treasury secretary

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.

UBS agrees to deal with the devil

by Gary Howard on February 19, 2009

in International, Legal, Nanny State, Personal Liberty, Regulation, Trade

I revoke my previous apology to the Swiss, and reiterate my previous disapproval.  As evidenced by the latest outcome in the U.S. tax case involving UBS, we have moved beyond troubling and into something much worse.

...the world’s largest wealth manager in terms of assets, agreed to pay a $780 million fine and disclose information about some of its clients to settle a landmark U.S. tax case.

As I said in my older post: “In direct contradiction to their own legal view of tax evasion.  Even though some may argue that this is moot because the U.S. does not consider a financial transaction as something beholden to privacy rights, the Swiss do–and besides, the U.S. view is wrong.  A person’s financial records should be considered as sacred as their medical records.”

And with an eye toward history, let us not forget:

One issue of the time that reinforced the passage of this law [Swiss Banking Secrecy Act] came during the era of Hitler when a German law stated that any German with foreign capital was to be punished by death. Swiss banks were watched closely by the German Gestapo. It was after Germans began being put to death for holding Swiss accounts that the Swiss government was even more convinced of the need for bank secrecy.

Reading the comments on left-leaning blogs, you hear cheers and a tinge of jealousy about the whole thing.  No matter if UBS did or did not help people avoid U.S. taxes, I cannot read this without envisioning a slippery slope argument.  If the current climate continues, it won’t be too far-fetched to imagine laws like that of WWII Germany criminalizing and imprisoning people for choosing where to put their own money.  And I won’t even mention the new Treasury Secretary. Oops

Thank You, 2008, and Good Riddance!

by Iain Murray on December 31, 2008 · 22 comments

in Bailout Watch, Culture, Economy, Energy, Environment, Features, Global Warming, Politics as Usual, Zeitgeist

For supporters of freedom and markets, the Year of Our Lord 2008 has been close to a disaster. As D:Ream used to sing, things can only get better, surely? Ah, if only…

This was the year that saw two Presidential candidates vying with each other to see who could make the most ridiculous statements on global warming and the financial system (it may be the less ridiculous won). It was a year when one bunch of free-spending economic know-nothings gained complete control of Congress over another bunch of free-spending economic know-nothings. This was the year the American polity compromised and became both stupid and evil.

2008 was a year when America lost its mind over energy. As energy prices spiked thanks to (as we now know) artificially inflated demand, politicians mostly discussed ways to make them higher still. No energy idea was too stupid for someone to be praised as a genius or visionary for proposing it. Oil companies fell over themselves to make adverts telling people not to use their main product. Congress told American car makers they weren’t making the cars people wanted to buy, so they were going to make them do it or fine them into closure. Car makers responded by demanding money from the taxpayer. Congress agreed. The invisible hand was thereby nailed to a Congressional table. For one brief, shining moment, it looked like even this Congress would be forced to relax idiotic restrictions on oil exploration, but “Drill, baby, drill” was retired as the oil price collapsed and so we will have to go through the whole thing again on the next oil price spike, when we will be told it is too late to explore and drill (again).

This was the year when every energy-snake-oil salesman realized that “green jobs” was the magic phrase that unlocked taxpayer wallets. A vast army of careers in the compact-light-bulb-changing industry awaits America’s youth. The progression from trainee light-bulb-changer to assistant-light-bulb-changer to certified-light-bulb-changer to lightbulb-changing-supervisor to lightbulb-changing-regional-manager to lightbulb-changing-firm-CEO to lightbulb-changing-Czar will tempt the most ambitious young people (even if most of the actual changing will be done by recent immigrants from Mexico). The 500,000 extra unemployed as a result of the “green jobs” scam will at least be able to pat themselves on the back that, by losing their jobs, they have reduced global emissions infinitesimally.

2008 was the year when the housing-market-of-cards erected on the shifting sands of decades of congressional and administration pressure to lend fell down spectacularly. The market that had reacted to government signals got all the blame, when it only deserved some of it. The guilty parties in Washington not only got away scott free, but are now writing the rules for another iteration of the manifestly-failed Mixed Economy. As for a free market in finance, that has been completely ruled out even though it’s never actually been tried.

This Annus Horribilis also saw the rise of Bailout Nation. With asset values collapsed, the investors who had speculated and lost knew they had one way to keep their pockets full – by getting their cronies in the Administration and Congress to take money out of the pockets of taxpayers and give it to them. A Congress full of people supposedly friendly to the middle class agreed. Trebles and bonuses all round! With Wall Street the most despised thoroughfare in America, one Wall Street Panhandler masquerading as a Treasury Secretary is to be replaced by another. That’s change I can believe in.

