Does Obama’s bullying of investors portend real problems for the US?
Johnathan Pearce (London) Globalization/economics • North American affairs
I have not written about the subject of the Chrysler bailout so far since, not being close to the action in the US, I did not feel I had much to say that was not already voiced by the US blogs. But it does occur to me that there is a general problem right now in the way that the US administration – and arguably the UK one as well – has been acting in respect of bailouts of certain industries, such as carmakers as well as banks. What do I mean? Well, this report (H/T: Instapundit) suggests there is real fear about the “Nixonian” tactics employed by Mr Obama’s administration against bond-holders who have been angered by the expropriation of their capital via the Chrysler bailout.
For those who have not been following this story, bond-holders have been pushed to the back of the queue, as far as potential recovery of capital is concerned, with the auto union membership getting preferential treatment. Maybe Mr Obama figures that investors can be rained on right now because it is more important to get the votes and support of traditionally Democrat-leaning car workers. With mid-term Congressional elections a couple of years away, he will have his sly, Chicago machine-politics mind working out how to garner important support in the event that the US economy is still sluggish by that time. But pissing off investors – such as, let it be noted, pension funds – is not smart. The US requires large amounts of capital for any economic recovery that may take place. Ask yourself one of the most basic questions any investor should ask: can I get my money back if I need to? If the answer is no or only maybe, and if there is the threat of governments robbing investors, then less investment occurs. The problems of such behaviour explain why, for example, Africa has been such a bad investment bet for so many years.
It is an ugly business. Part of the trouble with the automakers is that even if they had been put into a Chapter 11 bankruptcy process, with the banks and bondholders put on a more even footing for any recovery of assets, there is still the issue of what to do about the enormous unfunded pension obligations that these heavy industrial companies have. It is the same with airlines and steel. I have heard it said of British Airways – to take a UK example – that is is a pension scheme that happens to have a lot of aircraft. The pension tail can wag the corporate dog. And that is a hideous issue to deal with against the background of an ageing population. So in fairness to US policymakers, running down Chrysler involves dealing with a lot of tricky contractual issues.
Even so, it strikes me that the Obama administration is showing a level of political ruthlessness and “bugger-the-investor” attitude that is hardly going to endear people towards investing in that economy. My fear is that Mr Obama is making the cynical calculation that memories will fade; after all, how many investors in the UK remember how the Blair government, in the form of the charmless Stephen Byers, the-then industry minister, shafted investors in Railtrack?
Like I said, an ugly business.
As usual, there is no such thing as accountability within the Obama Administration:
This morning, Fannie Mae (FNM) announced that it had lost another $23 billion in the quarter, and would have to call down $19 billion more in taxpayer support. It also said that it would face losses as far as the eye can see.
Do you know how much we’ve committed to backstopping Fannie and its partner-in-crime Freddie Mac (FRE)? $400 BILLION! Back in February that was doubled from the original $200 billion.
But the news of the quarterly loss is getting hardly any attention. Nothing here at the NYT business section, for example. Nothing at the blogs that were going nuts when AIG was revealed to have paid out bonuses back in March.
The problem is that the Fannie and Freddie disasters don’t fit into any conventional media narrative. At AIG you had Joe Cassano, lurking in the shadows, turning AIGFP into his own personal casino, while taking home gargantuan pay.
Fannie Mae? They help nice families get into homes. Their motto is something about helping the people who help house America. Who could be against that? Plus, the Fannie and Freddy story doesn’t help explain the idea that laissez-faire deregulation is what allowed Wall Street to go crazy. Fannie and Freddy had their own freakin’ regulator, OFHEO. Two companies with one regulator to look into both of them.
And then you have all the Democrats on the inside (Rahm Emanuel, for example) on the outside (Barney Frank), who have ties to the company’s worst years.
If AIG (AIG) ever has to ask for one more dollar to pay counterparties like Goldman Sachs (cue the ominous music!), there’ll be a fresh round of media outrage. Fannie and Freddie continue to blow through cash though, and it goes without a peep, depriving the public insight into one of the more important aspects of the housing bubble and the crisis.
