Rick Wagoner

LibertyWeek 38: Pirate Warriors on Deck

by Richard Morrison on April 13, 2009

in CEI Projects, Podcast

Your hosts Richard Morrison and Cord Blomquist are joined by special guest co-host Jeremy Lott for a very swashbuckling Episode 38 of LibertyWeek. We start with the rescue of Capt. Richard Phillips from Somali pirates by the U.S. Navy and Special Forces, look into the murky finances of AIG CEO Edward Liddy in Scandal Watch, and figure out what ISPs are up to in Technology News. We also get an update on how West Virginia is about to become even more Wild and Wonderful, and finally we answer the call for wealthy, multilingual volunteers in Olympic News.

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.

With or Without You

by John Berlau on March 30, 2009 · 1 comment

in Bailout Watch, Culture, Deregulate to Stimulate, Features, Mobility, Nanny State, Odds & Ends, Politics as Usual, Zeitgeist

The ouster of General Motors CEO Rick Wagnoner by the Obama administration isn’t the first time in the recent history of bailouts that the government has forced out a CEO. That first happened in September when Bush admnistration Treasury Secretary Henry Paulson forced out American International Group CEO Robert Willumstad in favor of Paulson’s friend Edward Liddy.

The lesson from AIG is that replacing a CEO is no panacea. There is no love lost for the poor managment of Rick Wagoner. He is the one who went to the government hat in hand, and when the government is paying the piper, it can call the tune. But replacing him won’t solve GM’s long-term problems of too many brands of autos and too large of a workforce. And it is increasingly clear that the bailout itself is an impediment to effective restructuring.

The prospect of an ever-increasing supply of tax dollars is leading parties with auto industry contracts — unions, bondholders, dealers and others — to play a game of chicken. No one wants to renegotiate a contract when they think the government will come in with more money to cover the losses. And the Obama administration, as with AIG, does not have the power of a bankruptcy court to discharge debt.

Allowing the companies to go into bankruptcy is what should have been done from the start. As with multiple businesses such as airlines that have succesfully emerged from Chapter 11 bankruptcy, debts could be discharged and the companies could be restructured in bankruptcy court.

To say that consumers would be discouraged at buying a car in bankruptcy misses the point. Consumers might be more likely to buy a car from a company restructured by a bankruptcy court, as they buy tickets from once-bankrupt airlines, than to buy a vehicle from zombie companies dependent on the next government bailout. This delay likely hurts “satellite” companies like auto parts makers more than a bankruptcy would.

In the meantime, the government should lift antitrust barriers and leave all options on the table for mergers. The merger with Chrysler and Fiat that the government is encouraging may not be the most effective. GM and Chrysler had long considered merging, but may have been blocked because the combined company would be deemed by antitrust regulators to have too large a share of the “light truck” market, never mind that this market itself is shrinking. Given the precarious state of the companies, they should be given a blanket antitrust waiver to make the combinations they deem best for their viability.

The government should also delay the imposition of the recently announced increase in Corporate Average Fuel Economy standards. This flawed mandate that adds costs and reduces choices even in a good economy, could be a lethal blow in times such as these.

Let’s drop both the auto bailouts and the mandates. The American auto industy, which has produced such wonderful innovations for so many decades, is too important to be “saved” by Washington’s central planners.”