In my native Britain, the 55th year of the Queen’s reign saw the Conservative Party reap the rewards of acquiescing to New Labour’s mixed-economy economic policy. When British banks collapsed, and a sterling crisis deepened the trouble, they were left with nothing to say. Gordon Brown, the man who promised he had put an end to “boom and bust,” blamed the bust that followed his housing boom on America and Margaret Thatcher and thereby managed to improve his opinion poll rating to the level where people were speculating he might call a General Election. The British voter, after all, knows he is a safe pair of hands with the economy. At least some over there, however, know what the real story is.

As 2008 draws to a close it has proven to be the coldest year in a decade and it seems that tropospheric temperatures are beginning a downward cycle again. Never, however, has the political establishment been so united in deciding that urgent action is needed to save us from ever-rising temperatures.

2008, you were a rotten year. No-one likes you. Go away!

License to Print Money. Literally.

by Iain Murray on November 13, 2008

in Bailout Watch, Economy

The threat of deflation is so big in the UK, where they have found their version of the financial crisis worsened by the weakness of sterling and the size of government, that a former Treasury adviser is suggesting they need to think about printing money.

Meanwhile, Rich Lowry quotes AEI’s Peter Wallison about Hank Paulson’s latest u-turn:

The problem is that these shifts in direction have caused investors and others to lose confidence that Paulson knows what he’s doing, and that in itself could be causing some of the distress in the markets. The whole idea of TARP was to increase confidence, and that’s now been frittered away. If you go to Congress with a plan, it better be the plan you are actually going to carry out, or you better have a good explanation for why it isn’t going to be implemented. If Paulson has lost faith in his original plan, he has to explain why, and his failure to do so is probably worse than his constantly shifting objectives. When you’re Treasury Secretary, you don’t have the luxury of saying “Oh, never mind.”

We here have never thought that Paulson knew what he was doing, except helping out his cronies in Wall Street. If we don’t get some people in government willing to bite the bullet (and that is unlikely), we may well end up having to print money too.

That $800 Billion

by Julie Walsh on October 22, 2008 · 10 comments

in Bailout Watch, Economy

So what has Paulson done so far with your $800 billion? He’s rewarded his friends, of course. $70 BILLION has gone to executives and staff. The Guardian reports:

Financial workers at Wall Street’s top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year – despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.

Staff at six banks including Goldman Sachs and Citigroup are in line to pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted criticism. The government’s cash has been poured in on the condition that excessive executive pay would be curbed.

Yes, Paulson’s Goldman Sachs – which didn’t even get bailed out – will get a $11.4 billion gift from the government. Congress is investigating.

Further, as colleague Iain Murray unveiled, “Jamie Dimon, the CEO of JP Morgan Chase, has agreed in principle to be Obama’s Treasury Secretary. Dimon worked hand-in-glove with Hank Paulson over the Bear Stearns bailout.”

So it appears Mr Spread-the-Wealth will continue Paulson’s legacy.

They’re In The Money

by Iain Murray on October 21, 2008 · 2 comments

in Bailout Watch, Economy

We’re hearing from a variety of sources that Jamie Dimon, the CEO of JP Morgan Chase, has agreed in principle to be Obama’s Treasury Secretary. Dimon worked hand-in-glove with Hank Paulson over the Bear Stearns bailout. The new boss, it appears, will be the same as the old boss.

Looks like the revolving door between Wall Street and the Treasury Department ain’t going to stop any time soon.

In a related note, the excellent Capital Research Center, which has done so much good explaining how leftist NGOs dictate public policy, has now turned its lights on Goldman Sachs.

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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Lehman bankruptcy: In capitalism, failure is not a dirty word

by John Berlau on September 15, 2008 · 6 comments

in Economy, Legal, Nanny State, Politics as Usual, Precaution & Risk

My reaction to Lehman Brothers’ declaring of Chapter 11 bankruptcy and the refusal of Treasury Secretary Hank Paulson and others to take extraordinary Bear Stearns-like measures for the government to prop the firm up can be summed up in three words: It’s about time!

Business failure is not only a permissible outcome of capitalism, it’s a necessary one. As the great economist Joseph Schumpeter has written, the process of “creative destruction” is essential for the market to function. For innovation to flourish and the standard of living of the populace to improve, the market must be free to reward success and punish failure.

As Schumpeter wrote in his 1942 book Capitalism, Socialism and Democracy, there is an ongoing “process of industrial mutation — if I may use that biological term — that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in, and what every capitalist concern has got to live in.”

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