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So far, the Congress and the Federal Reserve have bailed out:
- Bear Stearns
- Fannie Mae
- Freddie Mac
- AIG (multiple times)
- Bank of America
- The States (see: Gov. Mark Sanford, R-SC; Gov. Bobby Jindal, R-LA; et al.)
- Everybody and their dad
Now, the discussion has come to newspapers and the US Postal Service. Pretty soon, we’ll be asking who hasn’t had a bailout. Rather than letting bad businesses fail, we’d rather throw cash at them and hope that their business models and/or practices magically transform into profitable ones. This is otherwise known as “wishful thinking.”
In Obamaspeak, however, “wishful thinking” is the same thing as “investment.” Much like his “tax cuts” which were actually naked income redistribution, these “investments” are actually just cash given to enterprises in which no individual in their right mind would invest. Generally speaking, we used to call this “corporate welfare.”
So while we’re at it, I have a few suggestions for industries that need bailouts (excuse me, “investments”), all of which have seen massive losses in the past few years and are in danger of collapse:
- 8-track tape makers
- Betamax production lines
- Telegraph operators
- Typewriter factories
- Analog TV companies
- Horse-drawn carriage drivers
Or, we could just save ourselves a lot of money and let the market work like it’s supposed to. What are your suggested industries for bailout?
Last week, taxpayers found out that of the $173 billion we have generously bailed out AIG with, around $165 million was used to pay “retention bonuses.” If my math is correct, that comes out to a little less than one tenth of one percent of the total sum of AIG’s bailout.
This one tenth of one percent has been expressly singled out by the House of Representatives as waste that should be subject to a 90% tax. In passing the tax, the House nicely glossed over the fact that these retention bonuses are a contractual obligation of AIG and that Congress, seemingly at Senator Dodd’s insistence, explicitly condoned these payments in the terms of the bailout.
Those pesky facts aside, there is a constitutional hurdle that the House’s 90% tax will have to jump over—the infrequently used bill of attainder clause. Before the Senate takes up this tax for consideration, I’d like to propose another bill of attainder, since they seem to be all the rage today. If Congress can demand that the taxpayers “recoup” the money that has been “wasted” on AIG’s employee bonuses, can’t the taxpayers demand to recoup the money that Congress has wasted?
Consider the $410 billion omnibus bill that President Obama signed earlier this month. Within that bill were 9,500 earmarks containing between $5.5 and 7.7 billion in pork. Even giving Congress the benefit of the doubt, that comes out to at least 1.34% of our money being wasted, ten times more money wasted on a percentage basis (and 33 times more on a dollar basis) than the AIG bonuses. While a 90% tax on AIG’s bonuses would recoup around $150 million for the taxpayers (from other taxpayers, of course—got to spread that wealth), recouping 90% of Congress’s waste in the Omnibus Bill alone would save just under $5 billion! So please, call your senators and ask that if they’re so interested in saving taxpayer dollars all of a sudden, would they mind going about it the constitutionally acceptable way?
So the Congress is feigning outrage at AIG bonuses, despite the fact that they now own the company. So what’re they covering, what’s more outrageous than the bonuses? How about campaign contributions with bailout money?
While a few big firms, such as Wells Fargo and JP Morgan Chase, have curtailed their campaign giving, others are quietly doling out cash to select members of Congress, particularly those who serve on committees that oversee TARP. In recent filings with the Federal Election Commission, the political action committee for Bank of America (which got $15 billion in bailout money) sent out $24,500 in the first two months of 2009, including $1,500 to House Majority Leader Steny Hoyer and another $15,000 to members of the House and Senate banking panels. Citigroup ($25 billion) dished out $29,620, including $2,500 to House GOP Whip Eric Cantor, who also got $10,000 from UBS which, while not a TARP recipient, got $5 billion in bailout funds as an AIG “counterparty.” “This certainly appears to be a case of TARP funds being recycled into campaign contributions,” says Brett Kappell, a D.C. lawyer who tracks donations. (A spokesman for Cantor did not respond to requests for comment. A spokeswoman for Hoyer said it’s his “policy to accept legal contributions.”)
