Billions More for Failed Bailouts

by Hans Bader on March 30, 2009 · 3 comments

in Bailout Watch, Economy, Legal, Politics as Usual, Stimulus to Nowhere

Ironically, by getting rid of General Motors CEO Rick Wagoner, the Obama Administration has made it even harder for it to demand the painful changes needed to make the company competitive — meaning that the billions of additional dollars the Administration plans to dump on GM will likely be wasted (the way that England’s attempt to bail out its automakers failed, wasting billions). As Mickey Kaus notes,

“After visibly defenestrating GM CEO Rick Wagoner, and moving to replace the board of directors, won’t Obama now ‘own’ the GM problem? If the company shuts down in the near future, costing tens of thousands of blue collar jobs, it will be under executives implicitly or explicitly chosen by Obama. It will be Obama’s failure, not simply GM’s failure, no? . . . Doesn’t that make it harder, not easier, for the administration to walk away and force the company into bankruptcy? And doesn’t that, in turn, make extracting the necessary concessions (by threatening bankruptcy) more difficult as well?”

Moreover, only bankruptcy — not a bailout — can save the automakers from having to pay billions of dollars in payoffs to redundant, politically-connected, car dealers. Those payoffs are mandated by exploitative state laws that ought to have been preempted long ago.

While getting rid of Wagoner, the Obama Administration has stuck by incompetent Treasury Secretary Tim Geithner, even though Geithner played a key role in the disastrous $170 billion AIG bailout, and previously shaped economic policies that helped destroy the economy of Indonesia, an important oil-producing nation of 200 million people, in the 1990s.

Meanwhile, the Obama Administration has been using AIG to artificially juice up banks’ profits, and indirectly the stock market, in order to give Obama the political capital needed to pass his deficit-exploding budget, which will increase projected deficits by $4.8 trillion to $9.3 trillion, breaking his campaign promise of a “net spending cut” in a big way. (The AIG bailout has also been used to shower money on Goldman Sachs, which does not need the money, and which has given millions to liberal politicians like Obama).

The automakers were bailed out using money from the bank bailout, which was written so broadly that its supporters say it can be used for almost anything. George Will argues that such a standardless law violates the Constitution‘s non-delegation doctrine. We earlier argued the same thing.

AIG employees gave hundreds of thousands of dollars to ethically-challenged Connecticut Senator Chris Dodd, who helped draft the stimulus and bank-bailout bills (and inserted the language that protected their bonuses). That includes $160,000 from employees in the division that later drove AIG into insolvency.

In the Wall Street Journal, scholars debate the principal causes of the mortgage bubble and subsequent financial crisis. Economics professor David Henderson says “the main fed culprits are the beefed up Community Reinvestment Act and the run-amok Fannie Mae and Freddie Mac.” An investment banker cites “mortgage fraud, the Bush administration’s weak-dollar policy and Lehman bankruptcy decisions, and Congress’s reckless housing policies through Fannie Mae and Freddie Mac and the Community Reinvestment Act.” Economists Judy Shelton and Gerald O’Driscoll and law professor Todd Zywicki say that the Fed’s monetary policy was the single biggest factor. Historian Clayton Cramer previously argued that regulations adopted under the Community Reinvestment Act spawned the mortgage crisis.

Congressional leaders blocked Senator Judd Gregg’s modest measure to limit the explosion of the national debt. Meanwhile, House Speaker Nancy Pelosi (D-Cal.) has been busy quarantining harmless library books in the name of child safety.

In other news, PETA, which claims to care about animals, has been busy killing pets.

Kt D March 30, 2009 at 12:03 pm

This situation does seem pretty dangerous. I don't understand how the Obama administration can pay Wagoner off, forcing him to resign, and it has only injected AIG–with its corrupt CEOs, etc.–with more and more money. The GM move seems more than just a risky governmental step into the world of business–it seems like an inconsistent one. I watched an interesting video on all of this at earlier today. The video summarizes different opinions and sources, and it is certainly worth watching if you have the time:

markdownmom March 30, 2009 at 2:03 pm

Disasters. Fights are breaking out over Michigan in response to layoffs spurned by Obama's choice for bankruptcy above all other options:

Dave March 31, 2009 at 5:24 pm

What happens when we realize that the government can't magically make everything better? More importantly, when will the nations around the world decide not to finance this fairytale? I foresee government-made Catrinas popping up in major cities across the nation.

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