i’m with the populists (sort of)

Let me preface my opposition to the AIG bonuses by acknowledging a few arguments made by my friends on the right. The government bailouts were not the correct response to our financial woes. The most basic economic and domestic lesson we can learn is that throwing money at a problem doesn’t automatically fix it. That’s what happened with the previous money we spent on banks, automakers, and insurance companies with virtually no accountability measures to keep track of how the money is being spent. Even after spending government money to bail out a particular company like AIG, the feds shouldn’t have the authority to tell a business how to distribute those payments or how to run that company. They don’t have the expertise or knowledge necessary to make wise choices about these things, so we should let the industries that we bailed out with taxpayer money decide how that money should be spent. I’ll get back to this argument.

My fellow capitalists and I agree that no private company should be too big to fail. This is something the Bush administration, and now the Obama administration, refuses to admit. The federal government keeps sinking money into private industry, and it interferes with the free market’s ability to pick winners and losers, as it has always done throughout our history. All of a sudden we are concerned about “rewarding incompetence” when discussing companies like AIG giving their employees bonuses. The federal government always has rewarded incompetence in the public sector — the free market generally deals with incompetence in the private sector. Look at all of the miserable losers in our Congress. They fail to do the people’s business, and there’s limited accountability for them. Occasionally they are voted out, but before that happens, they manage to vote themselves pay raises and largesse from the government’s “endless” pot of money. I think that in the years they underperform, they should give some of their salary back to the feds. That’s a pipe dream, to be sure. But wouldn’t it be nice?

I remain very sympathetic to the argument that the feds have no business attempting to run / control private industry or to tell people how much money they can make in a free society. However, by taking all this money from the federal government, AIG has opened itself up to the government interference that is now happening between their execs and the Obama administration. If they didn’t want the feds checking up on them, AIG shouldn’t have taken the bailout. It’s their own fault this is happening to them. It may be true that they are contractually obligated to pay out those bonuses, but as taxpayers who are now paying AIG’s bills, we are not obligated to be sympathetic to AIG. Contract bonuses are one thing, but there is absolutely no reason why the taxpayers should feel happy about supporting fancy vacations for AIG execs. AIG has squandered any goodwill it ever had, and regardless of their contractual obligations to their employees, they completely deserve the bad press for their overall attitude since becoming a ward of the federal government.

more reservations

There’s now a possibility that our Congress may pass a slightly modified version of Bush’s socialist bailout.  I guess we should be grateful that the House Republicans were allowed some input in the current draft, because it could be much worse than it is.  However, it’s not clear that the House Republicans got enough of what they wanted in this bill.  Mike Pence is still opposed to it, which prompts serious doubt in my mind that this is the best compromise we can come up with to “save” the economy.  Minority Leader Boehner calls this plan a “crap sandwich” but still plans to vote for it.  What awesome leadership by our minority leader.   Really inspires confidence in the folks we put in charge of the Washington Republicans.

Freedom Works has also weighed in with their opposition to the current bailout legislation (h/t: Michelle Malkin).  Here’s what they had to say:

Ten Reasons to Oppose the Wall Street Bailout

1. NO REFORM: The plan attempts to mask, rather than reform, imbalances in credit markets and in U.S. economic public policy. The plan props up reckless and failed banks by buying “troubled assets” instead of focusing on real reforms that go after government sponsored culprits Fannie Mae and Freddie Mac, and sustainable policies that will increase the availability of private capital and expanded economic growth.

2. TREASURY POWER GRAB: The plan raises Constitutional concerns by dramatically expanding the power of the current and future Treasury Secretaries, giving the government agency power to directly purchase assets from for-profit financial and non-financial firms.

3. STUNNING PRICE TAG: The $700 billion bailout figure is as much money as the combined annual budgets of the Departments of Defense, Education and Health and Human Services. It amounts to $2,300 for every man, woman, and child in America.

4. INCREASES NATIONAL DEBT: Instead of cutting spending elsewhere, Congress will borrow all $700 billion on global capital markets, and the bill raises the national debt ceiling to a staggering $11.3 trillion.

5. GLOBAL BAILOUT: The plan includes taxpayer purchases of distressed assets from foreign banks.

6. HURTS RESPONSIBLE AMERICAN BANKS: The plan punishes responsible U.S. banks by keeping reckless, insolvent investment banks in business. As BB&T CEO John Allison wrote in a letter to Congress on Sept. 23rd, “….this is primarily a bailout of poorly run financial institutions…. Corrections are not all bad. The market correction process eliminates irrational competitors.”

7. FLAWED PROCESS: Members of Congress and the public will have less than 24 hours and no hearings to discuss and understand the impact of this sweeping plan. This rush to pass a wildly unpopular plan without benefit of significant public debate and input will also undermine its legitimacy and effectiveness.

8. BY WALL STREET, FOR WALL STREET: Treasury Secretary Paulson, the architect of the plan, was formerly the head of Goldman Sachs, one of the firms responsible for the mess and a direct beneficiary of the bailout. Further, the advisers managing the bailout auctions and assets will be Wall Street firms and will likely receive billions of tax dollars in fees.

9. OTHER OPTIONS NOT EXHAUSTED: The idea that taxpayers will make money on the bailout is not credible. There are ready buyers for these “troubled assets” — Merrill Lynch sold its entire portfolio of mortgage backed securities in July– provided the price is low enough. If a profit was possible, private speculators would readily buy these troubled assets.

10. MORALLY OFFENSIVE: The plan violates basic principles of American capitalism and honest governance by creating a system of “private profits, socialized losses” that transfers money from taxpayers directly to Wall Street investment banks. Free market capitalism only functions if individuals and firms are held accountable and are allowed to both succeed and profit, and also to sustain losses and even fail.

I echo these sentiments.  This current bailout bill (pdf here) isn’t good enough.  Go back to the drawing board and fix some of these flaws before the vote if we absolutely must have a government intervention of this type.  I’m not convinced that we need something this massive.  We can do better than this, and we must.   Like the Freedom Works quote says, “Free market capitalism only functions if individuals and firms are held accountable and are allowed to both succeed and profit, and also to sustain losses and fail.”   The solutions we are seeing from this Congress don’t solve the problem and could add trillions to the national debt.  There’s nothing fiscally conservative about that.

If we don’t come up with a more responsible solution to our economic problems, then President Bush becomes the new FDR.  Well-intentioned socialism is still socialism.  In the beginning, our president seemed to be supportive of free markets and capitalism, as well as those popular tax cuts, but we didn’t elect him because we thought he had a strong fiscally conservative record.  It was because of national security and judges.  That doesn’t keep me from being disappointed that he feels he needs to support something like this.  While I realize that many of the root causes of this current crisis lie with our friends on the other side of the aisle, a large chunk of the blame for the current mismanagement of it should be with Paulson and the Bush administration.

I’m not sure if there is anything we can do to stop the worst from happening if Minority Leader Boehner has already caved and is trying to convince others to go along with the Democrats on this bailout plan.  I just hope that when this process is over, there will have been enough Republicans with the guts to say —  if this is what we must do,  let’s get this right before voting on it.