Tim Geithner

Jobs: Created, Not Made

by Kathryn Ciano on October 12, 2010

in Bailout Watch, Economy, Employment

Welcome to October, the start of a new government fiscal year. 2010 was the year of “jobs created or saved.” Bank and business bailouts may have begun long before this year, but 2010 saw what effects flow from nationalizing big business.

Now that the budget says 2011, what has the government done for the individual this year? Despite hundreds of billions of stimulus dollars flooding the economy, unemployment remains in double digits.

In February Treasury Secretary Tim Geithner called the government’s economic efforts “inadequate,” noting that the administration needed to “fundamentally reshap[e] the government’s program to repair the financial system.”  Geithner, a human Laffer curve of robust tax irresponsibility, is the most egregious bailout proponent remaining in Obama’s cabinet.
Business is not like government.

Geithner’s mentality lends itself well to growing government. Geithner’s mentality would not last a year in business.

Government is comprised of millions of people with billions of priorities. Business reflects a single priority: Maximizing the bottom line.

Groups involved with government cooperate only inasmuch as they can agree. Groups involved with business quickly learn to cooperate at all times, because the moment it costs a business more to keep an employee than to fire him, he will be fired.

Similarly, for a business to hire a new employee, that company’s bottom line must benefit from the hire. If it costs $20,000 to hire a new employee, the business will only hire if it anticipates earning $20,001. If the bottom line cannot support the cost of a new worker, she simply will not be hired.

Funds alone cannot generate jobs. As with any financial interaction, money is only as good as the probability of your being able to use it. When dollar hopefuls are very uncertain about their ability to use money in the future, they save it. Businesses are not like government; they are risk averse.

If the government wants more people to be employed, it should get as far away from the hiring process as possible. Only when a business can assess its finances and capabilities can it make a real determination as to how much a potential new employee is worth.

When government keeps fiddling with the works — flooding business competitors with funds, levying ominous health care costs on certain business sizes, and nationalizing some sectors but not others, businesses have no choice but to freeze.

Market uncertainty makes it impossible for businesses to make decisions. The convoluted health care revolution is convoluted enough on its own to freeze the private sector pipes; add pending financial regulations, taxes, and laws that are indecipherable even to the regulators who write them. Even Nancy Pelosi admits we need to pass the bill, subjecting it to interpretation, before we can “find out what’s in it.”

Just like so much sausage, even once we pass the bill we don’t know where it comes from. To “stimulate” the economy with one dollar, the government must first take it from the people.

Printing new money for economic stimulus is even worse — this deflates the value of each dollar, so prices rise the middle class disintegrates. Printing money was a favorite of the depression-era German government, and led to Germans pushing wheelbarrows full of marks and boiling wallpaper for dinner in the early 1930’s. This hardly fosters job growth or stable politics, though Germany is okay now, I suppose.

Since the Obama administration recognized a recession in early 2009, the government has taken nearly $3 trillion dollars out of the economy and has promised nearly $11 trillion more in government programs. In that time the American economy has shrunk by over nine million jobs.

Government by definition operates at a loss, funded by takings and the future. Businesses do not have that luxury. Government attempted to save the private sector by tapping individuals’ wallets. When that was not enough, government nationalized businesses to tap their savings too.

Until businesses can make reasonable predictions about the future, they will not invest in new hires. The best thing the government can do to help the economy is to get out of the way.

Timothy Geithner, Political Strategist

by Ryan Young on October 6, 2010

in Bailout Watch, Economy

The TARP bank bailout program polls poorly. Fifty-eight percent of Americans think the bailouts were unnecessary. Timothy Geithner, in recent remarks, subtly reminded voters that the hated bailouts were originally a Republican proposal. It began with George W. Bush, remember.

This is a clever bit of strategy from Geithner. President Obama and congressional Democrats get most of the blame for TARP. And they deserve plenty of blame for not repealing the program. But Geithner is right. TARP began with Republicans.

The midterm elections will probably be very kind to Republicans. Geithner is saying, in effect, “be careful what you wish for.”

He’s right. If the GOP does regain control of Congress, little good is likely to come of it. They will probably do a decent job opposing the White House’s proposals. That could slow spending growth.

But what the country needs are spending cuts. And Republicans have serially proven they can’t be trusted with the public purse.