Have you heard? AIG is using some of its government funds to pay contractual bonuses out. What an unspeakable outrage right? I too am pretty upset with the idea that government money is going to pay the bonuses of employees in a private [edit: public] company, but isn’t it laughable that the same government who insists we rescue AIG because of its “vital importance” to the economy is now enraged by the way they run their business? The problem is irreconcilable conflicts of interest between the employees who can freely work for the company with the best incentives, the corporation that wants to maintain a competitive advantage, the government who wants to control the operational affairs of private enterprise, and the tax payers who don’t want to pay a single penny to save uncompetitive corporations, no matter how “vital.”
Because of these diametrically opposite interests, the government’s plan is beginning to experience stress. Corporations like AIG are frustrated with the bureaucratic impositions on their ability to manage their business (e.g., Chrysler wanting to acquire Fiat). Government involvement requires companies to virtually zero out their risk, meaning less innovation, investment, and a less competitive environment. If you need an example, see Amtrak. The obvious differences between how the government and corporations run their business demonstrates the friction that is occurring between the two. Sure, AIG and GM and the rest may survive extinction, but they will not be any more competitive. Are we better off having used trillions in borrowed money to save them, or should we have let the market do our bidding instead? I bet you know my answer already.
Now, we hear how outraged the President is over AIG’s move to pay these bonuses. Well, if you give whiskey to an alcoholic, what exactly do you expect? The result is completely predictable.
There are public questions over whether Treasury Secretary Geithner knew about AIG’s plans, and if he didn’t, then why not. Is it becoming clear that Geithner is overwhelmed? That’s a subject for a future post. What’s important now is to point out that rescuing failed businesses isn’t healthy for the economy; it isn’t noble, responsible, or even reasonable. This will only become more clear as things play out.
This is particularly timely, considering AIG:
“If you have been voting for politicians who promise to give you goodies at someone else’s expense, then you have no right to complain when they take your money and give it to someone else, including themselves.”
“A recession is when your neighbor loses his job. A depression is when you lose yours. And a recovery is when Jimmy Carter loses his.”
– Ronald Reagan
Might we be saying something similar in 2012?
From the Reuters/Forbes article this week:
Amid simmering outrage over $165 million in bonuses paid to executives at ailing AIG, Representative Barney Frank said on Monday it may be time to fire some people at the insurance giant.
‘These people may have a right to their bonuses but they don’t have a right to their jobs forever,’ Frank, a Massachusetts Democrat who heads the House Financial Services Committee, said on NBC’s ‘Today’ program.
From the CNBC article:
In an interview with CNBC, Representative Barney Frank says he wants to push for prosecution of the people who caused the country’s financial meltdown.
The Massachusetts Democrat says he has no specific targets in mind, but says the most significant thing lawmakers can do is make past bad practices illegal.
I have some suggestions for Mr. Frank:
And of course, the always-excellent Michael Ramirez adds his editorial flare:
On Fox News Sunday, Austan Goolsbee, chief economist for the President’s Economic Recovery Advisory Board, answered some questions from Mike Wallace. Goolsbee, a decorated orator with several international championships under his belt as a competitive extemporaneous speaker, proved adept at answering questions by saying nothing at all.
Though Goolsbee is a Sloan Fellow, Fulbright Scholar, and has received a Ph.D. in Economics from MIT, he seems to also be educated in purposeful avoidance of important questions. During the interview, Goolsbee struggles with the administrations apparent inability to control unemployment numbers, or the actions of private corporations, despite the promise of endless billions from the Obama administration.
Below are segments of the transcript from Goolsbee’s rope-a-dope. I think you will find Austan Goolsbee says a lot without saying much at all.
WALLACE: The president is also set to announce billions of dollars in federal aid to open up lending to small businesses. What do you hope to accomplish?
GOOLSBEE: The — the market for credit to small businesses is completely frozen in an already terrible credit crisis. […] And so we’re trying to reignite through direct intervention the small business credit market so that they can — so that they can expand.
