what’s different

I don’t like federal interference in private industry.  Have I made that clear enough yet?  That means I would have been opposed to former Treasury Secretary Paulson, acting (I assume) on the orders of President Bush,  putting heavy pressure on the head of AIG to step down after AIG received one of their many sacks of bailout cash.  But somehow it doesn’t register quite the same way with me as President Obama forcing the GM CEO to resign.  Maybe I didn’t pay as much attention to AIG’s internal employee shuffling as I have been to what’s going on with the auto industry.  It’s just that the failure of AIG, while terribly detrimental to the economy (and many 401ks) in the short term, wouldn’t have nearly the impact of GM or another one of the Big Three closing up shop.  The Big Three are American institutions, and it would be harder to imagine an America without them than without one of the many insurance companies we have in this country.  Sentimentality aside, if we continue to interfere with the free market the way former President Bush has done with his bailouts,  and  the way President Obama continues to do with his multi-million dollar taxpayer gifts to various entities,  the economy will not improve.

Neither President had (or has) the expertise to make personnel decisions at insurance companies (Bush) or to make the right choice for the next GM CEO(Obama).  Thank goodness President Obama says he has no intention to run GM, and that he will draw the line at forcing their CEO to step down.  GM and Chrysler owners can also be thankful that their warranties are now guaranteed by the United States Government.   What a slippery slope it is for companies who take their fair share from the federal money tree — now the feds pretend to have the right to exercise direct control over these companies.   It’s a painful lesson to learn — next time the feds come with the offer of cash — the correct answer is: Just Say No.

I rarely link to Wonkette, due to the fact that it’s not exactly (hardly ever, in fact) family-friendly, but this quote is priceless:

Hmm, so this auto bailout problem, is it a good thing or a bad thing? Good, because the government should continue to withhold money from GM and Chrysler until they get their acts together. Bad, because GM and Chrysler cannot get their acts together without money, plus the demise of the manufacturing sector etc. President Obama assures us, however, that no matter what happens “we will not let our auto industry simply vanish.” This is liberal socialist code for “we will raise taxes on the wealthy and give everyone a free Geo Metro.” [Washington Post]

Awesome.   But see, Wonkette’s got it all wrong.  President Obama will give us all free bicycles, since he doesn’t want us using more fossil fuels, even in a tiny car like the Metro.   Just can’t wait for all my free stuff that my taxes are paying for…

ringing endorsements

First, we have EU President and the Czech prime minister, Mirek Topolanek, and his comments about the stimulus:

From the New York Times (which has sounded rather sensible on fiscal issues lately)-

The European Union’s crisis of leadership during the economic downturn was thrown into sharp relief on Wednesday, as the current president of the 27-nation bloc labeled President Obama’s emergency stimulus package “a way to hell” that will “undermine the stability of the global financial market.”

But perhaps this guy is an outlier, and all the other Europeans are on board with this new massive spending — that takes the bad precedent set by the Bush administration and explodes the deficit by an outrageous amount.  Or maybe not.

More from the Times:

Mr. Topolanek is not alone in his concern that Mr. Obama’s stimulus package, which will push the United States budget deficit this year to 10 percent or more of gross domestic product, will put a huge strain on global financial markets. German officials have also criticized the evolving American program, and many other European nations have declined to create fiscal stimulus programs anywhere near as large as that of the United States, arguing that too much extra money will lead quickly to inflation.

If even some of the European countries – some former Communist countries, some not — believe that this stimulus is a bad idea, and that more state interference in the economy is an undesirable thing, maybe we should rethink President Obama’s grand plan.
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the department of slow learners

NONE OF THESE BAILOUTS ARE WORKING!!!! So what does this clown want to do? That’s right. He wants to throw more money at the problem we aren’t fixing (in addition to the 50 zillion other bailouts we as taxpayers have already funded, and the bonuses paid to other companies as well as AIG). No second stimulus. We must draw the line somewhere. This guy is worried that AIG’s behavior may jeopardize support for a second stimulus. If Liddy and his government-appointed pals at AIG can wake up the American people to the giant mistakes we are making with all these bailouts, they don’t deserve a public flogging. They deserve to be left alone for performing this public service to the American people. Unfortunately, some drones will remain happily unaware of what’s going on in this country. Fast forward to about 1:43 into the video clip.

what a joke

You know all this fab populist outrage at AIG’s behavior from our President, Senator Schumer, Senator Dodd,  Senator Grassley, and Barney Frank? Well, Congress knew about these bonuses before now. WAY before now.  If any of these guys supported any of the bailouts, but especially the AIG bailouts,  with no strings attached, then they are also partly to blame for the current problems we have.  So spare me all this moral outrage.  They are also to blame because the requirement that these contractual obligations must be paid is in the stimulus bill, thanks to Senator Dodd.

