In 2008, Obama promised a “net spending cut” (although he never did come up with cuts to offset his proposed spending increases). Obama broke this campaign promise in a big way with his proposed budget, which could bankrupt the United States, according to senior Senators.
Obama’s budget would increase spending levels so much that budget deficits would rise by $4.8 trillion to $9.3 trillion while taxes would increase by $1.9 trillion, according to the Congressional Budget Office.
Yet Obama’s campaign workers have apparently learned nothing from this. Across the country, they are now volunteering their time to lobby fellow citizens to support his budget. “It’s the change we all voted on,” said Althea Thomas of Evanston, Illinois. Well, it’s not the “change” that was sold to me by my Uncle Ernie, a California campaign worker for Obama. He didn’t say anything about trillions more in debt, and tried to get me to vote for Obama based on George Bush’s costly war in Iraq.
Obama has broken at least ten campaign promises, including seven promises in signing the economy-shrinking $800 billion stimulus package, and one promise in signing the Lilly Ledbetter law and the SCHIP tax increase.
After it covertly inserted language into the stimulus package to protect millions of dollars in bonuses at AIG, a major liberal donor, the Administration later switched course and sought to curry favor with an outraged public by praising the House for passing a 90 percent bonus tax, a tax broadened to cover not just AIG but also employees at other, healthy TARP banks. On March 22, the New York Times reported that the Administration wants to impose vague compensation limits on all banks and financial institutions, whether or not they receive any taxpayer money at all, and perhaps all public companies as well. To avoid stringent application of those limits, companies’ executives would have an incentive to curry favor with their federal masters, by making campaign contributions to Obama and his liberal Congressional allies (the way AIG did). Meanwhile, the Administration is now backtracking on its earlier praise for the legislation that would tax the AIG bonuses.
Obama claimed the $800 billion stimulus package was needed to avert “disaster” and “irreversible decline.” But the Congressional Budget Office, controlled by his own Congressional allies, admitted that the stimulus package will shrink the economy over the long run, in reports and studies released before and after the bill’s passage.
In other news, Obama nominated a former fundraiser for the left-wing group ACORN to serve as a judge on the Chicago-based Seventh Circuit Court of Appeals. ACORN, a beneficiary of the stimulus package, helped spawn the mortgage crisis by promoting “liar loans.” It has also engaged in extensive financial fraud and vote fraud. The Obama Administration has chosen ACORN to help conduct the 2010 census, which will be used to reallocate seats in Congress.
Welcome to Episode 33 of the LibertyWeek podcast, with your hosts Richard Morrison and Cord Blomquist and technical producer (and this week’s special guest) Ryan Young. After bidding our friend Thor Halvorssen a very happy birthday, we get a fresh recap from Ryan Young on the events of the Free State Project’s recent Liberty Forum in Nashua, New Hampshire (photos). Google’s CEO spurns Twitter (transcript via TechCrunch) in Technology News, John McCain and Richard Shelby say that the government should end the bailouts and let poorly-managed banks go bankrupt, and brewers pin their hopes on robust St. Patrick’s Day sales in this week’s edition of Beer News. Next, we go abroad for Scandal Watch where the Chinese government is cracking down on sub-optimal milk quality and finally back home to America for Olympic News, where the head of the U.S. Olympic Committee is calling it quits.
The honor of Tweet of the Week™ goes to dan_hayes of Reason.tv!
Perhaps with the popular reaction to Rick Santelli’s ‘tea party’, in which the CNBC commentator elicited cheers for saying that the thrifty should not have to subsdize foolish borrowers and banks, President Obama took pains in his State of the Union address to argue that his foreclosure plan will not benefit the spendthrift and irresponsible. “It’s a plan that won’t help speculators or that neighbor down the street who bought a house he could never hope to afford, but it will help millions of Americans who are struggling with declining home values,” the President claimed.
Whether it will or it won’t, we’ll see when the full plan is unveiled next week. Regardless, in Obama’s foreclosure rescues there are two overlapping groups that would fall into the category of, in the title of Amity Shlaes’ great economic tome, the “forgotten man.” : they are taxpayers and savers who not only will be at risk for more than $275 billion in tax dollars for the plan (in additon to the trillions for the Obama’s stimulus and the Bush-Paulson-Obama-Geithner bailouts) but will also be at risk for further losses in their pension and mutual funds from the proposed bankruptcy “cramdown” by Obama and Democrats that would radically change contract law regarding mortgage securities.
Because they were rated AAA, mortgage-backed securities sold by the banks were picked up in some degree by nearly all pensions and mutual funds. The losses on loans that politicians were asking, and under Obama’s plan paying, banks to take, are most often not even the banks’ own losses. It’s investors, including middle-class folks with 401(k)s who will take it on the chin.
