Category: Public Choice

Sam Bankman-Fried’s Brother Gabe Helped Send Misappropriated Funds to Dems, and Then Got “The Rock Star Treatment” From Biden White House

(p. B1) The group, Guarding Against Pandemics, raised more than $22 million in its first full year in 2021, turning it into an overnight lobbying force in Washington. The group’s founder, Gabe Bankman-Fried, a former legislative assistant, started getting the rock star treatment: two White House meetings with senior staff and invitations to speak on panels with government officials.

But almost all the money raised by Guarding Against Pandemics appears to have come from Gabe Bankman-Fried’s brother, whom federal prosecutors have accused of misappropriating billions of dollars from customers of his crypto exchange, FTX. The collapse of FTX prompted federal authorities to investigate allegations (p. B6) that sweeping fraud drove the exchange into bankruptcy in November [2023], as well as potential campaign finance law violations by both brothers.

Federal prosecutors in Manhattan have charged Sam Bankman-Fried, 31, with orchestrating a scheme to evade limits on corporate political donations. Prosecutors have said he recruited FTX executives and others to serve as proxies for the crypto exchange and make tens of millions of dollars in illegal political donations using customer money.

The authorities are investigating whether Gabe Bankman-Fried, 28, and some of his colleagues were part of the same so-called straw donor scheme, five people familiar with the matter said, speaking on the condition of anonymity. And they are trying to determine whether he knew some of the funds that his organization received had been misappropriated from customers.

Last month, a top FTX executive, Nishad Singh, pleaded guilty to using company money to make millions of dollars in straw donations to Democratic campaigns and committees.

. . .

The Bankman-Fried brothers relied on a small set of political consultants to guide their spending, applying the principles of effective altruism, the philanthropic movement that has a large following in the tech industry. A top adviser to both brothers was Michael Sadowsky, a committed effective altruist who had worked with the younger Mr. Bankman-Fried at the data firm Civis Analytics.

. . .

With a $25 million cash infusion from Sam Bankman-Fried, Mr. Sadowsky’s PAC became an instant force in Democratic politics. His group supported dozens of progressive candidates and got widespread attention when it spent more than $11 million on an unsuccessful House primary candidate in Oregon, an astonishing sum for such a race.

. . .

Two other key figures in the Bankman-Frieds’ political network had ties to prominent Democrats: Jenna Narayanan, a former political adviser to the billionaire investor Tom Steyer, and Sean McElwee, the founder of Data for Progress, a progressive think tank.

For the full story, see:

Matthew Goldstein, David Yaffe-Bellany and Lora Kelley. “Fraternal Turn to FTX Inquiry.” The New York Times (Friday, March 24, 2023): B1 & B6.

(Note: ellipses added.)

(Note: the online version of the story has the same date as the print version, and has the title “The Younger Brother Caught in the Middle of the FTX Investigation.”)

Insurance Companies Leave California Due to Over-Regulation

(p. A13) The recent floods and wildfire season have also have saddled insurance companies with as much as $1.5 billion in losses. Insurance markets could weather these blows, but California’s government-controlled insurance system won’t let them. Thus, insurers are pulling out of the state or reducing their underwriting, leaving many homeowners dependent on the bare-bones insurer of last resort: the state-created (though insurer-funded) Fair Access to Insurance Requirements Plan. As Jerry Theodorou, an R Street Institute insurance expert, observed in the Orange County Register, the number of FAIR Plan policies has increased 240% since 2017.

Car insurers are backing away, too, Mr. Theodorou notes, as losses increased 25% in one year, while premiums rose only 4.5%. That statistic offers insight into the problem. In 1988 California voters approved a ballot measure backed by tort lawyers that turned the insurance commissioner into a rate-setting czar.

. . .

This regulatory environment explains why California insurers can’t charge rates that reflect their actual risks. It also shows why there’s so little competition in the state’s insurance industry. Over the long run, competition keeps rates low. Insurance commissioners can certainly hold premiums down by edict, but the result is a contracting market. Homeowners then have little choice but to buy inadequate policies in a government-run marketplace.

For the full commentary, see:

Steven Greenhut. “Insurance Companies Are Quietly Fleeing California.” The Wall Street Journal (Saturday, March 18, 2023): A13.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date March 17, 2023, and has the same title as the print version.)