When Republicans last held power they passed the largest new entitlement program since the Great Society, nearly doubled federal spending in eight years, gave billions of dollars in subsidies to businesses and farmers, and generally made a mess of things. The TARP bailouts and the largest spending stimulus in U.S. history were their closing flourishes.

Republicans  did all the things they ran against in 1994. Many GOP candidates are saying similar things in 2010. But remember Geithner’s counsel about TARP. Only a fool would believe that Republicans will actually cut spending. Beltway fever catches quickly. And it’s contagious.

Of course, Democrats are just as bad. As I say with every election involving Democrats and Republicans, whoever wins, we lose. The best that independents can do is nudge the intellectual climate in a better direction. Geithner has kindly reminded us that we need to redouble our efforts on conservatives and progressives alike.

Mortgage Giant Seeks Another $8.4 Billion in Bailouts, After Obama Lifts $400 Billion Limit on Bailouts for Government-Sponsored Enterprises

by Hans Bader on May 10, 2010 · 2 comments

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

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, the two government-sponsored mortgage giants that officials say were at the “core” of “what went wrong” in the financial crisis. Last week, Freddie Mac asked for $10.6 billion more in bailouts. The Obama administration is certain to approve the requests: “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 yesterday 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.

Taxpayers to Put Up Billions More for Bailouts of Greece and Corrupt Mortgage Giant

by Hans Bader on May 6, 2010 · 1 comment

in Bailout Watch, Economy, International, Labor, Legal, Politics as Usual, Regulation, Sanctimony, Zeitgeist

Government-sponsored mortgage giant Freddie Mac is demanding another $10.6 billion in bailouts, which the Obama administration is expected to give it. Obama’s so-called financial “reform” proposal does absolutely nothing to reform Freddie Mac, admits Obama’s Treasury secretary, tax cheat Timothy Geithner, even though he admits that Freddie Mac was “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 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 yesterday in their rage over possible budget cuts.  “The protesting civil servant workers trapped the bank employees in a burning building.”

Government spending is out of control in America, too.  Earlier, the Obama administration lifted the $400 billion limit on bailouts for the government-sponsored mortgage giants Freddie Mac and Fannie Mae, so that they could continue to buy up junky mortgages at taxpayer expense, and showered their executives with $42 million in compensation.  The Obama Administration is now expanding the bailouts of these mortgage giants so that they can lavish pay on their CEOs and reduce the payments of deadbeat mortgage borrowers.

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 J. Wallison, who prophetically warned against the risky practices of Fannie Mae and Freddie Mac for years, says that Obama’s proposals will lead to “bailouts forever” and give big, politically-connected banks that are “too big to fail” the ability to drive smaller rivals out of business at the expense of consumers and taxpayers.

Obama claims that it will not lead to more bailouts, but even congressional Democrats admit that it will.  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 another key reason for the mortgage meltdown and the financial 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.

General Motors Accused of Fraud Over Misleading Claim That It Paid Back Taxpayers; CEI Files FTC Complaint

by Hans Bader on May 4, 2010 · 4 comments

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

The Competitive Enterprise Institute filed a complaint today against General Motors with the Federal Trade Commission, over GM’s claims that it paid back what it received from taxpayers.  In recent TV ads, GM’s CEO, Ed Whitacre, has boasted that GM repaid its government bailout loan “in full, with interest, five years ahead of schedule.”

President Obama’s tax-cheat Treasury secretary, Tim Geithner, recently trumpeted these claims, crowing that “GM had repaid in full the $4.7 billion balance it owed under the government’s Trouble Asset Relief Program.” But this so-called “repayment” was just a deceptive accounting trick. GM used government bailout money to make the “repayment,” as The New York Times noted.

More importantly, this “repayment” is just a drop in the bucket compared to what GM has received from taxpayers.  The federal government has yet to recover the lion’s share of the more than $50 billion it loaned the company.  Why?  Because that $50 billion was mostly “converted into stock held by the Treasury Department.”  That’s billions of dollars for stock in a company that, for all intents and purposes, was bankrupt. (GM just lost another $4.3 billion.)

The Competitive Enterprise Institute (CEI), a Washington think tank, argues in its FTC filing that GM’s claim is misleading to consumers, and therefore violates the Federal Trade Commission Act:

Most consumers would reasonably interpret GM’s ads as meaning both that GM has paid back all the money that it received from the government, and that those repayments were made with its own funds rather than with other government funds.  Neither of these interpretations is accurate.  .  .

