Category Archives: Bailouts

Financial regulations, bailouts & broader state of economy

The Kansas City Star believes it’s “time to put the brakes on big business bailouts,” and in this I could not agree with the newspaper more. Much of the piece though, highlighted by Real Clear Politics today, focuses on financial system regulation.

Which makes one ask: If there were less bailouts – by definition, the government keeping failed businesses in business – wouldn’t there be less need for regulation? Letting irresponsible corporations own their fate would seem to naturally be part of a healthy marketplace.

For one, the bad actors in question go away. Additionally, other potential bad actors know the government won’t be there to bail them out if they get themselves into a jam by way of taking out-sized risks or engaging in other foolish behaviors. So they are more likely to avoid such activities.

Anyway, some good thoughts from the Star here. The editorial recognizes that bailouts do not encourage responsible risk-taking. My point is that the government is engaging in two contradictory and mutually defeating activities: attempting to discourage and police bad behavior through more and more regulations, while encouraging reckless risk and rewarding bad behavior by giving bailouts to failed businesses. I suppose that’s what happens when we let politicians try to manage the economy.

Additionally, I would like to see the Star devote the same concern to government debt as it is to corporate debt. Perhaps editorials have run on this subject, but if so they’ve escaped my attention.

Present deficits and the total public debt are at historic levels and represent a serious long term threat to the economic health of the nation. One of the only saving graces (and it’s not really saving us, it’s just softening the pain a little) is that interest rates on the debt are also at relatively low levels. If debt service cost us what it did in previous years, the running interest on today’s bill would amount to even more than the already substantial six percent or so of the federal budget it consumes today. One of the real costs of debt is that the interest paid on it could be used for other things, such as tax relief (my preferred option) or government services (such as education).

For the first time in seventy years – perhaps ever – national debt will eclipse the country’s GDP next year, according to Office of Management and Budget historical tables for fiscal year 2010. Yes, the government has historically run deficits. This statistic, however, indicates the unprecedented current scale of the total national debt situation.

The Star’s notion that a financial “system with less debt and more capital will be better prepared to weather a crisis,” could – and should – be applied even more so to our federal government. Let’s hope more of our public servants begin to realize that it’s time to get our fiscal house in order.

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Filed under Bailouts, Economy

California Dreamin’

As I’m in the Golden State for a few days, I thought it appropriate to post something on the state’s principal political issue, the state budget:  

California Begging, an editorial in the Investors Business Daily:

“The once-great state of California has been reduced to begging from the federal government. But no matter how much help the feds give, the state’s fiscal ills won’t end until its lawmakers stop spending money.”

The paper notes California’s impending $21 billion dollar deficit for the fiscal year – which comes on the heels of last year’s $12.5 billion tax increase and $6 billion in borrowing to pay the bills. This is not to speak of the accounting gimmicks that governments regularly use to balance the books. Gimmicks that can’t hide the truth forever – only obscure it temporarily.

Some other interesting facts from the editorial: California represents 13% of the nation’s population, but is home to one third of the country’s welfare recipients. The jobless rate is more than 12%, higher than the national average. The state ranks 48th in business-tax competitiveness. And businesses and entrepreneuers continue to leave the state, a trend that started several years ago. 

Now, Governor Schwarzenegger wants a bailout from the federal government. As absurd and offensive as the idea may seem, it makes sense from his perspective. There are few political allies to work with in an effort to cut state government spending. You can only raise taxes so much – something California has already been doing.  Why take more political heat attempting to do either one, when Uncle Sam has been bailing out everybody from banks to car companies?

The real problem, as IBD notes, is uncontrolled spending in Sacramento. Democrats have held the state legislature for years, and to a great degree have let government employee unions call the shots on public policy-making. That’s a recipe for disaster – bankruptcy, in this case – and that’s exactly what’s happening in California.