Government Contractor UNOS Is 15 Times More Likely to Lose or Damage Transplant Organs as Private Airlines Are to Lose or Damage Luggage

(p. A24) Where Tonya lives in California, the wait for a kidney from a deceased donor is up to 10 years. Tonya, like many on dialysis to treat kidney failure, knows the odds of her surviving the wait are slim; the median survival time for patients on dialysis is five years.

. . .

Everyday Americans are doing their part, signing up to be organ donors, but the organizations in charge of organ recovery (known as organ procurement organizations, or O.P.O.s) have been plagued with inefficiencies and abuses, and the contractor that runs the national system — the United Network for Organ Sharing (UNOS) — has been failing to oversee them.

The organ procurement system is made up of 56 organizations, each with a monopoly in its jurisdiction. When someone dies and can donate an organ, O.P.O.s are supposed to go to the hospital, talk to the person’s family and manage the process of transporting donated organs to those in need, but all too often they have failed to show up — literally.

. . .

Tonya asked the government to hold these organizations accountable, and naïvely, we thought it would be that simple. Our efforts would surely get Tonya a kidney.

She did everything she could to push for change, everything that our government asks of concerned citizens: She wrote an opinion essay; appeared in a government video; wrote letters to members of the Biden administration, including the Centers for Medicare and Medicaid Services (C.M.S.) administrator Chiquita Brooks-LaSure and the head of the Health Resources and Services Administration, Carole Johnson; worked with members of Congress, including Representative Katie Porter; and even testified before the House Oversight Subcommittee on Economic and Consumer Policy in May 2021.

There she told the committee she would die without the federal government’s urgent action. A year and a half later, on Dec. 30, 2022, Tonya died of complications from kidney failure.

. . .

After the video Tonya and I made, in 2020 the Trump administration finalized a rule bringing accountability to the forefront, and the Biden administration has inherited it. This is a good start: The new rule changes the metrics by which O.P.O.s are evaluated and requires that they face decertification for failure to perform. But the rule would not replace a single failing organ contractor until 2026, which is not acceptable.

. . .

To make matters worse, in the Biden administration’s 2023 budget, the C.M.S. requested flexibility to recertify failing O.P.O.s so they can keep their contracts even after 2026. If we allow failing O.P.O.s to keep operating, then we essentially nullify the reform we’ve worked so hard for and ensure further delays and more deaths.

. . .

When the Senate Finance Committee finally began investigating, it found that UNOS has systematically failed to provide oversight. At the committee hearing, doctors and transplant professionals testified that they have been afraid to criticize UNOS publicly, for fear it will retaliate against their patients. Also at the hearing, Senators Elizabeth Warren, Charles Grassley and Rob Portman called out another mind-boggling fact: From 2014 to 2019, UNOS was 15 times as likely to lose or damage an organ in transit as an airline is a passenger’s luggage.

For the full commentary, see:

Kendall Ciesemier. “She Feared the Organ Donation System Would Kill Her. It Did..” The New York Times (Wednesday, February 1, 2023): A24.

(Note: ellipses added.)

(Note: the online version of the commentary has the date Jan. 28, 2023, and has the title “Tonya Ingram Feared the Organ Donation System Would Kill Her. It Did.”)

Regulators Are Bad at Monitoring Unhealthy Banks

(p. A26) Silicon Valley Bank’s failure looks a bit like an S.&L. crisis in miniature. Like its 1980s counterparts, S.V.B. grew extremely rapidly, had many assets parked in fixed, long-term bonds, and was done in when inflation caused the Fed to raise interest rates, raising the cost of keeping deposits.

Like the S.&L.s, Silicon Valley Bank was heavily concentrated. It catered to start-ups for whom an S.V.B. account was a matter of status. One tech savant who had recently changed jobs (aren’t they always switching jobs?) told me that in his experience, roughly two thirds of start-ups banked with S.V.B. (the bank claimed that nearly half the country’s venture capital-backed technology and life science companies were customers).

. . .

The regulators clearly failed to monitor S.V.B.’s unhealthy mismatch of assets and liabilities.

. . .

Once you take risk out of a part of a bank’s operations, it is hard to let market principles govern the rest.

. . .

In past bank failures, uninsured depositors did not lose all — 10 to 15 percent was typical. And in this episode, there wasn’t any systemically bad asset à la mortgages in 2008. Given that the risk was contained, and that the Federal Reserve provides liquidity to banks facing runs (and provided emergency liquidity this week), allowing uninsured depositors of banks that fail to suffer a haircut might have been healthier for the system in the long run.

