Federal Government won’t let go…

Today The Washington Times ran an editorial that points out the government’s unwillingness to relinguish their control on banks that were forced to take tarp funds, by refusing to allow the banks to repay the money.

Editorial: The roach motel

Government bailout funds are the roach motel for financial institutions – they check in, but they can’t check out.

Banks that were forced to take bailout money are running into political obstacles that prevent them from repaying it. The White House is unwilling to give up the additional control over the banks – the ability to make operational decisions, fire executives and dictate pay scales – that the bailout funds allow. All this has happened as the Congressional Budget Office has raised the estimated cost of the Troubled Asset Relief Program to taxpayers by almost $200 billion to a total bill of $356 billion.

In many cases, this government dependency is not the fault of the banks because many were being run responsibly. According to Fox News judicial analyst and New Jersey Superior Court Judge Andrew P. Napolitano, banks with no financial problems were forced to sell stock to the government or face the threat of costly and harassing public audits. This happened to banks that had “no bad debt, no credit default swaps, no liquidity problems, and no subprime loans” and didn’t want or need any government funds. Judge Napolitano called the government actions what they are: “classic extortion.”

On March 27, in a meeting at the White House, President Obama claimed a little rough stuff is necessary because his administration “is the only thing between [the bankers] and the pitchforks,” Politico reported. In other words, if the president hadn’t quasi-nationalized the banks, mobs would be stringing up financiers from lampposts. Bankers had gone to the president to make their case that regulations on salaries would prevent them from retaining and hiring the best workers. In the meeting, one bank chief executive officer (who has remained anonymous) attempted to explain the obvious: “These are complicated companies. We’re competing for talent on an international market.” Mr. Obama told the bankers to get over it and then made his quip about pitchforks.

The president, however, bears much of the responsibility for bringing out the pitchforks. He has argued that only muscular government regulations can rein in “an ethic of greed, corner cutting, insider dealing, things that have always threatened the long-term stability of our economic system.” He repeatedly has blamed corporate executives for the lion’s share of what is wrong with the country. Mr. Obama has never allowed that government regulations either forced or encouraged banks to make risky loans and that regulations thus had a major role in causing this crisis.

Massive problems were created by the government’s policy – however well-meaning – to increase homeownership among those who couldn’t afford property. The Federal Reserve threatened banks with fines and other penalties if they didn’t give loans to borrowers without down payments or incomes. Freddie Mac and Fannie Mae were blameworthy for encouraging risky loans through subsidies and mislabeling risky loans they securitized. Yet Mr. Obama prefers to see it as all stemming from the greed of men in pinstripes.

With Mr. Obama’s focus on regulating financial-institution salaries, it is ironic that his top economic adviser, Lawrence H. Summers, was paid $5.2 million last year in compensation from one of those dreaded hedge funds, D.E. Shaw Group. He received this impressive sum for working only one day a week. Mr. Summers also was paid hundreds of thousands of dollars in speaking fees from financial institutions that are accepting bailout funds, including such firms as Citigroup Inc. and Goldman Sachs Group Inc. Overall, he received $2.7 million in speaking fees.

The president doesn’t seem to be bothered that Mr. Summers got large payments from the very financial institutions that Mr. Obama now castigates for salaries that supposedly are too large. Neither does there seem to be any concern about a conflict of interest even though Mr. Summers was making this money last year while simultaneously advising Mr. Obama on economic policy. Surely buying access to Mr. Summers could have been seen as a way of getting access to Mr. Obama. This doesn’t say much for Mr. Obama’s vaunted ethical standards.

The catalog of sins being compiled during this financial crisis would make a Third World plutocrat blush. The relationship between government and business is increasingly incestuous; bureaucrats with little or no private-sector experience are running banks and other companies; former industry executives-cum-government-officials are making decisions affecting their recent employers; ethics rules that apply to the private sector are irrelevant to the president’s advisers; and a blind eye is turned toward government extortion. All this has an awful resemblance to the way banana republics are run.