Calfironia Dreamin’ (the fantasy that you can operate according to anti-business, pro-welfare principles and still enjoy the good life) is turning into a nightmare. If anything good can come of this, perhaps it is that the nation at large, and Washington politicians in particular, will see what unfolds and take note of the lessons to be learned.

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Filed under Bailouts, Economy

Obama switched position on bailouts

Less than a year ago while campaigning in Springfield, Missouri Barack Obama claimed to oppose a bailout of the Big 3 automakers.

Chad Livengood of the Springfield News-Leader recorded the interview, which was highlighted by the Missouri Political News Service today. This topic comes up in the last 30 seconds or so of the clip. I’ll note here for the record that Obama didn’t rule out doing things that would assist the auto companies indirectly, such as developing an electric grid for use by plug-in hybrids, but he did reject direct bailouts.

Kudos to Livengood and MOPNS for documenting and reminding us of broken promises.

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Filed under Bailouts, Barack Obama

Here a Tea Party, there a Tea Party

Hundreds of citizens braved icy temperatures in Kansas City, Missouri yesterday to protest the government’s actions to socialize the economy. Objecting in particular to Sen. Claire McCaskill‘s (D-Missouri) vote in favor of President Barack Obama‘s massive spending package, the demonstrators staged a “tea party” in the fashion of early revolutionary patriots.

A number of similar events have been held throughout the state and nation in recent days. One participant was kind enough to email some photos from yesterday’s event:

In Kansas City, Missouri, citizens gathered in opposition to President Barack Obama's efforts to nationalize the economy

Citizens gathered near the J.C. Nichols Fountain to oppose President Obama's efforts to nationalize the economy

Beginning the march to Sen. Claire McCaskill's office

They then marched to Sen. Claire McCaskill's local office

Hundreds marched through snow and ice

Hundreds trekked in frigid conditions

Protestors demonstrated near Sen. McCaskill's office in Westport

Protesters demonstrated near Sen. McCaskill's office in Westport

If you have any more photos you’d like to share, please send them my way and I’ll consider posting them. If you were there (or even if you weren’t), please share any of your personal observations in the comments section!

I can only hope that such efforts will continue. Ace – the individual who sent me the photos – estimated that about 200 people showed up for the event. If that many will show up on the first day of snow in months, then that’s good news for future such events.

The Kansas City Star covered the event here. In the small piece devoted to the event, the newspaper did not publish any photos (unless they ran some in the print edition).

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Filed under Bailouts, Conservative Movement, Missouri Politics, Obama, Statism, Stimulus

Town wants $2 million per person in “stimulus” spending

From U.S. News and World Report, via Drudge tonight, comes this:

Why a Tiny Alabama Town Wants a $375 Million Chunk of the Stimulus

You read that right. In fairness, the town says that its proposed projects would benefit residents in nearby parts of the county. All 80,000 of them.

When you announce that $1 trillion bucks of other people’s money is up for grabs, you’re going to see ridiculous items like this. And this – a bailout for the porn industry. The only question is: which proposal is more obscene?

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Filed under Bailouts, Economy, Stimulus

Missouri, Kansas delegations split on auto bailout

Before President Bush loaned $13.4 billion to GM and Chrysler, Congress voted on a similar bailout package. Passing the House on largely partisan lines, Senate Republicans marshaled forces enough to stop the taxpayer-funded giveaway. With notable cases in bold, here’s how the Kansas and Missouri congressional delegations voted:

Missouri

YES (supported bailout)

Sen. Kit Bond (R)
Sen. Claire McCaskill (D)
Rep. William Lacy Clay (D-1)
Rep. Russ Carnahan (D-2)
Rep. Ike Skelton (D-4)
Rep. Emmanuel Cleaver (D-5)
Rep. JoAnn Emerson (R-8)

NO (opposed bailout)

Rep. Todd Akin (R-3)
Rep. Sam Graves (R-6)
Rep. Roy Blunt (R-7)
Rep. Kenny Hulshof (R-9)

Kansas

YES (supported bailout)

