nationalization

Democrats Block Reform of Corrupt Mortgage Giants; Fannie Mae and Freddie Mac Will Receive Billions More in Bailouts for Government-Sponsored Enterprises

by Hans Bader on May 12, 2010 · 1 comment

in Bailout Watch, Economy, Employment, Legal, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Zeitgeist

In a party-line, 56-to-43 vote yesterday, Senate Democrats blocked any reform of Fannie Mae and Freddie Mac, the corrupt, government-backed mortgage giants that even administration officials admit were at the “core” of “what went wrong” in the financial crisis.

President Obama received $125,000 in contributions from Fannie Mae and Freddie Mac executives as a senator, second only to the corrupt Senator Chris Dodd, who is retiring this year over financial improprieties (such as his real estate gift from a lobbyist and “sweetheart mortgage from Countrywide Financial“), yet is the chief drafter of the financial “reform” legislation expected to pass the Senate by next week.

The financial “reform” bill would devastate the venture capital markets needed to create jobs and small businesses, by imposing onerous restrictions on so-called “angel financing.”  It would also give government officials the ability to nationalize businesses that they claim are at risk of failing–and block meaningful judicial review of such seizures by shareholders alleging violations of their constitutional rights.  (That will increase the ability of presidents to shake down businesses for donations to their political allies, since a business in danger of being seized by the government will try to curry favor with government officials.)  The bill’s House architect, Barney Frank, boasts that it will create “death panels” for American companies (this is the same Barney Frank who for years blocked any reform of Fannie and Freddie).

Mortgage giant Fannie Mae is seeking another $8.4 billion in federal bailout money, after the Obama administration earlier lifted a $400 billion limit on bailouts for Fannie Mae and Freddie Mac, two mortgage giants known as the Government-Sponsored Enterprises (GSEs).   Last week, the other GSE, Freddie Mac, asked for $10.6 billion more in bailouts. The Obama administration is certain to approve the new bailout request: “Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Freddie and Fannie,” reports the New York Times.

Obama’s so-called financial “reform” proposal does nothing to reform Fannie Mae and Freddie Mac, admits Obama’s Treasury secretary, Timothy Geithner, who concedes they were “a core part of what went wrong in our system.” (At the direction of the Obama administration, Freddie Mac is now running up $30 billion in losses to bail out mortgage borrowers, some of whom have high incomes.  Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public.)  By contrast, the Republican alternative “aims to wind down, and break up” Freddie Mac and “limit taxpayer exposure” to its losses.

“American taxpayers are paying for $6.8 billion of the Greek bailout” through contributions to an international bailout fund backed by the Obama administration.   Greece is being bailed out by Europe and the international community because it is running up huge budget deficits due to a bloated bureaucracy and government pensions that let many Greeks retire in their 50s. “The Obama administration wants to use U.S. tax dollars to bail out a nation that is in a financial death spiral brought on by years of amazingly irresponsible deficit spending and similar behaviors often found in socialist states.”

Rioters in Greece killed three bank employees last week in their rage over possible budget cuts.  “The protesting civil servant workers trapped the bank employees in a burning building.”

The Obama administration earlier lifted the $400 billion limit on bailouts for Fannie Mae and Freddie Mac, so that they could continue to buy up junky mortgages at taxpayer expense, and showered their executives with $42 million in compensation.

Fannie and Freddie helped spawn the mortgage crisis by acting as loan toilets, buying up risky mortgages and thus creating an artificial market for junk.  “From the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime.”  They paid their CEOs millions, and engaged in massive accounting fraud — $6.3 billion at Fannie Mae alone — to increase the size of their managers’ bonuses.  As Government-Sponsored Enterprises, they were exempt from the capital requirements that apply to private banks, so they did not have enough reserves to cover their losses when their mortgages started defaulting.

Banking expert Peter Wallison, who warned for years about the risky practices of Fannie and Freddie, says Obama’s proposals will lead to “bailouts forever.”  Obama claims that it will not lead to more bailouts.  But as Congressman Brad Sherman (D-Calif.) admitted, the “bill has unlimited executive bailout authority. . .The bill contains permanent, unlimited bailout authority.”