An “Outrageous” Double Standard

By Howie Rich, Chairman of Americans for Limited Government.

Outrage seems to be the “coin of the realm” in Washington D..C. these days – as long as it’s focused on the (former) private sector and not the government agencies and politicians overtaking it.

Politicians who, it should be noted, are every bit as culpable in creating our current economic mess.

The rules don’t apply to these “leaders,” though, even though they’ve been availing themselves of taxpayer-funded bonuses a lot longer than the Wall Street firms have.

An “Outrageous” Double Standard

Control Freaks

This is a great editorial from Inverstors Business Daily

Reform: Treasury Secretary Tim Geithner’s proposed sweeping reform of our nation’s financial system puts the nation’s banks, insurers and hedge funds under direct government control — where they least need to be.

Geithner said Thursday that President Obama’s administration needs to impose “not modest repairs at the margin, but new rules of the game” for America’s banks, finance companies, insurers and hedge funds.

The only problem is, the old rules of the game were set by the very people in Congress who will set the new ones. This means the new rules likely won’t be much of an improvement — if any.

The irony of this, of course, was pointed out by political scientist Michael Barone, who notes the bank bailout plan unveiled by Geithner earlier this week actually relies heavily on mostly unregulated companies to bail out regulated ones.

Now, Geithner wants control of even those unregulated companies, though they’re guilty of nothing other than being successful.

Recall how the first President Bush was ridiculed for seeking a “new world order”? Well, what the Treasury now proposes constitutes nothing less than a “new economic order,” one that will take away much of the autonomy of our extraordinarily successful free-market economy and smother it with new rules.

Nor is this the only power grab by government of late. President Obama, for example, wants to force what he calls a “major restructuring” on troubled U.S. carmakers GM and Chrysler, pushing them ultimately to make green-friendly cars central to their businesses — no matter what consumers might want.

Meanwhile, the Federal Reserve wants sweeping new powers to regulate, punish and oversee the financial industry, and to intervene if it thinks it needs to. And of course, in the middle of all this sits Congress itself, which will write the new laws and regulations.

Yet, with all these plans to exert ever more control over the economy, few people are asking the appropriate question: Do those in government have the knowledge and ability to run our economy?

The answer, put bluntly, is no. This could be seen in Postmaster General John Potter’s trip to Congress Wednesday, begging for more money for the ailing postal service. “We are facing losses of historic proportion,” he said. “Our situation is critical.”

This from the head of a government-run company that has a virtual monopoly in its business — the delivery of first-class mail — and still can’t make a profit. Losses last year totaled $2.8 billion.

Two other major government enterprises — Fannie Mae and Freddie Mac — were largely responsible for the mess we’re in now. Managed mostly by former Democratic politicians, they too had a virtual monopoly, holding $5.4 trillion of the total $12 trillion in U.S. mortgages, and still went bust.

Such managerial acumen hardly inspires confidence. Who’s going to make the decisions, anyway? Some Treasury functionary? President Obama, whose private-sector experience is virtually nil? How about his top aide, Rahm Emanuel, who served a stint on Freddie’s board during its period of greatest excess?

Economist Friedrich Hayek noted in his 1945 classic “The Use of Knowledge in Society” how ill-equipped governments are to collect, organize and act upon the millions and millions of market signals sent each day by private markets.

The result, inevitably, is economic chaos, confusion, misallocation of resources and enormous waste — as in the old USSR.

Hayek’s insights, which eventually won him a Nobel Prize, are as relevant today as then. Letting bureaucrats and politicians direct our economy isn’t the end to our troubles. It’s only the beginning.

Government Band Aids

Do you remember the book: Men Are From Mars, Women Are From Venus? Women generally talk about a problem and seek empathy from others. Men want to solve a problem before they even know what it is.

