The Perverse Incentives of Puerto Rico’s Debt Deal

“While Puerto Rico has failed to make debt service payments since 2017, government spending is up over 12 percent since then despite a drastic population decrease. Long says Puerto Rican officials are realizing “how easy it is to hide financial data, pretend austerity, and fool their creditors.” For its part, she adds, the U.S. government is creating all the incentives for Puerto Rico “to become a serial defaulter, like Argentina,” a country on the brink of its tenth default since 1816.

The comparison is ominous; Argentina’s longstanding practice of acquiring heaps of debt on the global markets before failing to repay it reflects the workings of its internal politics. As scholars Pablo Spiller (of the University of California, Berkeley) and Mariano Tomassi (of the Universidad San Andrés in Argentina) wrote in 2007, Argentina’s brand of federalism combines decentralized spending for the provinces with largely centralized tax collection and funding schemes. The system, which began to arise in the late 19th century, still motivates “subnational governments [to] adopt a lax fiscal stance in the expectation that they will be bailed out in the event of a fiscal crisis.”

In turn, they write, the top regional politicians tend to be the crony machine operators “who are best at the game of extracting rents from the common central pool.” Similarly, negotiating rescue packages with the International Monetary Fund has become a part of an Argentine president’s unofficial job description. Will governors of Puerto Rico assume the same role vis-à-vis the White House and Congress?

Certainly, U.S. taxpayers should consider the long-term consequences of their bailout of Puerto Rico, where children of politicians tend to be overrepresented as recipients of six-figure government salaries and seven-figure government contracts. The habitual debt busts of Buenos Aires is one Latin American export that is better left on the dock.”

Soviet Ethnic Policies Split Kyrgyzstan

“Former physicist Askar Akayev was Kyrgyzstan’s first president. He built a reputation for striving to create a real liberal democracy but shifted into a more autocratic stance as parliament resisted some of his economic policies.

Akayev’s rule lasted until 2005, when his administration fell amid a violent revolution. His successor, Kurmanbek Bakiyev, was toppled by another uprising in 2010. Tribalism, nepotism, corruption, and the meshing of government with organized crime—the nation produces and is a transit point for heroin in international markets—have been hallmarks of Kyrgyz politics for much of the post-Soviet period.”

Lebanon’s electricity was down for a day, but the crisis was years in the making

“the crisis came to a head..when the nation’s two largest power stations ran out of enough diesel fuel to provide even a few hours of electricity in a country already confronted with multiple crises.”

“The blackout comes just over a week after the government allowed a contract with a Turkish company supplying power via two barges off the coast of Beirut to lapse, cutting off that energy supply.
Though common, private generators proved insufficient during the outage — as Beirut-based journalist Bel Trew pointed out on Twitter Saturday, not only are such generators incredibly expensive to run and equally subject to Lebanon’s fuel shortages, but they do little to keep essential services like hospitals running.”

“Lebanon has dealt with energy problems for decades; hours-long outages have long been a part of everyday life. But the country’s current economic crisis, combined with political corruption, has turned what was once a serious, but for many, manageable inconvenience into a far more acute crisis.”

“The shutdown comes as Lebanon is experiencing shocking hyperinflation; the Lebanese lira, which is pegged to the dollar, has dropped 90 percent in value since fall 2019 and is currently trading about 18,900 lira per dollar on the black market. Prior to Lebanon’s 2019 economic implosion, the exchange rate was 1,500 lira per dollar.

That astronomical inflation makes ordinary goods like medicine hard to come by, much less enough fuel to power an entire country.

Critically, the compounding crises have serious political implications, both internally and outside of Lebanon. Hezbollah, the Iran-backed Shia militant group — which is part of Lebanon’s government, although the US has designated it a terror group — brought in gasoline fuel by the truckload from Iran via Syria, according to a New York Times report last month, apparently flouting US sanctions.

Currently, according to the Washington Post, those US sanctions are also a major obstacle to a plan for Lebanon to import gas from Egypt via Syria, which could improve the long-term outlook for Lebanon’s power grid. That could soon change, as US ambassador to Lebanon Dorothy Shea confirmed in August that the Biden administration is seeking “real, sustainable solutions for Lebanon’s fuel and energy needs.”

For the time being, however, the Lebanese government has been conspicuously absent in responding to the interconnected crises facing the country, despite the fact that Lebanon formed a new government last month. That absence has only served to highlight Hezbollah’s ability to deliver basic goods where the central government fails, potentially giving the group a larger foothold in the country.

Lebanon’s new government is also its first functional administration since a major explosion rocked its capital, Beirut, last year, according to the BBC. In the aftermath of that crisis, the existing government resigned, creating a stalemate that took 13 months to resolve.”

“Lebanon’s 2019 financial collapse sprang from decades of bad economic policy: Ultra-wealthy, deeply entrenched public servants have long benefited from a peculiar political system and enriched themselves further by helping themselves to public funds. From 2018 to 2020, the country’s GDP fell from $55 billion to $33 billion — a precipitous drop typically associated with the outbreak of conflict”

“The explosion also destroyed Lebanon’s major grain silo, leaving the country with less than a month of reserves at the time. It also destroyed Beirut’s port area, which handled about 70 percent of the food imports in a country that imports about 85 percent of its food.”

“”Lebanon’s political system is the product of a decades-old power-sharing arrangement among leaders of Lebanon’s 18 religious sects, the most important being the Sunni and Shia Muslims and Maronite Christians. This system, known as confessionalism, parceled out political power according to sectarian quotas, with each sect usually led by one or several members of prominent political families.”