From Politico:

AIG disclosed its retention-bonus program more than a year ago, including bonuses directed to those handling the exotic derivatives that got the company and the country into this mess.

The bonuses were essentially a nonissue when AIG got its initial bailout money, almost $150 billion under President Bush in the two months surrounding the presidential election. Joe Biden, then the vice presidential nominee, came out strongly against the bailout. Obama did not.

Timothy Geithner, then at the New York branch of the Federal Reserve, was a huge proponent and architect of the AIG bailout. So if Obama had strong private opposition to the idea it did not affect his pick for the person who would oversee all bailouts.

They knew — and even knowing about AIG’s plans to award these bonuses, there were no serious attempts by Congress to hold these bailout recipients accountable to the taxpayers for the money they have spent.  It’s a fair bet that at this point Congress has relatively no clue where the money ended up, and they still want to take even more money to sink into a plan THAT IS FAILING to achieve its objectives. Stop the madness.

From the Washington Post:

The payment plan had been no secret.

Beginning in the first quarter of 2008, AIG disclosed the plan to offer retention awards at Financial Products. The unit had already begun to hemorrhage money, a problem that would later grow exponentially. The unit’s executives, fearing they might lose valuable employees in the tumultuous months to come, successfully negotiated more than $400 million for their workers, to be paid this month and again next year.

At the Federal Reserve Bank of New York, which has directly overseen AIG since its federal takeover in September, officials have studied the possibility of rescinding or delaying the bonuses. They even brought in outside lawyers for advice. The conclusion: If the bonuses weren’t paid, the AIG staffers would be able to sue the company and probably would win, not just what they were owed but also punitive damages that would make the ultimate cost perhaps two to three times as high as the bonuses themselves.

Moreover, Fed officials also hope to keep current employees with the company. The senior executives whose decisions caused the company’s collapse are long gone. Most of those left behind are trying to unwind complicated derivative contracts. Completing that process correctly is essential to preserving as much value as possible for taxpayers, officials at both the government and AIG have argued. If it is mishandled, it could expose taxpayers to billions of dollars in additional losses.

This argument makes sense, but AIG paying out these bonuses is still more than a little tone-deaf in the current economic climate.  No one is going to bail out the average American who pays his or her bills on time every month.  Our government will continue to reward the irresponsible and there’s nothing we can do about it.

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.

kill the pig, rescue the taxpayer

Those who are still pushing this absolutely-must-have-right-now-or-the-world-will-explode “emergency rescue plan” aren’t all that concerned with sticking to the $700 billion price tag.  Is it too much to ask from this Congress that we have a straight up-and-down vote on whether we should bail out private industry?  Why yes it is.   They just couldn’t resist adding pork to a bill that they believe will eventually pass.

Here are some of the “incentives“:

  • Sec. 105. Energy credit for geothermal heat pump systems.
  • Sec. 111. Expansion and modification of advanced coal project investment credit.
  • Sec. 113. Temporary increase in coal excise tax; funding of Black Lung Disability Trust Fund.
  • Sec. 115. Tax credit for carbon dioxide sequestration.
  • Sec. 205. Credit for new qualified plug-in electric drive motor vehicles.
  • Sec. 405. Increase and extension of Oil Spill Liability Trust Fund tax.
  • Sec. 309. Extension of economic development credit for American Samoa.
  • Sec. 317. Seven-year cost recovery period for motorsports racing track facility.
  • Sec. 501. $8,500 income threshold used to calculate refundable portion of child tax credit.
  • Sec. 503 Exemption from excise tax for certain wooden arrows designed for use by children.

