributed about $500 billion since 2008 — but it stashes some in a “surplus” account as a bulwark against the possibility of a bad year. That account held $28.6 billion at the end of last year.
The Fed, however, has not incurred an annual loss since 1915. Furthermore, while there is a chance it could lose money in the next decade, as it unwinds its economic stimulus campaign, the surplus is a second line of defense. The Fed also has the capital it raises by selling shares.
And the size of the surplus is unrelated to any estimate of the Fed’s potential losses. It grows in proportion to the banking industry. The Government Accountability Office accordingly concluded in a 1996 report that the amount “could be safely reduced or returned to the Treasury.”
The Fed, already opposed to the Senate plan, said in a statement Thursday it did not much like the House plan either. “Using the resources of the Federal Reserve to finance fiscal spending sets a bad precedent,” it said. “It infringes on the independence of the central bank and weakens fiscal discipline.”
But Congress has a long history of tapping the surplus, beginning in 1933 when it took half of the money to fill the coffers of the new Federal Deposit Insurance Corporation.
More recently, after the 1996 accountability office report, Congress skimmed off about $100 million in 1997 and again in 1998, and $3.7 billion in 2000.
The new measure, however, is considerably more aggressive. For the first time, it would drain the entirety of the surplus and prevent the Fed from refilling it.
By doing so, the House plan would provide about $40 billion more over the next decade than the Senate’s plan. Adam Rice, a spokesman for Mr. Neugebauer, said the congressman did not have a strong view about what should be done with the extra billions. “We would want to use it to pay down the debt and deficit, but that’s up to leadership,” he said.
A version of this article appears in print on November 6, 2015, on page B1 of the New York edition with the headline: Congress Split on Tapping Fed or Banks to Fund Roads.