Government pressure on banks to make loans in economically-depressed neighborhoods was a major cause of the mortgage crisis.  If Obama has his way, that pressure will increase.  The House earlier approved Obama’s proposal to create a politically-correct entity called the Consumer Financial Protection Agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.”  It would do so without regard for banks’ financial safety and soundness, even though the Community Reinvestment Act was a key contributor to the financial crisis.

America’s Worst Idea?

by Iain Murray on July 16, 2009 · 2 comments

in Culture, Environment, Private Conservation, Zeitgeist

I’m very sorry to see that Ken Burns’ new film series is to be entitled The National Parks: America’s Best Idea. As I detail extensively in my book The Really Inconvenient Truths, the nationalization of so much wonderful scenery has led to appalling mismanagement and environmental degradation.  When the Parks Service and Forest Service spent hours in 1988 debating whether or not a fire counted as “natural” because it started from a lighning bolt striking a telegraph pole, large areas of Yellowstone National Park burned to ashes.  Another park service biologist, Don Despain, saw the flames raging towards his research area and urged them on with the words, “Burn, baby, burn.”  These are the tales I can’t imagine you’ll see in Burns undoubtedly beautiful film, but they’re as much a part of the National Park story as the scenery.

For more detailed critique of the National Parks idea, see work by RJ Smith, such as this testimony, where he says:

For decades we have known about the deplorable fact that the National Park Service was far more interested in following a path of ever more land acquisition, and that caring for the lands they had was at best an afterthought. The administration of President Ronald Reagan and Interior Secretary James Watt attempted, mainly unsuccessfully, to stop additional land acquisition until the government could demonstrate that it could be a good steward of the lands it already owned.

Despite their beauty, the National Parks have not been an unalloyed good.  For the very reason that they explicitly reject private stewardship, they may even count as one of America’s worst ideas.

Obama Panders to the UAW: $30 Billion More for Wasteful Auto Bailout

by Hans Bader on June 2, 2009

in Bailout Watch, Economy, Employment, Energy, Global Warming, International, Politics as Usual, Stimulus to Nowhere, Trade

The federal government is giving another $30 billion in taxpayer money to General Motors to allow it to operate without having to cut excessive union wages. The Obama Administration is “gambling” on its ability to turn around the company under government control.

The Obama Administration has said it will now interfere not just with the “selection of the company’s board of directors,” but also in “fundamental corporate decisions,” and “major corporate events and transactions.” For example, Obama recently pressured GM to keep its headquarters in crime-ridden, economically-collapsing Detroit.

The $30 billion is excessive even if the Administration’s wildest hopes come true. Even if federal money were the only way to keep GM afloat (which it isn’t — GM could be made competitive simply by cutting its excessively high employee wages to lower levels that still exceed average American wages), and even if the bailout saved not only GM jobs but also the jobs of “related suppliers and dealers,” “the price of the U.S. government bailout comes to about $125,000 per employee, including those working for related suppliers and dealers,” according to the Washington Post.

If GM had rejected a federal bailout and takeover, and simply filed for bankruptcy in December, it would be recovering on its own right now, since it could have used bankruptcy proceedings to tear up the collective bargaining agreements with the United Auto Workers that saddle it with excessive wage and benefits and rigid work rules, and it would also be benefiting from the recent collapse of oil prices. It was record-high gas prices that forced consumers to buy smaller cars last year, battering GM’s finances, which were based around selling big cars. But gas prices have fallen from over $4 a gallon last year to $2.50 now. So the bailout is saving no jobs, it’s just allowing GM to keep union wages high at taxpayer expense, while keeping it from becoming competitive in the long run. (The recent drop in gas prices will also mask the effects of incompetent management of GM by the Obama Administration. On the other hand, the Administration’s CAFE and global warming regulations, which GM opposed before it was taken over by the Administration, will destroy tens of thousands of autoworker jobs).

The bailout is neither necessary nor likely to be successful in the long run. In its failed auto bailout in the 1970s, Britain did the same things that Obama is doing, like propping up high union wages and promoting the production of little “green” cars consumers may not want. Its bailout failed miserably, destroying the British auto industry’s chance of survival.