GM’s ads also leave the false impression that it is on the road to profitability, since it is now able to pay off its debts. (In public statements, GM deliberately sought to reinforce that impression by linking the ‘repayment’ to increased sales of two cars produced by GM.)

In reality, however, GM used taxpayer money to make the repayment — government bailout money from the Troubled Asset Relief Program — and it was still losing money at the time of the advertisement.

This false impression matters to consumers . . . because a profitable automaker, unlike an automaker that goes out of business, can provide replacement parts for an automobile that a consumer purchased. And unlike a bankrupt automaker, it can be counted on to make good on its warranties.

Moreover, the only reason GM had enough government money left over to pay back any of what it received from taxpayers is because of Toyota’s recent safety issues and recalls, which drove car buyers away from Toyota to GM and Ford.  Only that kept GM from burning through all of the taxpayers’ money.

Even though GM still hasn’t paid back the $50 billion, and received billions in additional handouts through programs like the incredibly wasteful Cash for Clunkers (which cost taxpayers and used-car and car-parts businesses billions), Obama backers now claim that critics of the bailout owe Obama, GM, and the UAW “an apology.”

Ironically, GM would never have needed a bailout if it had just received relief from costly regulations such as CAFE rules (which wipe out at least 50,000 jobs) and dealer-franchise laws.  That’s so despite GM’s self-inflicted wounds from mismanagement, excessive union wages and benefits (worth up to $70 an hour), and rigid union work rules.

The Obama Administration left those wasteful work rules and excessive benefits largely intact, and gave the United Auto Workers Union (UAW) a big chunk of General Motors‘ stock, even though the UAW helped bankrupt the company, and the company has value today only because the federal government pumped billions of taxpayer dollars into the company (and engineered the wiping out of General Motors’ bondholders, some of whom were non-union employees who had invested their life savings in the company).

Veteran political commentator Michael Barone called the Obama administration’s treatment of Chrysler and GM bondholders “gangster government.” Law professor and bankruptcy expert Todd Zywicki called it an attack on “the rule of law.”

Back in 2008, Zywicki prophetically warned that a bailout would prove worse for the auto industry than for automakers to quickly file for bankruptcy without first seeking a bailout.  Zywicki noted that by enabling automakers to get rid of expensive union contracts and red tape, a “Chapter 11 bankruptcy filing will likely result in a stronger domestic industry.”   It would provide  ”a mechanism for forcing UAW workers to take further pay cuts, reduce their gold-plated health and retirement benefits, and overcome their cumbersome union work rules.”  It would also help automakers get rid of redundant auto dealerships that should be terminated but aren’t because of state dealer franchise laws.  Nobel Prize winning economist Gary Becker also argued that a bankruptcy filing would have been better than a bailout in achieving “needed reforms.”

But the federal government ignored their wise advice, and chose to embark an incredibly costly bailout instead.   The bailout of GM and Chrysler is similar in many ways to the British government’s unsuccessful auto bailout in the 1970s, which ultimately failed despite a cost in the billions.

The federal government used money from the $700 billion bank bailout for the auto industry bailout. Legal scholars at the Heritage Foundation, Clinton administration Labor Secretary Robert Reich and many other commentators have argued that using the bank-bailout money for auto bailouts was illegal.

In addition to the $50 billion it gave to GM, the administration gave another $17 billion to GM’s finance arm, GMAC.

Bogus Financial “Reform” Bill Regulates Internet, Does Nothing About Corrupt Government-Sponsored Mortgage Giants Fannie Mae and Freddie Mac

by Hans Bader on May 3, 2010 · 1 comment

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

The so-called financial “reform” bill backed by President Obama gives federal bureaucrats new powers over the Internet, while doing nothing about the corrupt government-backed mortgage giants that spawned the financial crisis.

For example, “the bill contains provisions that would put the Federal Trade Commission in position to start issuing rules on Internet transactions that would not only slow down business growth but also have no relevance at all to the financial collapse that prompted the bill.”

