Washington is operating today as if we have been conquered by a foreign power that has suspended our democracy and doesn’t care what the American people think.
The Tea Party, with overwhelming agreement from the America people, opposes any further TARP bank bailouts. But just as with the health care bill, Washington’s ruling Democrats are laughing off the Tea Party, and ignoring the American people.
President Obama’s so-called Financial Regulatory Reform bill institutionalizes permanent TARP bailout authority across the entire financial sector, indeed, for any company that can be deemed involved in financial activity of any sort. Washington is operating today as if we have been conquered by a foreign power that has suspended our democracy and doesn’t care what the American people think.
The bill led by Senate Banking Chairman Chris Dodd (D-CT) (not running for reelection), which President Obama supports, grants permanent bailout authority to the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, and the Treasury. They are empowered to force into receivership any company they deem in danger of default that is “substantially engaged in activities… that are financial in nature.” The Federal Reserve and the Treasury would enjoy the power to define what constitutes “financial activities.” The Federal Reserve can declare any enterprise “a non-bank financial company” which can be seized and liquidated.
This takes potential bailouts and takeovers well beyond banking, even beyond the financial sector, to almost any business in the country. For who is not engaged in activities “that are financial in nature,” which at least arguably includes credit cards, lending, borrowing, insurance, issuing stock, selling on time, participating in exchanges of any sort, brokerage, pensions, and buying, selling, and holding stock, securities, foreign currencies, commodities, or speculative instruments of any sort. The auto companies have had their own finance arms, and other large manufacturers facilitate financing for their customers as well.
No further Congressional authorization would be needed for firms to be seized, for unlimited funds to be spent on bailouts, and for the FDIC to impose new levies on financial institutions to get more bailout funds. The shareholders of any such seized company need not be compensated for the loss of their property, and are unlikely to be. The Dodd bill provides that the shareholders are not to receive any such compensation until all claims against the company, and the Federal bailout fund, are fully repaid.
The Feds have access to unlimited funds under the bill because it authorizes the FDIC to borrow from the Treasury “up to 90 percent of the fair value of assets” of any company it seizes. As AEI scholar Peter Wallison notes in the Wall Street Journal on Monday, “one institution alone — Citigroup — has assets currently valued at about $1.8 trillion.” Wallison explains that one of the uses of such funds under the Dodd bill is for the FDIC to
“make additional payments” over and above what a claimant might be entitled to in bankruptcy, if these payments are necessary “to minimize losses” to the FDIC “from the orderly liquidation” of the failing firm. In other words, the agency would be able to borrow huge sums so that it could make more generous payments to creditors than they would receive in bankruptcy.
This is one form of bailout authorized under the bill, with the government smuggling funds to politically favored creditors.
The biggest problem with this is that it would encourage lenders to fund “too big to fail” institutions, enabling them to increase leverage with cheap money, and pursue riskier returns. Such moral hazard perpetuates cycles of failure, economic waste, inefficiency and bailout. It also disadvantages smaller, less politically favored banks, institutions and companies who will suffer without these competitive advantages of too big to fail.
Another possible bailout method under the Dodd bill is for the government to keep a firm in operation after seizing it, using the borrowed funds to pay off creditors. The FDIC would also have the power to keep the company operating by issuing securities of the seized firm to be sold to the Treasury, which could then keep or sell the securities. Another source of such bailout funds is the $50 billion resolution fund financed by a new tax on large financial institutions, with the FDIC authorized to charge additional assessments as necessary.
With just about any company subject to such possible seizure, and then continued operation, the potential for bailout socialism is obvious. How about using it to seize financially flagging media companies, particularly Administration critics? How about using it to seize oil companies, or coal companies, claiming they are no longer economically viable under cap and trade or other EPA global warming regulation? Then they can be used to subsidize alternative, green energy.
The Crony Capitalist Political Machine
Still another option under the Dodd bill is for the government to seize the competitors of politically favored institutions, and even to sell those seized firms to the favored too big to fail operations. All of these possible government seizures and bailouts are expressly shielded under the bill from any judicial review.
With such arbitrary government power to favor some firms and punish others, the financial community, and, indeed, business overall, will be political captives of the Obama Administration and the reigning Washington Democrats. If the permanent bailout bill passes, what financial company is going to participate in any way in a fundraiser for a 2012 Obama challenger, or even Republican Congressional or state candidates? What company will dare not pay protection money in the form of political contributions to the reigning Democrats?
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
The debacle of this president’s administration is both a cause and a symptom of the decline of American values. Unless Congress impeaches him, that decline will go on unchecked. An eminent jurist surveys the damage and assesses the chances for the recovery of our culture.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
The American Christmas, like the songs that celebrate it, makes room for everybody under the rainbow. Is that why so many people seem to be hostile to it?
Was the President done in by the economy, or by the politics of the economy?