For the full commentary, see:

Roger Lowenstein. “The Bank Rescues Just Changed Capitalism.” The New York Times (Thursday, March 16, 2023): A26.

(Note: ellipses added.)

(Note: the online version of the commentary has the date March 15, 2023, and has the title “The Silicon Valley Bank Rescue Just Changed Capitalism.”)

Chips Act Requirements “Set a Fraught Precedent for Attaching Policy Strings to Federal Funding”

(p. A1) WASHINGTON — Semiconductor manufacturers seeking a slice of nearly $40 billion in new federal subsidies will need to ensure affordable child care for their workers, limit stock buybacks and share certain excess profits with the government, the Biden administration will announce on Tuesday [Feb. 28, 2023].

The new requirements represent an aggressive attempt by the federal government to bend the behavior of corporate America to accomplish its economic and national security objectives. As the Biden administration makes the nation’s first big foray into industrial policy in decades, officials are also using the opportunity to advance policies championed by liberals that seek to empower workers.

While the moves would advance some of the left-behind portions of the president’s agenda, they could also set a fraught precedent for attaching policy strings to federal funding.

. . .

(p. A16) The requirements will join a growing list of administration efforts to expand the reach of President Biden’s economic policies beyond their primary intent. For instance, administration officials have attached stringent labor standards and “Buy American” provisions to money from a bipartisan infrastructure law.

. . .

Some Republican and Democratic lawmakers have also questioned the wisdom of giving any taxpayer money to the chip industry, which is generally profitable.

For the full story, see:

Jim Tankersley and Ana Swanson. “Funds to Bolster U.S. Chip-Making Come With Catch.” The New York Times (Tuesday, February 28, 2023): A1 & A19.

(Note: ellipses, and bracketed date, added.)

(Note: the online version of the story has the date Feb. 27, 2023, and has the title “Biden’s Semiconductor Plan Flexes the Power of the Federal Government.”)

Billions in Subsidies for Solar and Wind Are Wasted by Delayed Approvals of Connections to a Slow-Growing Grid

(p. A1) Plans to install 3,000 acres of solar panels in Kentucky and Virginia are delayed for years. Wind farms in Minnesota and North Dakota have been abruptly canceled. And programs to encourage Massachusetts and Maine residents to adopt solar power are faltering.

The energy transition poised for takeoff in the United States amid record investment in wind, solar and other low-carbon technologies is facing a serious obstacle: The volume of projects has overwhelmed the nation’s antiquated systems to connect new sources of electricity to homes and businesses.

So many projects are trying to squeeze through the approval process that delays can drag on for years, leaving some developers to throw up their hands and walk away.

More than 8,100 energy projects — the vast majority of them wind, solar and batteries — were waiting for permission to connect to electric grids at the end of 2021, up from 5,600 the year before, jamming the system known as interconnection.

. . .

(p. A15) It now takes roughly four years, on average, for developers to get approval, double the time it took a decade ago.

And when companies finally get their projects reviewed, they often face another hurdle: the local grid is at capacity, and they are required to spend much more than they planned for new transmission lines and other upgrades.

. . .

Electricity production generates roughly one-quarter of the greenhouse gases produced by the United States; cleaning it up is key to President Biden’s plan to fight global warming. The landmark climate bill he signed last year provides $370 billion in subsidies to help make low-carbon energy technologies — like wind, solar, nuclear or batteries — cheaper than fossil fuels.

But the law does little to address many practical barriers to building clean energy projects, such as permitting holdups, local opposition or transmission constraints. Unless those obstacles get resolved, experts say, there’s a risk that billions in federal subsidies won’t translate into the deep emissions cuts envisioned by lawmakers.

. . .

Delays can upend the business models of renewable energy developers. As time ticks by, rising materials costs can erode a project’s viability. Options to buy land expire. Potential customers lose interest.

. . .

When a proposed energy project drops out of the queue, the grid operator often has to redo studies for other pending projects and shift costs to other developers, which can trigger more cancellations and delays.

It also creates perverse incentives, experts said. Some developers will submit multiple proposals for wind and solar farms at different locations without intending to build them all. Instead, they hope that one of their proposals will come after another developer who has to pay for major network upgrades. The rise of this sort of speculative bidding has further jammed up the queue.

“Imagine if we paid for highways this way,” said Rob Gramlich, president of the consulting group Grid Strategies. “If a highway is fully congested, the next car that gets on has to pay for a whole lane expansion. When that driver sees the bill, they drop off. Or, if they do pay for it themselves, everyone else gets to use that infrastructure. It doesn’t make any sense.”

