Bailouts

Ben Froland

As we approached the latter part of 2008 it was clear that the economy was taking a turn for the worse. Washington predicted dire consequences if we did not give them new, broad powers and pass trillions of dollars in bailouts. Unfortunately this is a case where the cure has been far worse than the disease. Let’s look at what has happened and what the results have been:
  • September 2008 – 400 world famous economists speak out against bailouts.
    • Their concerns are ignored by both Democrats and Republicans alike. (Their letter is attached at the end of this article.)
  • October 2008 – President George W. Bush signs the $700 billion Troubled Assets Relief Program (TARP) approved by congress.
    • Federal investigators have announced that they have launched “almost 20” criminal investigations into the misuse of TARP funds. The alleged crimes “may involve public corruption; corporate, stock, mortgage and tax fraud; and/or insider trading.” (Hill, 2009)
  • February 2009 – President Barack Obama signs the $787 billion “stimulus” bill approved by Congress.
    • The bill was approved by the Senate late at night and without a single member having read the whole bill.
    • A review of the bill after the fact shows that it is heavily laden with pet projects of the politicians and provides little “stimulus.”
    • The Treasury Department is given broad new powers to regulate the economy without having to answer to the people or their elected representatives. Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke continue to lobby for even greater power even though the Treasury and the Fed failed to use the powers they had to avoid the recession in the first place.
    • “Czars” are installed in positions controlling much of the countries functions, again, without having to answer to the people or their elected officials.
    • The Obama administration predicted that the stimulus package would keep unemployment rates from exceeding 8%. Record unemployment has now been reported for California, Nevada, North Carolina, Oregon, Rhode Island, South Carolina, Florida and Georgia. (Aversa, 2009) The national unemployment average is now 9.5% and President Obama concedes that the national average will exceed 10% before we bottom out.
  • March 2009 – The Fed monetizes over 1 TRILLION dollars in debt.
    • According to Allexperts.com “the government can “monetize its debt” by borrowing from the US Federal Reserve system, which is nominally under private control but is really just another part of the government. In this case, the government sells its bonds to the Federal Reserve, which creates new bank deposits out of thin air and uses them to pay for the bonds. This process creates new money and expands the money supply: hence it is called “monetizing” the government’s debt.” In other words, the government is now borrowing money from itself and just printing money.
    • Monetization generally occurs when foreign countries will no longer buy a country’s debt.
    • Monetization of debt in post World War I Germany led to hyperinflation. Germans found themselves paying 100 billion marks just for a newspaper. (Geldpress, 2009)
  • April 2009 – Chrysler files for bankruptcy. Under the terms of the government brokered bankruptcy, Chrysler will receive another $9 billion in bailout money as well as $2.42 billion from Canada. Italian automaker Fiat will be given an initial 20 percent stake in Chrysler and could own up to 51 percent in the future.
    • 789 privately held Chrysler dealerships were notified that they would be closed whether they were profitable or not. Thousands of jobs were lost at dealerships, many of which had been open for generations.
    • Thousands of workers at responsibly managed automobile companies now risk losing their jobs in the future to companies propped up artificially by government intervention. This includes Ford Motor Company as well as the “foreign” automobile companies that employ American workers domestically such as Honda in Ohio and Alabama, Subaru in Indiana, Nissan in Tenessee, Kia in Georgia, and Toyota in Indiana and Texas.
    • As a result of the bankruptcy deal with the government, Chrysler has announced that it is closing eight of its manufacturing plants. (Chrysler, 2009) This will result in the loss of thousands of manufacturing jobs.
    • The Obama administration moved the unsecured United Auto Workers union (UAW) ahead of the secured creditors of pension funds for the state of Indiana. This is illegal and was done to “reward creditors that the government deems politically important.” (Durden, 2009) As a result, 100,000 police officers, teachers, and other civil servants have lost millions of dollars that they put into what was supposed to be a “safe investment.” (Deprez, 2009)
This is not the first time that Chrysler has been bailed out by the government. In 1979 they lobbied Congress for money and they were given $1.2 billion in loan guarantees. This would ensure their corporate success in the years ahead, they claimed. A review of this first bailout in 1983 however, shows that it was a failure.

“The problem with the Chrysler bail-out—in fact, the problem with all “industrial policy”—is that it is necessarily political in nature; the loudest interest groups get the greatest reward, while the scattered and fragmented “invisible constituency” is largely ignored. But a free market is a tangled web of infinite and subtle interaction, in which the full impact of intervention is not always recognized until too late. In the case of the Chrysler bail-out, a big chunk of taxpayer money was committed to a shaky and inappropriate venture. Every American became an involuntary and uncompensated partner in a company whose future is still in doubt. The precedent established is extremely dangerous. On top of this, the bail-out even failed in its purpose.” (Hickel, 1983)

It has now been 30 years since the first Chrysler bailout and the legacy of that failure is being felt as they ask for more money once again.

  • June 2009 – General Motors files for bankruptcy despite having received $20 billion dollars in bailout money. The company stated that it had $172.81 billion in debt. Under the terms of the government-brokered bankruptcy, GM will receive another $30 billion in bailout money as well as $9.5 billion from Canada. (Strumpf, 2009)
    • 1323 privately held GM dealerships were notified that they would be closed whether they were profitable or not. Thousands of jobs were lost at dealerships, many of which had been open for generations. GM plans to shed up to 2500 dealers before they are done. (AP, 2009)
    • Thousands of workers at responsibly managed automobile companies now risk losing their jobs in the future to companies propped up artificially by government intervention. This includes Ford Motor Company as well as “foreign” automobile companies that employ American workers domestically such as Honda in Ohio and Alabama, Subaru in Indiana, Nissan in Tennessee, Kia in Georgia, and Toyota in Indiana and Texas.
    • As a result of the bankruptcy deal with the government, GM has announced that it is closing fourteen of its manufacturing plants and three warehouses. This will result in the loss of 20,000 jobs. (Hargreaves, 2009)
It is clear that the bailouts have not been worth the trillions of dollars that have been spent. Unemployment continues to increase, businesses are failing, the stock market has not recovered, banks are not lending, and consumer confidence is low. The only winners are the politicians who used the “crisis” as a tool to push through their pet projects and amass more power.

A look at other countries that have tried to spend their way out of a recession in the past would have clearly shown the futility. Argentina, Israel, and Iran all faced massive inflation after printing too much money without any corresponding increase in productivity. (Beck, 2008) In Japan, perpetual loans from the government to failing businesses have resulted in 20 years of stagnant economy. Japan’s leading stock index, the Nikkei 225, topped out in 1989 at 38,957. (Mann, 2008) Today, after 20 years of government intervention, the Nikkei languishes at only 9395.

The government would like to have you believe that by giving them more authority, they can eliminate pain and risk from your life. They have made this claim before and they have whittled away at our personal freedoms and liberties while we still experience the hardships and uncertainties that they promised to eliminate. As Benjamin Franklin stated, “Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.” The government cannot ensure your prosperity. You are the only one with the power to do that.

It is also important to remember that the bailout money is coming from you the taxpayer. Much to the chagrin of Washington, it is not theirs to spend. Furthermore, we don’t even have the money; we are borrowing the money from countries like China and our government is simply printing more money. The debt we are accumulating will need to be paid back with interest and the monetized debt in the form of the newly printed money will cause severe inflation. This will be our legacy for our children and grandchildren unless we act now.

Educate yourself, call your representatives, talk to your neighbors, vote, run for office. You can make a difference.

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