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Monday, November 17, 2008
Bailout goes from necessary to nightmarish
The Atlanta Journal-Constitution
Bailout goes from necessary to nightmarish
That $700 billion financial sector bailout that I supported — and do still, but with an exit strategy — is a nightmare in the making.
Look what’s happened since the first of the month:
Atlanta Mayor Shirley Franklin, smelling a bailout handout, joined the mayors of Philadelphia and Phoenix in asking the federal government for money. In a three-page letter to U.S. Rep. Charles Rangel (D-N.Y.), chairman of the House Ways and Means Committee, Franklin said the city is facing a $50 million budget shortfall, due of course to the global financial crisis.
MARTA “sold” track and rail cars purchased with federal money and then leased them back for 20 to 25 years, a clear ruse to borrow about $110 million from the future for current consumption. The Internal Revenue Service subsequently disallowed the scheme. From taxpayers’ standpoint it was an immoral transaction because what MARTA sold to banks and investors was tax avoidance. Lenders could depreciate the rail cars. MARTA needs relief because the failed insurance giant AIG guaranteed lease payments and without the guarantee, the cost to MARTA and other transit agencies that did the same thing soared. Transit agencies, including MARTA, want the federal taxpayers it tried to hoodwink with the depreciation scheme to replace AIG in guaranteeing payment.
This should be a warning to Republicans tempted to “sell” public property — freeways or other roads, for example. Anything purchased or built with public money should never be used as a gimmick to sell tax loopholes to the private sector. Nor should it be used to steal the quality of life of future taxpayers by forcing double payment — once now and once later — for the same public property.
Fulton County was discovered, too, to have grossly mismanaged a federal housing program for at least the last eight years. As reported by the AJC’s Spotlight reporter Alison Young, some 60 percent of the $10.5 million given to Fulton since 2000 has been challenged by federal auditors.
Young’s report on the Fulton “affordable” housing disaster is timely. And fair warning. Local governments and housing organizations across Georgia will have $153 million to spend under the $700 billion federal financial sector bailout’s Neighborhood Stabilization Program. It’s another of those efforts to push money out the door with the lack of oversight and effectiveness that Fulton has established.
The money can be used for adventures that include buying bad loans, managing the repairs and leasing or selling homes. It puts local taxpayers in the position of doing something at the city and county level that those governments are perfectly incapable of doing or managing. Reporter Alison Young has given us a preview of the future. It’s not pretty.
DeKalb County Commissioners are deciding today whether to accept the $18.5 million the bailout bill makes available. They’ll take it, of course, because it’s free money. “We could be getting our citizens into some quicksand we will never get out of,” says Commissioner Elaine Boyer. “The long-term consequences of a program like this could be a nightmare.”
And then there’s the proposed $25 billion bailout of the Detroit-based automobile industry now before a lame-duck session of Congress. Rather than take the $25 billion already allocated as a loan to the industry to develop fuel-efficient cars, Democrats want another $25 billion from the bailout package.
That package, said White House press secretary Dana Perino, “was never intended by Congress to assist automakers or other sectors of the economy. It was solely intended to deal with what is an ongoing credit crisis in our financial sector.”
While it was essential to contain the panic in the financial sector, the consequences of the $700 billion will bedevil this nation for decades to come. It’s a gigantic opening for politicians to meddle, to pick winners and losers, and to create the social programs that nobody can or will hold accountable.
From a fiscal conservative’s standpoint, that necessary intervention by a Republican administration to save the financial system has opened a door that conservatives lack the numbers and perhaps the will to close. We are seeing a disaster in the making, a blending of social policy and incompetence and a mingling of public and private sector business in a way that puts their risk on our tab.
I fear there’s no stopping what the bailout has started.
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Let Detroit suffer its fate
The Atlanta Journal-Constitution
Let Detroit die.
Management and the United Auto Workers Union made this bed. Washington can’t save them. Somebody will make automobiles that Americans will buy and whether it’s General Motors, Ford and Chrysler or some other combination of companies, the cars that are reliable, fuel-efficient and stylish will survive in the marketplace. Those that aren’t, won’t. Unions that get greedy without regard to the financial predicament of their employers will find themselves priced out of existence. Plain and simple.
“Just giving them $25 billion doesn’t change anything,” correctly asserted U.S. Sen. Jon Kyl of Arizona, the Senate’s second-ranking Republican, on the program Fox News Sunday. “It just puts off for six months or so the day of reckoning.” It’s chump change for the Big Three.
The danger always of the bailout of the financial sector was that the virus would spread — and it has. Every industry facing economic distress will have the same expectation that Congress will fork over public money to carry them through, even when they’ve simply missed their market or, as in the case of the Detroit-based auto industry, they’re functioning with a marketplace model that’s broken. “They’re a dinosaur in a sense,” said U.S. Sen. Richard Shelby of Alabama, the Senior Republican on the Banking, Housing and Urban Affairs Committee on Meet the Press Sunday. “Companies fail every day and others take their place.”
The problem with public money in private companies is that it puts politicians in the position of dictating corporate decisions on products, services, pay, benefits and other aspects of corporate operations the politicians deem to represent desirable social policy.
Government intervention in the financial sector was necessary to arrest panic. The danger always has been that there’d be no stopping point. The Big Three poses the test of whether government has an exit strategy, whether it can back out of further private sector entanglement, or whether the U.S. is on a high-speed rail to socialism.
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