financial bailout

Bush Bailout Beggars Belief

by Iain Murray on December 19, 2008 · 2 comments

in Bailout Watch, Energy, Mobility

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).

Fed Chairman Uses Incompetent Ratings Firms for Bailout

by Hans Bader on December 18, 2008 · 1 comment

in Bailout Watch, Economy, Legal, Precaution & Risk

“Federal Reserve Chairman Ben S. Bernanke is basing hundreds of billions in emergency lending on credit ratings from companies that gave AAA grades to toxic securities. The Fed has purchased $308.5 billion in commercial paper and lent $631.8 billion” based on appraisals by the bond rating agencies Moody’s, Standard & Poor’s, and Fitch.  So reports Bloomberg News.

Before the financial crisis, we repeatedly warned in vain that these ratings agencies were failing in their job, and that regulations that prevented independent companies from competing with them should be eliminated.  But the Fed continues to rely only on these firms, and shield them from competition, bowing to their special status as the  “major nationally recognized statistical ratings organizations,” rather than relying on independent ratings firms, such as those accountable to investors.

“Policy makers should take the opportunity to spearhead a change in the system by elevating the independents, said Alex Pollock, a resident fellow at the American Enterprise Institute in Washington.  Unlike the top three, they are paid by investors who subscribe to their services, rather than by businesses whose products they rate. That makes them less likely to grade securities favorably, Pollock said.  ‘Why would you limit this to the dominant ratings agencies that helped get us into this situation?‘ he said.”

“It is foolhardy” to rely on the major rating agencies, said Keith Allman, chief executive officer of Enstruct Corp., which trains investors. The major raters issued top marks to $3.2 trillion in subprime mortgage-backed securities at the root of the financial crisis.  “They’re outsourcing the credit assessment to a group of people whose recent performance has been unbelievably bad,” said Allman. “If their goal is to not take a loss on these assets, they should be hiring independent analysts.”

Fed Chairman Ben Bernanke should be removed from office.  He is destroying the value of the dollar and discouraging investment in the U.S. through his reckless printing of money and buying up of risky and worthless securities at taxpayer expense.  He has impoverished savers and punished thrift through his irresponsible interest rate-cuts and giveaways to banks.  He has promoted irresponsible bailouts for deadbeat mortgage borrowers.  And he has ignored statutory limits on Federal Reserve authority through a succession of failed bailouts that are both radical and unauthorized, legally justifying his removal from office.