Despite the lack of public services and the blatant corruption of those in power, Lebanese politicians have generally proved adept at playing up sectarian disputes and doing just enough to keep their constituents satisfied.”

A Look at America’s Most Corrupt Police

“The book, by the reporters Baynard Woods and Brandon Soderberg, pieces together the story of the 2017 Gun Trace Task Force (GTTF) scandal, in which a federal investigation has so far led to the conviction of a dozen Baltimore Police Department (BPD) officers on charges of robbery, extortion, racketeering, filing false reports, and lying to federal grand juries.

At the center of the story is Sgt. Wayne Jenkins, the head of the GTTF. Jenkins was a hard-charging cop with a fat misconduct file and a talent for turning up illegal guns and drugs. His crew was filled with other bad apples, including one whose habit of excessive force and petty thievery was so well-known that he’s been name-dropped in local rap songs. In addition to committing massive overtime fraud, members of the GTTF padded their incomes by skimming seized cash and targeting drug dealers for robberies. As the book recounts in scenes recreated through court records, wiretap recordings, and interviews, the task force fabricated evidence, lied on search warrant affidavits, entered houses without warrants, and used GPS trackers to conduct illegal surveillance.”

“Woods and Soderberg show the bureaucratic and political incentives that allowed dirty cops to flourish within the Baltimore Police Department. Those incentives exist in many other cities, and it would be a mistake to take it on trust that departments elsewhere are immune to the temptations that let the Gun Trace Task Force fester.”

Who Watches the Government’s Watchdogs?

“Inspectors general are the watchdogs of government, tasked with keeping government officials and their agencies honest and with detecting fraud and abuse. It’s an important position given the money and power that flows through the organs of the state and the resulting opportunities for shenanigans, great and small. So, it’s more than a little worrying when one of the watchdogs is charged with criminal abuse of his position of trust in an effort to enrich himself.”

“The indictment of Charles K. Edwards, a former acting inspector general for the U.S. Department of Homeland Security (DHS), came down as most of the country was distracted by the prospect of viral doom.”

“The indictment charges Charles K. Edwards, 59, of Sandy Spring, Maryland, and Murali Yamazula Venkata, 54, of Aldie, Virginia, with conspiracy to commit theft of government property and to defraud the United States, theft of government property, wire fraud, and aggravated identity theft. The indictment also charges Venkata with destruction of records.”

“Edwards, who resigned from his post at DHS in 2013, had his associates copy proprietary software as well as information about internal investigations and personal identifying information on DHS and Postal Service employees. His intent, says the Justice department, was to sell an improved version of the software back to the government.

According to an internal privacy notice at DHS, the stolen data included “names, Social Security numbers, dates of birth, positions, grades, and duty stations” on 246,167 employees. The affected workers were offered 18 months of paid identity-protection services and urged to take other defensive steps, including freezing their credit.”

“Edwards also socialized with senior DHS officials—the people he was supposed to be watching—in an apparent effort to gather support for a permanent appointment to his position. He “would boast about his close relationship with members of DHS management, how frequently he met or dined with DHS management, and that his nomination was all but assured.””

Trump’s attempts to corrupt the CDC, explained

“A vocal Trump ally and spokesperson for the US Department of Health and Human Services, Michael Caputo, and a scientific adviser he hired, Paul Alexander, are pushing the CDC to alter or halt reports that are unflattering to the president and his administration’s response to Covid-19.”

“The CDC’s response to the pandemic hasn’t been faultless. Under Redfield, the agency took weeks to fix botched Covid-19 tests it sent out to labs across the country. The slowdown in testing, also caused by the Food and Drug Administration’s initial resistance to approving more testing from private and other independent labs, led to what’s now considered a “lost month” in February as the US should have ramped up its testing capacity to prepare for the coronavirus.
But the Trump administration’s concerns about the agency don’t seem to be so much about its efficacy but that the facts on Covid-19 — including those the CDC reports on — make the president look bad.”

“Trump even admitted to this in an interview with journalist Bob Woodward: “I wanted to always play [the coronavirus] down,” Trump said on March 19. “I still like playing it down, because I don’t want to create a panic.””

An FBI investigation shows Ohio’s abysmal energy law was fueled by corruption

“The Ohio case, while extreme, is not an aberration. Corrupt electric utilities using ratepayer funds to roll back climate policy is not limited to Ohio. As I described in Short Circuiting Policy, it is an unfortunately common pattern.

Last week, the Illinois utility ComEd — whose parent company is Exelon — admitted to engaging in bribery and agreed to pay a $200 million fine. It’s very likely that another speaker, Michael Madigan, is involved in that case — the Illinois governor has already called on him to resign.

In Arizona, which I examine in my book, the FBI similarly launched an investigation into an elected official over its ties to a private electric utility, Arizona Public Service. As we now know, Arizona Corporation Commission Chair Gary Pierce met privately with then-Arizona Public Service CEO Don Brandt numerous times. The utility also funneled over $700,000 through a dark money group to Pierce’s son’s failed bid for secretary of state.

Arizona Public Service also secretly spent tens of millions on campaigns to elect its own regulators in order to secure favorable decisions, including clean energy rollbacks and generous rate hikes. In 2018 alone, it spent upward of $40 million to successfully block a clean energy ballot initiative. The new CEO, Jeff Guldner, played a key role in directing the utility’s dark political spending.

And this isn’t a new strategy. Throughout the 1990s, electric utilities including FirstEnergy and Arizona Public Service were key funders of climate denial.”

“The dogged folks at the Energy and Policy Institute — a utility watchdog that has turned up real-time facts in most of these cases — paint a clear picture for those paying attention: Most electric utilities are resisting the clean energy transition and using corruption to do it.”