“‘Countries . . . protect ailing auto companies on the theory that they need to protect jobs,’ said Maryann N. Keller, an independent auto analyst. ‘But it’s not clear that protecting companies leads to the revival of those companies.’ As for the jobs, Keller said ‘a lot of that is bunk’ because Americans would buy the same number of cars no matter who the maker is. ‘Somebody would still make the parts,’ she said. ‘They would just be made for a different customer.’”

Why is the Obama Administration doing something so wasteful? Politics. The UAW is one of the biggest sources of money and manpower for the Democratic Party and Obama, and the UAW is now calling the shots. (The UAW spent millions electing Obama).

While taxpayers have spent tens of billions of dollars bailing out the Detroit automakers, the UAW has made little in the way of sacrifices, refusing to accept cuts in pay that could keep the automakers able to compete with lower-cost competitors. As even the liberal Washington Post lamented, “the union can boast that it has been promised no loss in ‘base hourly pay, no reduction in . . . health care, and no reduction in pensions,’” even though excessive union wages and benefits helped sink the company. Meanwhile, the government has ripped off pension funds and bondholders who loaned the car companies money.

The bailouts aren’t the only outrageous waste of taxpayer money taking place right now. Even bigger is the wasteful $800 billion stimulus package, which is harming the economy, both by triggering foolish trade wars that have backfired and cost at least 40,000 jobs, and by driving up interest rates for businesses that need to borrow money to expand or create jobs. (The government is keeping down interest rates on its own debt by printing vast sums of money to buy its own bonds, in order to finance the exploding national debt, which will result in massively higher taxes).

LibertyWeek 42: Hugo Chávez, Robber Baron

by Richard Morrison on May 12, 2009 · 1 comment

in CEI Projects, Podcast

Richard Morrison and Cord Blomquist bring back special guest co-host Jeremy Lott to create the work of art known as Episode 42. We start with the continuing buzz over the Supreme Court’s next member, President Obama’s trillion dollar healthcare plan, and an update on how Hugo Chávez is turning Venezuela’s petroleum reserves into his personal piggybank. We add good news from East Texas for beer drinkers, bad news from Europe for technophiles and sad news from Philly for basketball fans.

Listen to the episode HERE.

Chrysler bankruptcy an opportunity to reject Obama nationalization

by John Berlau on April 30, 2009 · 2 comments

in Bailout Watch, Culture, Features, Politics as Usual

In the next 48 hours, Chrysler is expected to file for bankruptcy because, according to press reports, a significant minority of its creditors object to the Obama administration’s planned takeover in which the government and unions would own a majority stake. The Obama administration hopes to persuade the court to ratify and rubber-stamp its plan.  But the bankruptcy courts should exercise independent judgment instead, as they do in any typical bankruptcy case.

The expected Chapter 11 bankruptcy filing of Chrysler LLC is an action that probably should have happened months ago. It could have spared all involved the chaos of the ”political bankruptcy” we have seen unfold. The process of a judicial bankruptcy will bring a needed check to the Obama administration reorganization plan that heavily favors unions, at the expense of bond and debt holders.

The hedge funds that refused to be strong-armed into the Obama plan should not be blamed for asserting the interests of the investors they represent; investors that could include pension funds that serve middle-class families. The bankruptcy court should be allowed to be impartial and not be pressured to automatically take the plan offered by the Obama team. It should weigh the interests of all involved, using Chapter 11 precedent, and decide accordingly what each party is entitled to, as bankruptcy courts normally do.

The merger of Chrysler and Fiat the government has pushed is pure “industrial policy” of the type that led to stagnation in Japan and other nations where it has been practice. It may not be the most viable choice for Chrysler to specialize in smaller cars. Rather, a merger combination between Chrysler and General Motors with a concentration on larger vehicles such as SUVs may be the best option. This alliance had been discussed for years but was shelved because of concerns it might run afoul of antitrust laws.

The Obama administration should lift any antitrust barriers to effective reorganization — and suspend planned increases in the Corporate Average Fuel Economy standards that would be detrimental to Chrysler and other carmakers – but otherwise stay neutral as to the form the reorganization takes.

The relatively smooth process of recent large Chapter 11 bankruptcies, such as that of mall owner General Growth Properties, shows that far from being “disorderly,” judicial bankruptcies are far more orderly than taxpayer bailouts in unwinding and reorganizing insolvent companies. The judicial bankruptcy process should be given a chance to work in the case of Chrysler and any other companies that follow suit.

