Category Archives: Bailouts

President Obama: “I have a plan to pay off the entire national debt. Unfortunately, …”

Wednesday, September 12, 2012

“..unfortunately, it requires electing Mitt Romney President.” Thank you, Mr. President. What irony. Here’s how the plan works.

Yesterday, it was announced that our government has made another $2.7 billion by exercising our option to buy additional AIG stock, and then selling it. The stock market is up. Our total profit to date on the AIG bailout is now $15.1 billion. This is great. ..Or is it?
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The Bass Ackwards Economics of Bailout II

Wednesday, December 9, 2009

Ours is a consumer-driven economy. Everyone knows this, including our government, which is why it keeps extending unemployment benefits. Do everything you can to keep people spending, even while they’re unemployed and looking for work. It is the most, and possibly the only really effective thing the Obama Administration and Congress have done to prevent an already horrendous recession from being even worse.

The same logic should apply to the design of any bailout. If you want to generate jobs in a hurry, give every dollar you (the government) can spend to the people who need it most, whose propensity to spend it is the highest, preferably 100%. What you shouldn’t do is give it to business, large or small, hoping they will use the money to hire more people. That doesn’t work. Particularly during a recession, companies are reluctant to hire people unless they have a proven market for whatever product or service they sell. As for public works projects, they take forever and don’t hire nearly enough, fast enough – directly or indirectly – to lead a recovery. (Funding public works projects in a recession is all about politics, and is not good economic policy.)
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The Obankruptcy of America

Tuesday, July 21, 2009

Our government has a worst-case scenario estimate of the total, long-term cost of federal government support of troubled firms and markets. It’s $23.7 trillion, with a “t.” This is not to say that the economy will need this level of support, but only that we’ve made commitments which could, conceivably, end up costing us this much. (See Politico’s piece by Eamon Javers, July 20, 2009, “Bailouts could cost US $23 trillion”, which will help put this number in perspective.)

Breathtaking, isn’t it? Overstated? Maybe. The Treasury Department says we’ve spent less than $2 trillion so far. Chump change by Obama standards.

In case anyone doubted that we’re in a financial crisis, we are and its name is “President Barack Obama.”

Maybe it’s his naïveté, his almost complete lack of fiscal and administrative management experience. Maybe he’s blinded by the light of a liberalism so profoundly simpleminded, it gives Liberals a bad name. That he has a sincere commitment to making America better, to fixing the multitude of our problems is not an excuse for the mess his level of spending and government interference with the economy will eventually cause.

We elected Barack Obama President of the United States government. He’s been hired, by “We, the People,” to manage our government for us. He is not the President of the Economy, if there were such a position, and he needs to get it out of his head that he can run it, the economy that is.

They say that the greatest mistake any salesman can make, even the very best, is to believe his own hype. “Yes we can!” was a good, very effective campaign slogan, but it’s time for a reality check. The election’s over. It’s time for Barack Obama to stop campaigning and start managing the government.

Whatever the precise causes of his fiscal recklessness, it’s got to stop. Either he comes to his senses and gets it out of his head that “money is no object” government isn’t tenable or, simply put, it’s up to the Republicans and some Democrats in Congress to provide the checks and balances which are their Constitutional responsibility.

If they’re not up to it or need our help, the good news is that there’s another election just 15 months from now.

-wf


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Suggestion: Let’s use tax credits as down payments.

Monday, April 20, 2009

Hello, Obama Administration? Paying attention?

Let’s give consumers a tax credit encouraging them to buy fuel efficient cars, or any new car for that matter, but find a way for them to use those tax credits as their down payments. Maybe by letting us designate the manufacturer to receive the tax credit directly from the IRS?

This trick moves the benefit of the tax credit back to the point of sale where it will have its greatest impact. It enables the customer to put more down on the car, keeping the monthly payments lower and more affordable, leaving more of his or her disposable income leftover for other consumption.

