The American Spectator

Special Report

Paulson's True Successor

By John Berlau on 11.24.08 @ 6:08AM

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Taxpayers are on the hook for $85 billion, and the government granted AIG another $40 billion. But taxpayers are not the only parties who lost from this "rescue." The government bailed out creditors holding AIG-issued credit default swaps as well as top employees who are still partying hearty at fancy resorts. But the government's effective nationalization of AIG -- taking 80 percent of its stock and stopping the issuing of dividends -- left millions of ordinary shareholders high and dry. As Alan Reynolds of the Cato Institute writes, this bailout gave "bondholders more protection than they'd otherwise see -- at stockholders' expense."

The arbitrariness of the government's action has made it much harder for other financial institutions to raise money through issuing stock, because investors have to take into account the risk of a government wipeout of their shares as well as market risk. As Reynolds writes, "This new risk of forced mergers or a government takeover artificially depresses the stock prices of vulnerable firms."

Market conditions worsened, and this led Paulson to come up with the Troubled Assets Relief Program (TARP), which Paulson rammed through Congress, and which again, Geithner was heavily involved in designing. Geithner, reports the Wall Street Journal, was "at the center of the government bank rescue, which has drawn criticism from Democrats -- as well as Republicans."

And Republicans and Democrats who dislike corporate welfare and like transparency in government should express a bipartisan concern about Geithner's nomination. Conservatives will probably disagree with most of the views of anyone President-Elect Obama chooses, but candidates like Volcker and Summers would bring more experience to the job and aren't tied to Paulson's sordid dealings. One thing Obama should not want to do is fulfill the prophecy from that profound political philosopher Pete Townsend of "Meet the New Boss" --  as in, "Meet the new boss, same as the old boss."

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