Yet the bankruptcy “cramdown” –in which bankruptcy judges can reduce payments and modify mortgage contracts in lieu of the foreclosure that both parties agreed to as a remedy for default — as well as policies encouraging banks to ignore their contracts to the investors who own the mortgages will prevent investors from having their contracts honored. Right now, there is a vicious villification campaign targeted at William Frey, an investor in mortgage-backed securities who is suing Countrywide Financial for modifying mortgages without regard to investor interest.
If both borrowers and banks are encouraged to disregard the terms of the contracts they signed, the U.S. will face a longer road to recovery. And the trust badly needed for credit markets to function will not be restored, despite President Obama’s good motiviations and uplifiting speeches.
If there’s one provision in the GM/Chrysler bailout that I just don’t get, it’s the suggestion that the automakers must be financially viable by March 31st next year or they will have to repay the loans.
Unless I’m missing something, if you’re not financially viable, repaying $17.4 billion will be just a tad difficult. This will presumably force those automakers into Chapter 11, which is what the bailout was meant to avoid, at least partly to avoid the “ripple effect” that the much more responsible Ford is worried about. In these market conditions, it is hard to see any way that the companies can meet that condition without engaging in some sort of fire sale (which will in turn have ripple effects).
It therefore looks like, rather than some pre-packaged bankruptcy, the Bush administration has handed its successor a pre-packaged crisis. On April Fools’ Day, of all days, President Obama will be forced to extend the loans, provide more funds or otherwise cave to GM/Chrysler/UAW demands.
However you look at it, this is not responsible government. This bailout beggars belief.
(A further post will provide details of what sort of non-financial bailout could help).
Eli, in answer to the blog post you phrased as a question, the argument from the individual you heard, echoed by other Big 3 execs, is not a valid point in support of a bailout.
Their claim that consumers won’t buy from an automaker in bankruptcy is a specious argument. Yes, some won’t, but many consumers also are not going to buy cars from companies perceived to be so weak that they have to beg for a bailout from the government. A company’s clutching to a government lifeline to keep from going bankrupt wouldn’t be that much different for many car buyers than an actual bankruptcy.
This is particularly true if the government forces the companies, as a condition of the bailout, to make “environmentally correct” cars that no one really wants. A company emerging from a Chapter 11 bankruptcy, by contrast, has a chance to win consumers back by making products that they want.
I also addressed your argument that “If the manufacturer no longer exists, then the car parts might not” in a previous Open Market entry (that was cited in a brilliant Washington Times editorial on Thursday). That entry noted the thriving reproduction parts industries for DeLoreans and Studebakers, both made by automakers long defunct (DeLorean went bankrupt in the ’80s and Studebaker folded up shop in the ’60s). The fact of these industries’ existence cuts in favor of consumers in a Big 3 bankruptcy. Given that there would be millions more Big 3 cars on the road than DeLoreans and Studebakers, entrepreneurial firms would rush to acquire the intellectual property rights that a bankruptcy court could easily award so that new parts could be made for consumers. Warranty claims could also be given priority by the bankruptcy court, as the Times editorial noted, and those are usually backed up by the insurance company of the warranty issuer, anyway.
It looks like to tide the companies over, Congress is going to vote this week to let them use money already appropriated for “green cars” for general operating purposes. From a free-market perspective, this action is neutral and may even be a net positive, as it reduces the promotion of a state-directed “green agenda.”
But when Congress comes back next year, bankruptcy must be on the table for both big automakers and big banks, as it is for small businesses every day. Otherwise, the economy may never get out of “Reverse.”
Unfettered greed is the suspect many point at to explain the current economic crisis. To some extent, they are right, but it isn’t irrational greed on the part of bank managers or fat cat CEOs. It is the unwieldy bank regulations that forced the entire industry to walk the proverbial plank and then blame it for drowning.
Critics have alternately claimed that over-regulation and under-regulation are the causes for the current crisis. I believe one specific regulation, the Community Reinvestment Act (CRA), should shoulder a lot of the blame for creating an environment where a lending institution’s short-term survival hinged on it making the decisions that in the long-term would likely cause its demise.
As I noted in my paper The Community Reinvestment Act’s Harmful Legacy, one of the effects of the CRA was the creation of a weapon that has been effectively utilized to extort money from lenders. When lending institutions wish to open a new branch, expand, or merge, they must apply for permission from one of the four governing bodies (Federal Reserve, Office of Comptroller of the Currency, Federal Deposit Insurance Corporation, and Office of Thrift Supervision). Their request can be postponed or outright denied if any community group files a CRA protest. Lending institutions can of course fight these protests, but CRA investigations can take months and cost large sums of money.
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The House of Representatives just voted down the $700 billion corporate finance bailout, despite earlier urging from President Bush to push the measure through. Look for in depth analysis from our very own John Berlau and the rest of the policy team as the day progresses. Read CEI’s roundup of the continuing finance crisis (and sign up for email updates) here.
NEW: John Berlau responds (and speaks!) in reaction to today’s vote. Updated post and audio clip here.
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