. . .

Massachusetts and Maine offer a warning, said David Gahl, executive director of the Solar and Storage Industries Institute. In both states, lawmakers offered hefty incentives for small-scale solar installations. Investors poured money in, but within months, grid managers were overwhelmed, delaying hundreds of projects.

“There’s a lesson there,” Mr. Gahl said. “You can pass big, ambitious climate laws, but if you don’t pay attention to details like interconnection rules, you can quickly run into trouble.”

For the full story, see:

Brad Plumer. “U.S. Solar Goal Stalled by Wait On Creaky Grid.” The New York Times (Friday, February 24, 2023): A1 & A15.

(Note: ellipses added.)

(Note: the online version of the story was updated Feb. 28, 2023, and has the title “The U.S. Has Billions for Wind and Solar Projects. Good Luck Plugging Them In.”)

Americans “Vote with Their Feet” Against Higher Taxes

(p. A15) The Tax Foundation’s 2021 State Business Tax Climate report ranks California’s state and local taxes as the second highest in the nation, just below New Jersey and above New York. People are fleeing these states.

. . .

I analyzed all 50 states’ net domestic migration levels and compared those levels with each state’s overall tax ranking. The ranking includes a weighing of taxes on corporate profits, individual income, sales, property and unemployment insurance.

The 10 states with the lowest taxes gained an average of 948 per 100,000 total population. For states that ranked 11th through 20th on taxes, the average was 457. For states ranking 21st to 30th, the gain was only 97. Net domestic migration turned negative for states ranking 31st to 40th with a loss of 141. And for the 10 states with the highest taxes, the average loss was 809 per 100,000.

These findings strongly reinforce the popular saying that people vote with their feet. They will leave places with relatively high taxes for those with lower levies. It may surprise Mr. Newsom, but people generally want to keep more of the money they earn.

For the full commentary, see:

James L. Doti. “Californians Aren’t the Only Tax Refugees.” The Wall Street Journal (Thursday, Jan. 12, 2023): A15.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date January 11, 2023, and has the same title as the print version.)

The Tax Foundation’s report mentioned above is:

Walczak, Jared, and Janelle Cammenga. “2021 State Business Tax Climate Index.” Washington, D.C.: Tax Foundation, 2020.

Super PAC Heavily Funded by Associates of Bankrupt and Corrupt FTX, Donated $212,000 to John Fetterman Senate Campaign

(p. A1) In the three years since Mr. Bankman-Fried launched FTX, the company, its executives and its philanthropic arm spent or pledged hundreds of millions of dollars in political and charitable (p. A17) contributions, consulting fees, investments in media outlets and even real estate.

A network of political action committees, nonprofits and consulting firms funded by FTX or its executives worked to court politicians, regulators and others in the policy orbit, with the goal of making Mr. Bankman-Fried the authoritative voice of crypto, while also shaping regulation for the industry and other causes, according to interviews, email exchanges and an encrypted group chat viewed by The New York Times.

. . .

Mr. Bankman-Fried and Ryan Salame, another FTX executive, burst onto the big-money political scene during the 2022 election campaign.

. . .

In early March [2022], representatives for one super PAC, Web3 Forward, were pleased when the campaign of John Fetterman, the Pennsylvania Senate candidate, returned a completed questionnaire expressing support for the cryptocurrency industry, according to people familiar with the situation.

“Need nothing further from Team Fetterman. Thrilled he is pro crypto,” a consultant for Web3 Forward emailed an ally of Mr. Fetterman.

About two months after the email, Web3 Forward began airing an ad casting Mr. Fetterman as a working class champion who was not “gonna get schmoozed by lobbyists.” The super PAC spent nearly $4.7 million boosting Democratic candidates in the midterm elections, mostly in their primary campaigns, including more than $212,000 supporting Mr. Fetterman, who won his race and is set to begin his term Jan. 3 [2023].

. . .

In a statement, Adam Goldberg, a spokesman for Web3 Forward, said that neither Mr. Bankman-Fried, Mr. Salame “nor anyone else at FTX or representing its interests had any role in deciding the candidates we supported.”

But campaign filings show that Web3 Forward received almost all of the roughly $5.9 million it raised in 2021 from GMI PAC, a super PAC for which Mr. Salame was a founding board member. GMI, in turn, received about 32 percent of its nearly $11.6 million from Mr. Salame, Mr. Bankman-Fried and an FTX affiliate.