Meanwhile, the bill does nothing to reform the government-sponsored mortgage giants Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, tax cheat Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.“ Worse, the Obama administration lifted the $400 billion limit on bailouts for Fannie and Freddie, so that they could continue to buy up junky mortgages at taxpayer expense, and showered their executives with $42 million in compensation.  The Obama Administration is now expanding the bailouts of these mortgage giants so that they can reduce the payments of deadbeat mortgage borrowers.  (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.)

The bill will also enrich the Wall Street firm of Goldman Sachs, recently accused of fraud, which bankrolls liberal lawmakers.

Government pressure on banks to make risky loans was a key reason for the mortgage meltdown and the financial 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.

So, too, were the government-sponsored mortgage giants, Fannie Mae and Freddie Mac.  They 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.”

Why did they buy these risky loans?  They put up with Clinton-era affordable-housing regulations that required them to buy up lots of risky loans, in order to curry favor on Capitol Hill and thus retain their annual $10 billion in tax and other special privileges (which they possessed owing to their status as “Government-Sponsored Enterprises” or GSEs). They paid their CEOs millions in the process, and engaged in massive accounting fraud–$6.3 billion at Fannie Mae alone–to increase the size of their managers’ bonuses.  As GSEs, 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 J. Wallison, who prophetically warned against the risky practices of Fannie Mae and Freddie Mac for years, says that Obama’s proposals will lead to “bailouts forever” and give big, politically-connected banks that are “too big to fail” the ability to drive smaller rivals out of business at the expense of consumers and taxpayers.  His colleague Alex Pollock notes that Obama has not lived up his administration’s claims that it would back reform of Fannie Mae and Freddie Mac.

Obama claims that it will not lead to more bailouts, but even congressional Democrats admit that it will.  As Congressman Brad Sherman (D-Calif.) admitted, the “bill has unlimited executive bailout authority…The bill contains permanent, unlimited bailout authority.”

Obama Uses Phony Rhetoric About Financial ‘Reform’ to Push Bill That Enriches Special Interests and Perpetuates Bailouts

by Hans Bader on April 23, 2010

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

President Obama has collected millions from Wall Street special interests, his administration is chock full of Wall Street lobbyists, and he supported the unnecessary $700 billion bank bailout.  But now, he’s pushing a deceptive financial regulation bill with phony rhetoric about “reform,” claiming it is “not legitimate” to point out that the bill could lead to yet more bailouts and government takeovers (as economists and banking experts like Peter Wallison have demonstrated).

Obama’s legislation would do nothing to curb the abuses of the worst offenders behind the mortgage crisis, the government-subsidized mortgage giants Fannie Mae and Freddie Mac, even as it would enrich the politically connected liberal Wall Street firm Goldman Sachs (recently accused of fraud), enrich left-wing lobbying groups and community organizers, and give the government the permanent ability to bail out and take over Wall Street firms.

Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, tax cheat Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.” Worse, the Obama administration lifted the $400 billion limit on bailouts for Fannie and Freddie, so that they could continue to buy up junky mortgages at taxpayer expense, and showered their executives with $42 million in compensation.  The Obama administration is now expanding the bailouts of these mortgage giants so that they can lavish pay on their CEOs and reduce the payments of deadbeat mortgage borrowers.  (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.)

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.”

Why did they buy these risky loans?  They put up with Clinton-era affordable-housing regulations that required them to buy up lots of risky loans, in order to curry favor on Capitol Hill and thus retain their annual $10 billion in tax and other special privileges (which they possessed owing to their status as “Government-Sponsored Enterprises” or GSEs). They paid their CEOs millions in the process, and engaged in massive accounting fraud — $6.3 billion at Fannie Mae alone — to increase the size of their managers’ bonuses.  As GSEs, 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 J. Wallison, who prophetically warned against the risky practices of Fannie Mae and Freddie Mac for years, says that Obama’s proposals will lead to “bailouts forever” and give big, politically connected banks that are “too big to fail” the ability to drive smaller rivals out of business at the expense of consumers and taxpayers.  His colleague Alex Pollock notes that Obama has not lived up his administration’s claims that it would back reform of Fannie Mae and Freddie Mac.

Obama claims that it will not lead to more bailouts, but even congressional Democrats admit that it will.  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 another key reason for the mortgage meltdown and the financial 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.

Obama’s proposed financial regulations would also harm retail banking operations used by middle-class people and small businesses.

