The Kleptocracy, alive and well

A former Assistant Secretary of Housing blows the
whistle...

In 1997, we did an analysis for a group of
investors in the Philadelphia area. We estimated
that the return on investment to taxpayers on total
federal investment -- subsidies, operations and
financing -- was negative. The majority of federal
taxation and investment was lowering the
Philadelphia share of the GNP. So the problem is
not just that the government spends more than it
taxes. There is an insidious shift from high return
functions to low and negative return functions. The
two dollars that Washington is spending is not
generating four dollars or even the one-dollar that
it is taking out for taxes. That means the local
economy is losing five dollars from the
proposition. Let's look at this in the context of
HUD.

HUD has a program called Hope VI, which is the
construction of new public housing. Here is how the
money works on Hope VI. We tax people who make
$36,000 a year. We then take the money and use it
to build housing that costs $150-250,000 (inclusive
of all overhead, etc) per apartment unit, which we
use to warehouse people who make $10,000 a year or
less in a manner in which they are unlikely to
become taxpayers. This generates a large number of
jobs, profit, and private equity for a group of
lawyers, accountants, developers, consultants and
others who tend to make substantially in excess of
$36,000, say anywhere from $75,000 to $500,000 or
more a year. In the HUD programs, a surprising
number of them went to Harvard, Harvard Business
School, the Harvard Kennedy School, and last but
most special, Harvard Law School. If not Harvard,
someplace more like it than the University of
Tennessee agricultural school.

A few years back I took the pricings on the HUD
defaulted mortgage portfolio to the head of Hope
VI. I explained that HUD had substantial single-
family inventory in those same communities. Empty
single-family homes could be bought and repaired at
a fraction of the price of new construction of
public housing by private developers. The HUD
official said, "but then how would we generate fees
for our friends?" You just have to love a woman who
is that honest.

Full report that covers far more than HUD.