Sen. Sam Brownback (R)
Rep. Nancy Boyda (D-2)
Rep. Dennis Moore (D-3)

NO (opposed bailout)

Sen. Pat Roberts (R)
Rep. Jerry Moran (R-1)
Rep. Todd Tiahrt (R-4)

A word on some of the notable votes:

Bond faces a potentially tight re-elect bid in 2010 and no doubt didn’t want to hand his opponent a jobs and economy issue like this one. Had he opposed the bailout and the state’s auto industry shed jobs, his vote would certainly be used against him in two years. Beyond that, Kit Bond has never been a limited-government conservative, and may simply have believed that bailing out the struggling car makers was the right course of action.

Emerson was one of 32 House Republicans to support the bailout, the only one from Missouri to do so. Her Southeast Missouri district is the state’s poorest and while culturally conservative is probably more economic populist than anything else.Add that to the fact that she is something of a moderate Republican, and her vote is not entirely surprising.

The Kirkwood-Webster Times wrote about Akin‘s opposition and the reaction of disgruntled local union leaders (Hat Tip: John Combest). With a Chrysler plant in his district many politicians might have caved. Akin stood up for taxpayers, common sense and the free market system, and did a good job explaining his vote to the public. Keep up the good work, Congressman.

Brownback is widely expected to run for governor in two years, and certainly had to be thinking about that when he cast his vote. That being said, Brownback is also a man of conscience and I don’t believe his decision-making is strictly political. Judging by this piece in the Dodge City Globe, his comments to constituents regarding his support have been restrained, and he has suggested that union concessions should not be ruled out in any assistance deal. Ultimately, however, the Senator cited Goodyear and GM plants in Topeka and Kansas City, Kansas as being decisive in his support for the bailout.

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Filed under Bailouts, Economy, Missouri Politics

Bush pushes limits on presidential authority

 

When President Bush gave $13.4 billion in loans to failing auto companies on Friday, he was not acting with any specific authority granted him by Congress. By constitutional design, the legislative branch holds the power of the purse, and in this case, Congress had already considered and rejected such assistance in the last several weeks. In an attempt to justify his decision Bush claimed that “Congress failed to act,” but what he really meant was that Congress did not act as he pleased.

Does Bush's bailout violate the Constitution? Article I, Section 9 states "No money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law." Article I, Section 8 declares that Congress - not the President - has the power to tax and spend.

Does Bush's bailout violate the Constitution? Article I, Section 9 states "No money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law." Article I, Section 8 declares that Congress - not the President - has the power to tax and spend.

Acting through the Treasury Department, Bush tapped into funds from the Troubled Asset Relief Program (TARP) to give GM and Chrysler enough cash to extend operations through the end of March. TARP was created by Congress to address problems in the financial markets by purchasing troubled assets from struggling banks and other institutions. By targeting the financial industry legislators hoped to ease the credit crunch impacting the economy as a whole. It was never intended as a corporate welfare slush fund.

Republicans Bush’s usurpation of legislative prerogative has angered conservative activists and many congressional Republicans, who would do well to loudly condemn the president’s actions. Final judgment on Bush’s decision may come when it becomes clear that this loan will either not be repaid or that the companies eventually seek bankruptcy anyway. Whatever happens, we know what already has: a highly questionable use of executive power and an absolute abandonment of free market principles.

Initial accounts of the bailout from some of Principally Political’s preferred business news outlets:

Forbes: A Bailout For Detroit

Investors Business Daily: GM, Chrysler To Get $17.4 Bil In Loans To Sputter Into ’09

Wall Street Journal: U.S. Throws Lifeline to Detroit

US News & World Report: Bush Offers Chrysler, GM $17.4 Billion Bailout – With Strings

Opinion pieces:

George Will: Bush Stretches Executive Powers Again

Heritage Foundation: Bush’s Awful Auto Bailout

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Filed under Bailouts, George W. Bush, Statism