WALLACE: Last month you gave a magazine interview in which you said that we should see signs the stimulus plan is working within six months, and one of the key indicators, you said […] is if unemployment rises to the 8 percent range rather than the 11 percent that some are predicting.
What’s your revised estimate now that it’s already 8.1 percent for unemployment this year?
GOOLSBEE: I agree we’ve gotten some bad news on the labor market front, so that the — trying to keep the unemployment rate in the 8 percent range — we’re already in the 8 percent range.
I still think it is vital that by the end of the year that we try as hard as we can, through whatever means that we have — and the president has tried to do so — to keep the unemployment rate from getting into the multiple double-digit range that people were forecasting before that policy.
WALLACE: So you’re talking under 10 percent [unemployment].
GOOLSBEE: Ten, 11 percent people were forecasting — what would happen without any policy intervention. Now, we have passed […] the biggest financial rescue package that we have seen in decades, the largest stimulus probably in the history of the country, the biggest home foreclosure prevention and mortgage assistance program since the Depression.
Those three actions together are really very dramatic. They have just — the first checks from the stimulus haven’t even gone out, so I think that it’s, in my view, premature to be talking about what else is going to be necessary until we see how those things have worked.
WALLACE: How much will the government have to spend in guarantees against losses to get those private investors to buy these toxic assets? Geithner, at a hearing talked about another trillion dollars. In the president’s budget, he has a placeholder of $750 billion.
Are we talking about a program in the 7, $8 trillion dollar range?
GOOLSBEE: I’m not going to speculate on that number, because we haven’t done the bank — we have not completed the bank examinations that allow us to answer that question.
WALLACE: But does this mean another, in effect, TARP III, another big relief program?
GOOLSBEE: I’m not going to speculate on that. We have to do the bank examination to answer that question.
WALLACE: Finally, I want to get into a little bit of the Obama budget with you — $3.6 trillion, which calls for major tax increases on the wealthy.
And I want to read you something from the president’s budget. “While middle-class families have been playing by the rules, living up to their responsibilities as neighbors and citizens, those at the commanding heights of our economy have not.”
Mr. Goolsbee, it’s a blanket statement from the administration. People who make money have not played by the rules?
GOOLSBEE: I think you’re stretching a little bit the blanket statement.
WALLACE: Why make that a moral argument, something wrong?
GOOLSBEE: Well, you’re — you’re taking a line from the introduction that sets the stage for the discussion, which is we need to go back to an issue of balance. So in the ’90s we had a more balanced view. We’ve gotten out of balance.
People at the commanding heights of the economy with incomes over $250,000 a year have been receiving trillions of dollars of tax cuts…
Esteemed liberal economics blogger Megan McArdle discusses her new doubts about Obama:
Having defended Obama’s candidacy largely on his economic team, I’m having serious buyer’s remorse. Geithner, who is rapidly starting to look like the weakest link, is rattling around by himself in Treasury. Meanwhile, the administration is clearly prioritized a stimulus package that will not work without fixing the banks over, um, fixing the banking system. Unlike most fiscal conservatives, I’m not mad at him for trying to increase the size of the government; that’s, after all, what he got elected promising to do. But he also promised to be non-partisan and accountable, and the size and composition stimulus package looks like just one more attempt to ram through his ideological agenda without much scrutiny, with the heaviest focus on programs that will be especially hard to cut.
Isn’t there anyone at BLS who could have filled him in on the unemployment figures, or at Treasury who could have explained what a disproportionate impact finance salaries have on tax revenue? These numbers . . . well, I can’t really fully describe them on a family blog. But he has now raced passed Bush in the Delusional Budget Math olympics.
Can’t say you weren’t warned, McArdle.
HT: James Taranto
Disagreements between the European Union and the US over how to combat the global recession widened on Tuesday as EU governments made clear they had little appetite for piling up more debt to fight the collapse in output and jobs.
I submit that when it comes to deficit spending, you’ve gone too far when the Europeans think you’re going off the deep end.