Infrastructure Privatization

One of the numerous ways the few are taking advantage of the rest of us is in infrastructure sales to private companies, such as the Indiana Toll Road and the Chicago Skyway.  Yves Smith discusses the problem:

For those new to this concept, the term of art is the anodyne “infrastructure sales” and the company that more or less invented this lucrative business is Macquarie Bank of Australia (known down under as “the millionaires factory”), although US firms clearly intend to exploit the once in a lifetime opportunity presented by widespread state and municipal budget distress and downgrades.

The problem, of course, is that these deals put important public resources paid for by taxes (or even worse, financed by bonds and thus potentially not even yet fully paid for) in the hands of private investors. They then earn their returns by charging user fees of various sorts. The public must rely on the new owners for reinvestment and maintenance, and depending on how the deal is negotiated, may have ceded control as far as fee increases are concerned. This is tantamount to selling the family china only to have to rent it back in order to eat dinner.

Now defenders will argue that there is nothing wrong with this in practice, as long as the price is fair, no one is harmed. That’s spurious. This is worse than an intergenerational transfer. Those future fees not only must recoup maintenance costs (which any owner would presumably pay) and the time value of money, but also the investor’s target return in excess of that. In addition, the large transaction costs of these deals are ultimately borne by the seller. (emphasis mine)

And the list of shortcomings thus far are merely those that result if you have two sides that are equally sophisticated. That is hardly the case with municipalities versus bankers and investors. As the old saying goes, “If you sit down for a game of poker and you don’t know who the sucker at the table is, it’s you.”

So far, the worst scheme I've seen yet was the Arizona (idiots) government selling government buildings, then leasing them back.