Brilliant, even if I do say so myself. (And if not me, who will?) What do you think?

-wf

Rewarding failure at the expense of success: The Government Bailout of GM, Ford and Chrysler

Tuesday, December 9, 2008

Our government – Democrats more so than Republicans, but just barely – is challenging one of the most fundamental principles of a free-market economy, and of nature for that matter. Capitalism rewards success. Those companies which fail suffer the consequences, hanging on for as long as they can by virtue of their size and momentum, but eventually disappearing or morphing into a new form that is profitable. Our government, having lost faith in the economic system that made us great, is trying to change all that. They are going to fail, thank goodness, having spent hundreds of billions of dollars we don’t have. The economy will recover, in spite of all this flailing around. Only the people will have suffered by the postponement and perversion of the natural process of economic development.

It is a form of reverse Dawinism, isn’t it? I won’t bore you with the innumerable examples in nature which come to instantly to mind. Where would humanity be had the same god that guides our Congress and President-Elect implemented a similar program for less able competitive species back in the day when it would have made a difference?

Not only do we artificially continue these companies, even the management of these firms, which have so clearly proven their ineptitude, by doing so we rob those who have done better or well of the competitive advantage the deserve.

So obviously incompetent are these companies we chose to support, our Congress and President-Elect propose a “Car Czar” to oversee their operations. Is that the proper role of the government of a democratic capitalist state? Forget about political philosophies, wouldn’t it be more efficient to allow the market to effect the changes in the management and corporate culture of GM, Ford and Chrylser?

What irony. Remember how candidate Barack Obama argued that we can’t tolerate 8 more years of the failed economic and international policies of the Bush Administration? Why doesn’t that same logic apply to the current executive management of the Detroit Three? By analogy, instead of electing Mr. Obama, should we have paid President Bush and his Administration to stay in office until they got it right?

We can’t afford to be threatened, to be intimidated by the prospect of significant economic change. Quite to the contrary, it’s long overdue and something we need to embrace. Even if it means that one or more of these icons disappear, Americans’ demand for cars and trucks will be still be here and, in all likelihood, filled by in-country manufacturing.

Instead of propping up GM, Ford (the star performer of the three) and Chrysler, we should let the market determine their fate and focus our resources directly toward reducing the impact of economic adjustments suffered by affected families. Protecting their employers from the inevitability of failure is not a long term solution. It not only misses the point, it delays and corrupts the process of recovery.

Listen to the economy. Let it happen. Its process may be harsh, but it is infinitely more capable of resolving its own problems, all the more quickly and effectively if only our government would get out of its way.


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Separation of Economy and State

“It is not the business of government to own, even on a limited and fleeting basis, our financial or other private sector corporations…”
Thursday, October 9, 2008

I’m an ardent capitalist who understands the occasional usefulness of traditional fiscal and monetary policy to accomplish marginal changes to the economy in an effort to smooth out naturally occurring business cycles. I emphatically do not, however, believe in the nationalization of our country’s financial institutions. It is not the business of government to own, even on a limited and fleeting basis, our financial or other private sector corporations, nor should it attempt to affect the behavior of our financial and other markets through the establishment and support of quasi-public institutions such as Fannie Mae and Freddie Mac.

Forget President Bush, the first zero President in my lifetime. He understands and does nothing. Our current Administration and the Federal Reserve, under the leadership of Secretary Paulson and Chairman Bernanke, have told us that our economy in very deep trouble of a nature and to an extent that requires extraordinary measures to avoid catastrophic consequences from which only they can save us.

For the second time in this Administration’s history – the first being the authorization of the use of military force in Iraq due, in large part, to the threat of non-existent weapons of mass destruction – our Administration has convinced Congress to authorize the use of massive amounts of money to solve a major problem which they have blown way out of proportion. Without question, their rhetoric and sense of panic has contributed to the problem, to a loss in consumer and entrepreneurial confidence, and has allowed us to be played for everything we’re worth, and then some, to the advantage of certain corporate interests. (Unbelievable, but I’m beginning to sound like some nutball talk radio host – and all I really wanted to do is write stuff.)

