Experts in autocracies have pointed out that it is, unfortunately, easy to slip into normalizing the tyrant, hence it is important to hang on to outrage. These incidents which seem to call for the efforts of the Greek Furies (Erinyes) to come and deal with them will, I hope, help with that. As a reminder, though no one really knows how many there were supposed to be, the three names we have are Alecto, Megaera, and Tisiphone. These roughly translate as “unceasing,” “grudging,” and “vengeful destruction.”

Everyone who knows me knows that I am in extreme opposition to the privatization of government functions. This, of course, raises the question of just what is a proper function of government, and how should a proper function of government properly be managed and funded. Which is a huge question.

There is one 501(c)(3) or to be more accurate one project of a 501(c)(3) which is pretty well exclusively dedicated to studying the effects of privatization. That group is In The Public Interest (ITPI).

In the Public Interest is a comprehensive research and policy center committed to promoting the values, vision, and agenda for the common good and democratic control of public goods and services. 

They do a great deal of research, and from time to time put our reports which are truly comprehensive. I’ve downloaded a few, but due to time constraints, I don’t believe I’ve ever made it completely through any of them. (The most recent is on Charter Schools and what they do to public schools – it’s from May this year, and it’s 38 pages.) They also keep abreast of research and trends that others are talking about, and if they find the data valid, they’ll write something up in medium.

Recently I got an email with a link to a short article from the Communications Director, addressing one privatizing program which I would have to call a miserable failure, and one – well, two, with similar purposes and functions – government programs which have become almost too successful.

The debacle is the debt collection program contracted out by the IRS. If you’ve never owed any back taxes, the fact that some people do, for various reasons, may not exactly be in the front of your mind.

The current program is the third attempt to privatize collection of back taxes, and it’s no better than the first two, which were quickly shut down due to “poor management and negative returns.” The Treasury Inspector General for Tax Administration is, needless to say, not happy with the current effort.

The four private companies, who are not named in the ITPI article nor in the linked article, were given 502,000 accounts to collect. Those accounts collectively owed a total of about $4.1 billion. The private firms have managed to collect just about 1%. The debt collection industry average is 10%.

The private program’s complaint process requires each company to self-report any grievance against them. Unsurprisingly, this is not working. Further, the IRS advertises that they will never use the telephone to contact anyone to demand payment. But the private companies are doing just that. They are also requesting Social Security numbers for verification. Would you give your Social Security number over the phone? (I would hope not!) Further, the callers work on commission, which incentivizes making as many calls as possible.

TIGTA says the program could be improved with some tweaks. One would be giving the private firms newer accounts. But IRS points out that the law only allows for contractors to engage in “inactive” accounts. Another would be for the IRS to establish a panel to deal with complaints. My guess is that such a panel would cost far more to establish and manage than the measly net amount the contractors claim to have provided the IRS in net profit – $1.3 million. You may notice that is considerably less than 1% of $4.1 billion, even an American billion. Yes, well, they get to keep some of what they collect, don’tcha know. And then there’s overhead, and fees, and this and that.

The law which established this program was passed and signed in 2015, which I take to mean there was a veto-proof majority voting for it. Being established by law, it can only be dis-established by new legislation.

The program was established despite pushback from some lawmakers, good government groups and employee advocates, who warned that history has shown the privatization of tax debt collection is inefficient and targets the nation’s most vulnerable taxpayers. Several Democrats in the Senate and House, among them Sen. Ben Cardin, D-Md., and Rep. John Lewis, D-Ga., have introduced legislation that would end the private collection program.

The other example of privatization vs. government operation has to do with Fannie Mae (more formally known as the Federal National Mortgage Administration) and Freddie Mac (ditto the Federal Home Loan Mortgage Corporation).They are historically government sponsored but privately operated. Historically. That all changed in 2008, with the housing crisis

In 2008 they went into crisis with everyone else, and were bailed out, in the form of conservatorship.

The bailout gave Fannie and Freddie the financial liquidity they needed to survive, but also required them to pay the Treasury a 10 percent dividend as part of the deal.

In 2012, when the two were profitable again, Treasury and FHFA revised the agreement, with the former getting all profits on a quarterly basis. In 2017, Treasury and FHFA agreed to allow Fannie and Freddie to maintain $3 billion in capital, before having to pay the remainder of their profits to Treasury.

As a result of the bailout, Fannie and Freddie continued to back loans and now, along with FHA, they back the vast majority of new home loans. Investors continued to buy the mortgage backed securities from Fannie and Freddie, because they were backed by the government, and the housing market began to recover.

You might say this whole process put all U.S. taxpayers in the positions of vulture investors. The Government “bought low” when no one else would come in, and taxpayers are reaping the rewards, largely in reductions of the amount the government needs to borrow each year. The people who have been the most shortchanged have been private shareholders, who are now holding essentially worthless paper. Surprisingly to me, the retired CEO of the Mortgage Bankers Association is fine with this. He says shareholders and speculators could only make things worse – that the conservatorship is the only thing holding interest rates low (and thus holding the housing market together.)

I have to find it amusing that the Federal Government wants to get our of the mortgage business and can’t, because it’s doing too good a job – and making money. Amusing in a kind of sardonic way. But I probably would have to agree that being in the mortgage loan business is probably not actually a proper government function – not in the sense that infrastructure, say, or public health, or even collecting taxes are. It is a heck of a good argument against privatization, though.

Well, dear ladies, this is not a situation where you can go out and just punish someone. You might work on supporting John Lewis and Ben Cardin on the IRS thing, and, if (pray God) we get our Democratic majorities, there’s a suggestion that Aunt Maxine Waters could be a housing hero next year.

The Furies and I will be back.

Cross posted to Care2 HERE.