Wooden arrows?  Cost recovery for a motorsports racing track facility?  All hail to our bipartisan overlords.  We might very well get stuck with the bill for all this, and this is a very high price to pay for opening the eyes of many Americans to the failure of both parties to get our fiscal house in order.

more on the “rescue plan”

One day after the House Republicans, with the help of a significant number of Democrats, stopped this disaster of a federal bailout, the world hasn’t collapsed.  The Dow rebounded a little today after its terrible day yesterday.  I still think those who voted against this bill did the right thing.  I am, however, unsympathetic to the Republicans complaining about Pelosi’s partisan speech, and making that a reason to oppose the bailout.  The bailout should be opposed on its lack of merit, and its expansion of government welfare to those who acted irresponsibly.  Republicans haven’t been making this case, and that’s why Democrats could still win the PR war.

Some of my fellow conservatives are trying to tell us the sky is falling and that we must pass Bush’s plan NOW.  Not so fast.  A federal takeover of this kind must be carefully studied and discussed, and alternatives must be presented.  Any acceptable plan must attempt to correct past errors as well as to hold those responsible for this mess accountable for their actions.  We aren’t there yet.

To the Democrats still willing to support their Speaker, I would ask them: Doesn’t it concern you that the Bush administration wants to expand the reach of the federal government to take over a large section of our economy?  I thought you all were against more power for the federal government under George Bush.  Why all of a sudden do you believe the Bush administration and Secretary Paulson when they insist that the only way to save the economy is through a federal takeover?  If this bill passes in its current form, then Democrats will share the blame with our President when it fails to achieve its objectives.  Hope you all are ok with that.  Looks like a no-win to me.

There are a few economists who are opposed to this bailout, and I would take their opinions over those of some of the know-nothings in Congress.

Here’s part of what one of them, Jeffrey Miron (day job- Harvard), had to say:

So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.

The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.

Read the whole thing.

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.

just say no

Senator DeMint gives the Paulson bailout plan a very emphatic thumbs down.

From his Senate website:

After reviewing the Administration’s proposed bailout plan, I believe it is completely unacceptable. This plan does nothing to address the misguided government policies that created this mess and it could make matters much worse by socializing an entire sector of the U.S. economy. This plan fails to oversee or regulate the government failures that led to this crisis. Instead it greatly increases the role for Secretary Paulson whose market predictions have been consistently wrong in the last year, and provides corporate welfare for investment firms on Wall Street that don’t want to disclose their assets and sell them to private investors for market rates. Most Americans are paying their bills on time and investing responsibly and should not be forced to pay for the reckless actions of some on Wall Street, especially when no one can guarantee this will solve our current problems.

This plan will not only cause our nation to fall off the debt cliff, it could send the value of the dollar into a free-fall as investors around the world question our ability to repay our debts. It’s also very likely that this plan will extend the cycle of bailouts, encouraging other companies to behave in reckless ways that create the need for even more bailouts, triggering an endless run on our treasury. This plan may make things look better for Wall Street in the next couple months, but the long-term consequences to our economy could be disastrous.

There are much better ways of dealing with this problem than forcing American taxpayers to pay for every asset some investor doesn’t want anymore. We should start by reforming government policies and programs that created this mess, including the Federal Reserve’s easy money policy, the congressional charters of Fannie Mae and Freddie Mac, and the Community Reinvestment Act. Then Congress should pass a number of permanent and proven pro-growth reforms to encourage capital formation and boost asset values. We need to make permanent reductions in the corporate tax and the capital gains tax rates. We have the second highest corporate tax rate in the world, which encourages companies to take jobs and investment overseas.

It’s a sad fact, but Americans can no longer trust the economic information they are getting from this Administration. The Administration said the bailout of Bear Stearns would stop the bleeding and solve the problem, but they were wrong. They said $150 billion in new government spending using rebate checks would solve the problem, but they were wrong again. They said new authority to bailout Fannie Mae and Freddie Mac would solve the problem without being used, but they were wrong again. Now they want us to trust them to spend nearly a trillion dollars on more government bailouts. It’s completely irresponsible and I cannot support it.

My Senator has the right idea here. This $700 billion bailout doesn’t provide any accountability or address any of the problems that got our economy where it is today.  It will, as others have said, give Secretary Paulson a virtual blank check without any promise of results.  It is irresponsible, and the Bush administration should go back to the drawing board, knowing that many Republicans will not support this.  If John McCain has any maverick tendencies left after he finishes ripping greedy people and Wall Street fat cats –neither of which have primary responsibility for the mortgage mess we find ourselves in– he should seriously consider showing up and voting against this bailout.  Republicans will follow McCain in opposing this, but he needs to take the lead in fighting for the taxpayers.