The American Spectator : Paulson's True Successor

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Paulson's True Successor

By John Berlau on 11.24.08 @ 6:08AM

Expect more of the same from Timothy Geitner at Treasury -- as in more corporate bailouts.

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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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About the Author

John Berlau is director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute and blogs at OpenMarket.org.

Letter to the Editor View all comments (6) | Leave a comment

Robert| 11.24.08 @ 9:44AM

Obama:
Before 11/4: "Change You Can Believe In"
After 11/4: "Change You Can Forget About"

Jeannine| 11.24.08 @ 11:45AM

Thank you Mr Berlau for your insight commentary on the current bailout crisis. You reinforce my philosphy: never let a bureaucrat have access to other people's money(the tax payer's). They go hog wild crazy!

Jason| 11.25.08 @ 6:14AM

1. Sounds like Geithner is a good example of the Peter Principle.
2. We can't afford more bailouts!!
http://rightklik.blogspot.com/

Daphne Kenward| 11.25.08 @ 6:03PM

Paulson's true success, depends on what he was trying to acheive.

If success is Bankrupting your country and then bailout your fat cat friends in the banking industry, yeah I'd say its been a success. Bernanki is a Zionist whose first interest is Israel and America can go to hell in a hand basket.

Ms. Know| 11.29.08 @ 2:45PM

I agree that this isn't a success, not when the elitist illuminati want to shut down more businesses by raising taxes and handing out government giveaways.