General Motors Repays Tiny Portion of Taxpayers’ $50 Billion Bailout; Obama Backers Bash Critics of Bailout

by Hans Bader on April 22, 2010 · 1 comment

in Bailout Watch, Deregulate to Stimulate, Economy, Employment, Energy, Labor, Legal, Mobility, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Zeitgeist

President Obama’s tax-cheat treasury secretary, Tim Geithner, is trumpeting the fact that General Motors has paid back a small fraction of what taxpayers gave the company, noting that “GM had repaid in full the $4.7 billion balance it owed under the government’s Trouble Asset Relief Program.” But this so-called “repayment” was just an accounting trick.  GM used government bailout money to make the “repayment,” as the New York Times has noted.

More importantly, this “repayment” is a drop in the bucket compared to what GM has received from taxpayers.  The federal government has yet to recover the lion’s share of the more than $50 billion it loaned the company.  Why?  Because that $50 billion was mostly “converted into stock held by the Treasury Department.”  That’s billions of dollars for stock in a company that, for all intents and purposes, was bankrupt. (GM just lost another $4.3 billion.)

The only reason GM had enough money left to pay back any of what it owes taxpayers is because of Toyota’s recent safety issues and recalls, which drove car buyers away from Toyota to GM and Ford.  Only that kept GM from burning through most of the taxpayers’ money.

Even though GM still hasn’t paid back the $50 billion, and received billions in additional handouts through programs like the incredibly wasteful Cash for Clunkers (which cost taxpayers and used-car and car-parts businesses billions), Obama backers now claim that critics of the bailout owe Obama, GM, and the UAW “an apology.”

Ironically, GM would never have needed a bailout if it had just received relief from costly regulations such as CAFE rules (which wiped out at least 50,000 jobs) and dealer-franchise laws.  That’s so despite GM’s massive burdens from excessive union wages and benefits (worth up to $70 an hour), and rigid union work rules.

The Obama Administration left those wasteful work rules and excessive benefits largely intact, and gave the United Auto Workers Union (UAW) a big chunk of General Motors‘ stock, even though the UAW helped bankrupt the company, and the company has value today only because the federal government pumped billions of taxpayer dollars into the company (and engineered the wiping out of General Motors’ bondholders, some of whom were non-union employees who had invested their life savings in the company).

Veteran political commentator Michael Barone called the Obama administration’s treatment of Chrysler and GM bondholders “gangster government.” Law professor and bankruptcy expert Todd Zywicki called it an attack on “the rule of law.”

Back in 2008, Zywicki prophetically warned that a bailout would prove worse for the auto industry than for automakers to just quickly file for bankruptcy.   Zywicki noted that by enabling automakers to get rid of expensive union contracts and red tape, a “Chapter 11 bankruptcy filing will likely result in a stronger domestic industry.”   It would provide  “a mechanism for forcing UAW workers to take further pay cuts, reduce their gold-plated health and retirement benefits, and overcome their cumbersome union work rules.”  It would also help automakers get rid of redundant auto dealerships that should be terminated but aren’t because of state dealer franchise laws.  Nobel Prize winning economist Gary Becker also argued that bankruptcy would have been better than a bailout in achieving “needed reforms.”

But the federal government ignored their wise advice, and chose to embark an incredibly costly bailout instead.   The bailout of GM and Chrysler is similar in many ways to the British government’s unsuccessful auto bailout in the 1970s, which ultimately failed despite a cost in the billions.

The federal government used money from the $700 billion bank bailout for the auto industry bailout. Legal scholars at the Heritage Foundation, Clinton administration Labor Secretary Robert Reich and many other commentators have argued that using the bank-bailout money for auto bailouts was illegal.

More Enron-like Behavior by Administration Officials Comes to Light

by Hans Bader on January 7, 2010

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

Earlier, the Washington Post reported on how the Obama administration pressured Freddie Mac not to disclose to investors and the SEC the $30 billion in losses it was incurring as a result of Obama’s mortgage bailouts for undeserving (including high-income) borrowers.

Now, Bloomberg News reports that then-Federal Reserve Bank head (and now Treasury Secretary) “Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis,” and to hide them from the SEC in its SEC filings.  Such conduct is not too surprising coming from Geithner, a sanctimonious and hypocritical tax cheat.  Geithner also used the government’s bailout of AIG to pay billions of dollars to the wealthy Wall Street investment firm of Goldman Sachs, money that it neither needed to stay afloat, nor was legally entitled to.