Their solution – from the same people who allowed and even encouraged the problem – has been hurriedly and ill-conceived. It is not at all clear that other, less expensive solutions might not have been more effective at facilitating the natural recovery process in which the economy was already engaged, and would have been more helpful to reduce the extent and duration of the negative impacts of any downturn on our families and businesses.

Careful, wise regulation of financial institutions is prudent and essential. No doubt about it. No, what I find disturbing is the way in which the Administration has chosen to involve itself in the finances of specific companies such as AIG, for example, Morgan Stanley and Goldman Sachs which they have now allowed to become banks, and others. Paulson and Bernanke are selectively reaching into the economy and using public money we don’t have to affect the fortunes of specific firms. With what impact on their competitors? With what consequences for their markets? Not that our economy doesn’t need help from time to time, but from a government that understands the difference between assistance and control. This is not fiscal policy which focuses on employment and income (personal and corporate) on a broad spectrum basis. This isn’t monetary policy that uses changes in the interest rates to affect the cost and supply of money on a broad spectrum basis. This is something very different.

It is, at the risk of sounding overly dramatic, nothing less insidious than a form of the nationalization of our economy – and I don’t think partisan politics has anything to do with it. Republicans, as a party, certainly don’t believe in this kind of government. Quite to the contrary, Senator McCain is a champion of less government participation in our economy. If anything, it’s more consistent with Democratic thinking given the endless stream of promises Senator Obama has made, the realization of which will involve much more government spending and involvement in our lives. This is a Paulson/Bernanke thing. – with President Bush having lunch on the sidelines.

In today’s headlines, and within the authority granted by the bailout program legislation Congress has just passed, Secretary Paulson is considering taking an ownership interest in certain of our major banks. This is not a good thing. True, it’s something which has happened in Europe, but I don’t live in Europe. This is my country, and I like our brand of capitalism.

I want Paulson and Bernanke out of office. Paulson goes in January with the change in Administration. Bernanke should be replaced as quickly as possible – by Greenspan II, if we can find one. And I want a new Administration which is, from the top down, committed to assisting the economy by using traditional fiscal and monetary policies in a way which allows a well-regulated, but otherwise free market economy to accomplish its own recovery.


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Crying “Wolf!” …again.

Wednesday, October 1, 2008

Have you noticed that the Bush Administration has a propensity for crying “Wolf!”? Remember the non-existent weapons of mass destruction on the basis of which our Congress voted to authorize what turned out to be a war in Iraq? That’s what I’m talking about.

I think it’s happening again, this time in the form of an assertion that our economy is hanging on by a thread, on the edge of oblivion. Other than the Administration and representatives of the banks and other financial institutions that stand to benefit from a bailout, and the reporters that cover the financial sector, what independent confirmation, what detailed information do we have to confirm that there is a crisis and that, even if there is, it has anything to with the subprime mortgage mess?

How much of the stress the economy may be showing is real, or the result of our government telling everyone how bad things are? If our Secretary of the Treasury and President tell us the economy is tanking, couldn’t that have a depressing effect on consumer spending and business investments? Of course it will. Worse, it’s a self-fulfilling prophecy. The more bad news they shout, the more severe their predictions, the worse the impact of those proclamations which those same government leaders then use to justify their warnings.

Our government needs to calm down. Our Congress needs to demand independent proof of the extent of our crisis, and consider alternative solutions. We’ve made this mistake before at the cost of lives that shouldn’t have been lost, and a fortune that could have been spent in so many more productive ways. Rushing to spend our way out of a problem we don’t even understand will be no less costly or more effective at accomplishing objectives we have yet to adequately define.

To paraphrase the old adage … Fool us once, shame on the Bush Administration. Fool us twice, shame on Congress and those of us who failed to raise their hands and say, “No. Not this time.”


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