For the full story, see:

Kenneth P. Vogel, Emily Flitter and David Yaffe-Bellany. “‘It Was Relentless’: Inside a Crypto Exchange’s Bid for Influence.” The New York Times (Wednesday, November 23, 2022): A1 & A17.

(Note: ellipses, and bracketed years, added.)

(Note: the online version of the story has the date Nov. 22, 2022, and has the title “Inside Sam Bankman-Fried’s Quest to Win Friends and Influence People.”)

In “Surprising Reversal” Federal and California “Democratic Leaders” Back Nuclear as “Reliable Power”

(p. B5) California’s last nuclear power plant received a $1.1 billion federal grant on Monday [Nov. 21, 2022] as the state seeks to extend the plant’s operations — currently set to end in 2025 — to meet electricity demand at a time of intensifying climate events.

. . .

The federal and state support from Democratic leaders for Diablo Canyon’s continued electricity production has been a surprising reversal. Senator Dianne Feinstein, who had supported retiring the plant, wrote an opinion essay in The Sacramento Bee this year about why she changed her mind.

On Monday [Nov. 21, 2022], Ms. Feinstein, a Democrat from California, again backed Diablo Canyon’s operations, disputing Mr. Weisman’s argument that the facility is not needed.

“This short-term extension is necessary if California is going to meet its ambitious clean-energy goals while continuing to deliver reliable power,” Ms. Feinstein said. “This is especially critical as California’s electric grid has faced increasing challenges from climate-fueled extreme weather events.”

For the full story, see:

Ivan Penn. “Lifeline for California Nuclear Plant Is a Bridge to Climate Goals, Advocates Say.” The New York Times (Tuesday, November 22, 2022): B5.

(Note: ellipsis, and bracketed dates, added.)

(Note: the online version of the story has the date Nov. 21, 2022, and has the title “U.S. Approves Aid to Extend Life of California Nuclear Plant.”)

FTX Fraudster Bankman-Fried Made $40 Million in Midterm Political Donations Which Mostly “Went to Democrats and Liberal-Leaning Groups”

(p. A1) FTX founder Sam Bankman-Fried oversaw one of the biggest financial frauds in American history, a top federal prosecutor said in charging that the former chief executive stole billions of dollars from the crypto exchange’s customers while misleading investors and lenders.

. . .

(p. A6) Mr. Bankman-Fried is also accused of defrauding the Federal Election Commission starting in 2020 by conspiring with others to make illegal contributions to candidates and political committees in the names of other people.

He and his associates contributed more than $70 million to election campaigns in recent years, The Wall Street Journal previously reported. He personally made $40 million in donations ahead of the 2022 midterm elections, most of which went to Democrats and liberal-leaning groups.

For the full story, see:

Corinne Ramey, James Fanelli, Dave Michaels, Alexander Saeedy and Vicky Ge Huang. “FTX Founder Is Charged With Fraud.” The Wall Street Journal (Saturday, Dec. 14, 2022): A1 & A6.

(Note: ellipsis added.)

(Note: the online version of the story was updated Dec. 13, 2022, and has the title “FTX’s Sam Bankman-Fried Charged With Criminal Fraud, Conspiracy.”)

As of January 2022, Koch Industries Had Invested $1.7 Billion into Renewable-Energy Infrastructure

(p. B10) Norwegian startup Freyr Battery and energy conglomerate Koch Industries Inc. are accelerating their plan to build a multibillion-dollar battery plant that will be among the largest to tap incentives in President Biden’s climate, tax and spending plan, Freyr said.

. . .

Koch has emerged as one of the biggest investors in batteries, a turnabout from its emphasis on fossil fuels. It has said it wants to benefit from the falling cost of renewable-energy technologies and help drive it down further. As of January [2022], it had invested a total of $1.7 billion into electric batteries, energy storage and solar-power infrastructure, according to its website.

The plan is unusual among battery projects in being dedicated primarily to the energy-storage market rather than electric vehicles.

For the full story, see:

Stephen Wilmot. “Koch Teams Up on Battery Plant.” The Wall Street Journal (Saturday, November 12, 2022): B10.

(Note: ellipsis, and bracketed year, added.)

(Note: the online version of the story has the date November 11, 2022, and has the title “Koch Teams With Startup to Build Giant Battery Factory.”)