See also, my article in the American Spectator comparing the bankruptcy of General Growth Properties to that of the automakers.

Nationalizing the cars and bikes of rock collectors — Pending Omnibus land bill’s forfeiture provision has broad reach

by John Berlau on February 22, 2009 · 12 comments

in Bailout Watch, Nanny State, Odds & Ends, Personal Liberty, Politics as Usual

At the same time there has been so much talk of government nationalization of troubled big banks, a bill quickly snaking through Congress would allow the feds to expropriate cars, bicycles and other “vehicles and equipment” of everyone from amateur collectors of rocks to kids going on scavenger hunts.

In the Omnibus Public Land Management Act of 2009, which passed the Senate (S. 22) in January and is up for a vote in the House as early as this Wednesday, a “forfeiture” provision would let the government confiscate “all vehicles and equipment of any person” who disturbs a rock or a bone from federal land that meets the bill’s broad definition of “paleontological resource.” The seizures could take place even before a person and even if the person didn’t know they were taking or digging up a “paleontological resource.” And the bill specifically allows the “transfer of seized resources” to “federal or non-federal” institutions, giving the government and some private actors great incentive to egg on the takings.

Groups representing those from scientists to rock collectors to other fossil enthusiasts have warned of ominous consequences that could criminalize the exploration and learning about natural history ironically in the name of protecting nature. According to Tracie Bennitt, president of the Association of Applied Paleontological Sciences, the bill’s language is so vague and the penalties such as forfeiture so severe that it could allow the government to “put scientists in jail and confiscate university vans.” In a letter on the bill to members of Congress, Bennitt warns, “We can visualize now a group of students unknowingly crossing over an invisible line and ending up handcuffed and prosecuted.”

The area of concern is Subtitle D of the bill called the “Paleontological Resources Preservation Act.” The provisions in this subtitle make it illegal to “excavate, remove, damage, or otherwise alter or deface or attempt to excavate, remove, damage, or otherwise alter or deface any paleontological resources located on Federal land” without special permission from the government.

A “paleontological resource” is broadly defined in the bill as “any fossilized remains, traces, or imprints of organisms, preserved in or on the earth’s crust, that are of paleontological interest and that provide information about the history of life on earth.” Penalities for violations include up to five years in jail, and, as previously stated, all vehicles and equipment “used in connection with the violation” are subject even before trial “to civil forfeiture, or upon conviction, to criminal forfeiture.”

Among the problems, critics explain, is that the language is so broad that merely picking up rocks under this bill could be found guilty of “excavating” or “removing” a “paleontological resource.” There are numerous rocks, stones, and other objects of nature that contain fossilized imprints and, in the bill’s language, “are of paleontological interest and that provide information about the history of life on earth.” In fact, it is likely the most rocks that people pick up would meet this definition.

So people from mining companies to amateur geologists known as “rockhounds” to children gathering stones on field trips could be at risk for unintentionally violating this bill should it become law. The law does purport to allow an exception for a “resonable amount” of “casual collecting,” but then practically negates that excepion by saying that the “reasonable amount” shall be enitirely “determined by the Secretary” of Interior or Agriculture.

In an analysis of a similar bill in previous session of Congress, the policy group Partnership for America noted this scenario, “If a person were to be out hiking and picked up a rock as a souvenir, an enforcement officer who discovers this situation, at his or her discretion, could seize the equipment and the vehicle in use by the person or family at the time of the ‘offense.’” The analysis concluded, “The legislation may sound benign on its surface, yet it could have very dire unintended consequences for mining companies, rock hounds (geology enthusiasts) and average citizens who enjoy our national forests.”

One of those consequences is the civil forfeiture provision in Section 6308, which would leave those accused without their cars or other property until the trial was completed — basically the property would be guilty until proven innocent. As described by the Partnership for America analysis: “Even if a person eventually prevails in their case should they be prosecuted under this Act, their family would be without the use of the equipment and vehicle until the case is adjudicated, which could be months or even years, creating an extreme hardship in many cases. The government would likely try to obtain a guilty plea in exchange for a reduced penalty or the return of some of the personal property, which many innocent citizens would accept to avoid the cost and inconvenience of a trial.”