Superimpose that on the high time preference of politicians and you get a bunch of career, male politicians “solving” today’s economic problems.

Debt implosion, aka de-leveraging, has a major negative effect on the economy. It’s obviously the opposite of new equity investments with new debt which tends to create jobs and build the economy.

There’s something like $10 to 15 trillion of debt which has to implode. There’s been tremendous malinvestment caused by two government creations: Fannie Mae and Freddie Mac. Lowering interest rates to one percent after the dotcom debacle didn’t help either.

2008: Year of the Bailout

By Howie Rich

We don’t name calendar years in America like they do in China, but if we did, it wouldn’t be hard to find a moniker for 2008.

It was “The Year of the Bailout.”

A.I.G, Bear Stearns, Chrysler, Citigroup, Fannie Mae, Freddie Mac, Morgan Stanley, Indy Mac and GM are just a few examples of taxpayer-funded benevolence this year, as our government veered wildly (and expensively) toward nationalization and rule-by-decree in attempting to resolve a crisis largely of its own making.

And while there is some confusion as to the current price tag of this growing “Bailout Mania,” we know that over the past sixteen weeks the U.S. government has poured nearly $10 trillion dollars into “correcting” the market.

You heard that right – $10 trillion dollars.

Think about that number for a moment, because it’s a lot larger than the $700 billion financial services bailout George Bush signed on October 3, which effectively marked the end of capitalism as we know it in this country.

That so-called “Emergency Economic Stabilization” is the bailout most Americans are familiar with, including the $17.8 billion chunk of it that was awarded to Detroit automakers.

But what about the rest of the money?

What about the $2 trillion in FDIC assurances, $1.75 trillion in Federal Reserve commercial paper purchases, $900 billion in term auction facility lending, $600 billion to insure money market funds, $600 billion to cover Fannie and Freddie’s worthless mortgage-backed securities, $550 billion for discount Federal Reserve loans, $500 billion to insure FDIC deposits, $300 billion for FHA mortgage relief, $250 billion for Citigroup debt, $225 billion for securities loan facility lending, $200 billion for Fannie and Freddie’s debt, $112 billion for A.I.G., and on down the line.

Add all those numbers up and you’re dealing with more than twice the inflation-adjusted cost of rebuilding post-World War II Germany, the Louisiana Purchase, NASA’s entire budget (since its inception), the S&L bailouts, Roosevelt’s New Deal, the Korean War, the Vietnam War, the Gulf War, and the Iraq War – combined.

Again, that’s inflation adjusted – and all of it spent or pledged by our government within the last sixteen weeks.

2009 could bring additional bailouts, as well, with President-elect Barack Obama proposing another $800 billion plan this week and a number of states announcing that they will seek $1 trillion from the federal government to bail them out of bad spending decisions.

The dimensions of this bailout culture are truly staggering, but other than trillions in “troubled assets,” what exactly have ‘We the Taxpayers’ purchased?

For starters, a lot of debt. With only a fraction of the total bailout tab on the books, our national debt has already soared to more than $10.7 trillion dollars.

That’s an astounding 72.5% of our gross domestic product (GDP).

Eight years ago, the debt was $5.6 trillion, or 58% of our GDP.

Throughout this crisis, we were told by leaders of both parties that government had to “do something” or else we would face an “economic Pearl Harbor.”

I would argue that with wealth disappearing, unemployment skyrocketing, productivity vanishing and consumers burying their money, the “economic Pearl Harbor” is upon is – and that the trillions in bailout funds did nothing to slow its fury.

In a recent article published in the Wall Street Journal, former American Express CEO Harvey Golub proposes a different solution.

“We must get back to our historic reliance on personal responsibility and market forces, and get government out of economic management,” Golub wrote. “It doesn’t do a good job, as the current economic mess amply proves.”

I couldn’t agree more.

Let’s not continue down the same road this year. Let’s make 2009 the “Year of Fiscal Responsibility.”