Earlier this year, Freddie Mac’s CFO killed himself amidst a sea of red ink, as the administration forced Freddie to run up losses on mortgage bailouts, even though economists and real estate experts have criticized those bailouts as harmful to the economy.  Now, the Obama administration is making Freddie Mac and Fannie Mae deliberately run up losses on bailouts and buying up risky loans, even though the government took over Fannie and Freddie in 2008 in the name of ending their risky practices.  It is rewarding their executives for carrying out such terrible policies by showering them with multimillion dollar pay.

The mortgage crisis was caused partly by the reckless government-sponsored mortgage giants Fannie Mae and Freddie Mac, and partly by the affordable-housing mandates imposed on them.

But Obama’s proposed financial rules overhaul does absolutely nothing about the risky practices of Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”

Instead, it pressures banks to make even more risky loans.  The House has 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.”  The Community Reinvestment Act was a key contributor to the financial crisis.  But the administration’s proposal would direct the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.

“How ACORN Destroyed the Housing Market”

by Hans Bader on November 16, 2009

in Bailout Watch, Economy, Legal, Personal Liberty, Politics as Usual, Precaution & Risk, Sanctimony

Federal affordable-housing mandates were a major factor in the mortgage crisis, fueling the housing bubble and the subsequent collapse of the housing and financial markets, which helped bring down the economy.  Even the liberal Village Voice has admitted that.  Who drafted those awful mandates?  ACORN, reports the Washington Examiner, in “How ACORN Destroyed the Housing Market.”

How did ACORN cause the “housing bubble” and “financial collapse”?  ACORN lobbyists drafted “affordable-housing” mandates to pressure the mortgage giants to buy up more risky loans and mortgages from low-income communities, loans that banks in turn were pressured to make by the Community Reinvestment Act, explains The Wall Street Journal.

ACORN also helped spawn the mortgage crisis by promoting “liar loans.”   It has a long history of  financial fraud, vote fraud, tax evasion, waste, and mismanagement.

Lawmakers and the Obama administration have studiously ignored ACORN’s role in spawning the financial crisis, because many liberal lawmakers have long had close ties to ACORN.  ACORN is a left-wing group that launched Obama’s career as a community organizer.  (ACORN stands for Association of Community Organizations for Reform Now.)  Obama has long-standing ties to ACORN, and an ACORN affiliate received received $800,000 from Obama’s campaign.

In recent months, lawmakers distanced themselves from ACORN, and cut off its federal housing funds, after it was caught on videotape in a child prostitution promotion scandal.  (ACORN is now suing the federal government in court, to force it to resume funding ACORN.  Earlier, it sued the private citizens who exposed its role in the scandal for $2 million).

However, in the long run, ACORN is likely to continue to benefit from its close ties to liberal lawmakers and the administration.  Entities related to ACORN stand to reap millions from Obama’s financial regulation proposals and health-care reform proposals.

Meanwhile, the Obama administration is busy promoting the junky, risky mortgages that fueled the housing bubble, showing that it has learned nothing from history.  One result is that the Federal Housing Administration, which is making many such loans, has gone into a “nose dive” and may need a multibillion-dollar taxpayer bailout, reports the Washington Post.

Obama wants to create a bureaucracy 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.” The Community Reinvestment Act was a key contributor to the financial crisis.  Yet Obama’s plan would empower the CFPA to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.

The mortgage crisis was also caused by the reckless government-sponsored mortgage giants (”GSEs”) Fannie Mae and Freddie Mac, and by federal affordable-housing mandates.

But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, tax cheat Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”

Worse, Obama’s plan is “largely the product of extensive conversations” with two lawmakers responsible for the corrupt status quo, Chris Dodd and Barney Frank, and it expands the reach of regulations that have been used by left-wing groups to extort pay-offs from banks.

Recently, the administration got rid of the inspector general for Fannie Mae and Freddie Mac, after making Freddie Mac run up $30 billion in losses from the Obama administration’s mortgage bailouts, which bailed out even high-income borrowers who irresponsibly mismanaged their finances.  Earlier, Obama fired an inspector general, Gerald Walpin, who uncovered misuse of funds by a prominent Obama backer, smearing the inspector general with allegations that turned out to be false.

← Previous Entries