In fact, civil forfeiture had been so abused in drug cases — with reports of cops driving around Porsches of suspected drug offenders –that a group of conservative and liberal congressmen drafted a bill to reform the process. The late House Judiciary Committe Chairman Henry Hyde, R-Ill. and then-Rep. Bob Barr, R-Ga., joined with Rep. (and current Judiciary Committee Chairman) John Conyers, D-Mich., and Rep. Barney Frank, D-Mass., to sponsor the Asset Forfeiture Reform Act that was signed into law in 2000. The law increased the government’s burden of proof before it could engage in the pre-trial confiscation of the property of the accused.

Describing the situation before the law was passed, Hyde wrote in his Cato Institute book Forfeiting Our Property Rights, “Civil asset forfeiture has allowed police to view all of America as some giant national K-Mart, where prices are not just lower, but non-existent — a sort of law enforcement ‘pick-and-don’t-pay.”

But the pending Omnibus bill would unfortunatley take U.S. civil liberties a big step back to the situation before the 2000 reforms passed. And as Bennitt of the Association of Applied Paleontological Sciences points out in her letter, it also creates the vaguely defined crime of “submit[ting] any false record, account, or label for, or any false identification of, any paleontological resource excavated or removed from Federal land.”

But in geology, false records can be unintentional and are often unavoidable. As Bennitt notes, honest errors in labeling fossils are almost inevitable even for the top museums. She writes: “Paleontology is a field that is not set in stone. What you find and label in the field may not be what you find as preparation is undertaken in the lab.”

She adds that “penalties for misidentification of fossils will place every museum in jeopardy,” because “there is not one museum that is free from labeling errors on specimens” in some of its exhibits or collections.

Bennitt concludes that the bill would have the perverse effect of limiting scientific inquiry and knowledge of natural history. She notes that “museums and universities collecting on public land do not have the time, money or staff to collect everything they see. These specimens end up as dust as they erode away.” Amateur and professional fossil collectors have helped scientists piece together natural history, and this bill may lock thier skill out of the process.

At a time when the federal government should be busy catching and jailing the Madoffs, Stanfords, and other alleged fraudsters who swindled Americans out of billions, it seems a particular waste of time to hunt down nature enthusiasts who may have inadvertently disturbed a “palentological resource.” And it would indeed be a tragedy if a rock hunter’s bike or car were “nationalized” before the first bad bank was even laid a finger on.

The House will like be voting this week on the bill as S. 22, the exact same “Omnibus Public Land Management Act of 2009″ that passed the Senate with these provisions. Some reports have the bill being scheduled for a Wednesday vote, but it may also be Thursday or Friday. If it passed the House, it will likely go straight for signature to President Obama, so this may be the last chance to get changes to the bill.

To express your views to your Representative or Senator in Congress, you can call the Capitol switchboard at (202) 224-3121 or 225-3121. Ask the operator to connect you to the office of your member of Congress.

More on the Carmakers Recovery Assistance Program

by Iain Murray on December 5, 2008

in Bailout Watch, Economy

Jeremy Clarkson on the fall of the British Auto Industry:

Bailout fails — Move on to Mark-to-Market Reform

by John Berlau on September 29, 2008 · 13 comments

in Bailout Watch, Economy

Oh, Happy Day! And it certainly is for all those who value freedom, responsibility and the true free market in which individuals are free to profit from their risks on the condition that they don’t stick the rest of us with their losses.

It’s not hyperbole to say the Republican and Democratic backbenchers who defied both parties’ leadership to defeat this $700 billion package of Wall Street socialism literally saved America. Whatever their reasons, this defeat (or rather victory for freedom), means that America is much less likely to turn into France, Venezuela, or the old Soviet Union, as this bailout/nationalization package would have set us on the road to becoming.

Several great speeches on the Right and Left were given. Democrats Brad Sherman of California and Earl Blumenauer of Oregon gave powerful speeches against corporate giveaways. And conservative leaders of the Republican Study Committee — such as Jeb Hensarling, Jeff Flake, Mike Pence, and of course Ron Paul — spoke about how government intervention was largely the cause of this predicament, but the bailout would doom arguments for the free market form here on out. The idea of the government making this kind of outlay to high-flying risk takers just didn’t jibe with members, and certainly not with the American people.

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