FIRST, there is news that the Treasury Department REFUSES to keep tabs on how money is being spent:
It is safe to assume, however, that the investigations now in progress represent not even the tip of the iceberg. The most troubling feature of the SIG’s report is its documentation of reluctance on the part of Tim Geithner’s Treasury Department to make even modest efforts to protect the interests of the taxpayers. To take just one glaring example, Treasury has refused to require banks to account for what they do with the billions of dollars they receive in TARP money:
Treasury has indicated, however, that it will not adopt SIGTARP’s recommendation that all TARP recipients be required to do the following:
• account for the use of TARP funds
• set up internal controls to comply with such accounting
• report periodically to Treasury on the results, with appropriate sworn certifications
In light of the fact that the American taxpayer has been asked to fund this extraordinary effort to stabilize the financial system, it is not unreasonable that the public be told how those funds have been used by TARP recipients. Treasury is now conducting regular surveys of the banks’ lending activities; however, with the exception of Citigroup and Bank of America, Treasury has refused to seek further details on TARP recipients’ use of funds.
Not just failed, but “refused.” The report adds:
The American people have a right to know how their tax dollars are being used, particularly as billions of dollars are going to institutions for which banking is certainly not part of the institution’s core business and may be little more than a way to gain access to the low-cost capital provided under TARP.
Barack Obama’s hundred days have not gone as badly as Napoleon’s. In money terms, however, they have been considerably more expensive. Since his inauguration on January 20, 2009, President Obama has proposed new spending programs that will add over the next 10 years $6.5-trillion (all figures U.S.) to the American national debt. That’s $6.5-trillion over and above the debt that would have been incurred had the existing policies been left alone. (Not that those existing policies were so great either.)
That’s $65-billion in new debt every single day of the first 100. Expensive.
And this figure is surely too low, because it is based on (1) almost certainly unduly optimistic assumptions about the growth of the U.S. economy over the next few years and (2) unduly optimistic assumptions about the costs of President Obama’s health-care ideas.
Congressman Lacy Clay represents my district. He’s never responded fully to a question. However, I consistently bug his office about federal government spending. The same goes to Claire McCaskill (but I do substitute the appropriate words to directly address her).
Here’s the latest question
Dear Congressman Clay,
As a long-time Missouri, and a first generation Mexican-American, I had two questions concerning the stimulus plan earlier this year and the upcoming votes on the Federal Budget.
(1) How does passage of the stimulus bill in February, which OVERTURNED Clinton’s welfare reform provisions of the mid-1990s, benefit St. Louis taxpayers?
(2) How does the government’s pledge to spend more money this year (in terms of the stimulus package and the federal budget) than what the entire US GDP output was last year benefit St. Louis taxpayers?
PLEASE give an actual response. Your office has never returned this constituent’s questions about federal government spending.
A St. Louis (and Federal) Taxpayer
I’m actually surprised that Rangel didn’t use the old mantra that it’s racist to question a black man. Seriously. At least he was honest about how he feels about reporters doing…ya know, actual reporting.
Our intrepid Hot Air TV special correspondent Jason Mattera is back on Capitol Hill! You’ve watched him corner smear merchants Jack Murtha and John Kerry, ask William “Cold Cash” Jefferson for bribe-freezing tips, and roam the Democrat National Convention in an orange Gitmo suit exposing far Left insanity. This time he catches tax cheat Charlie Rangel and confronts him about his mounting ethical and financial scandals.
Charlie Rangel’s message for Jason – and for all you bothersome taxpayers wondering about his shady rental property deals, publicly-subsidized Cadillac, and unpaid taxes:
“Why don’t you mind your goddamned business?”
The Treasury Secretary is open to suggestions…to anyone. Including Obama.
Has someone else noticed a pattern here with Obama’s nominees to cabinet level, or the equivalent, positions?
- Ron Kirk (Democrat) – Mayor of Dallas, TX – Nominated to be the US Trade Representative – Fails to pay income taxes for three years.
- Tom Daschle (Democrat) – Former Senator of South Dakota – Nominated to be the Sec. of Health and Human Services – Fails to pay $128,000 in income taxes over two years.
- Nancy Killefer (Democrat) – Former Deputy Director of the Office of Management and Budget – Nominated to be the first chief performance officer – Fails to pay employment taxes on household maids for a year and a half.
- Timothy Geithner (Democrat) – Former Treasury official – Nominated to be the Treasury Secretary – Fails to pay income taxes for three years and fails to pay employment taxes on household maids for half a year.
Honorable Mention and Runner-Ups
- Bill Richardson (Democrat) – Governor of New Mexico – Nominated to be Commerce Secretary – Charged by a grand jury for accepting money in exchange for political favors back home.
- Charles Rengal (Democrat) – Representative from New York – Chair of the House Ways & Means Committee (responsible for writing the tax code) – Fails to pay $75,000 in rental income.
- Chriss Dodd (Democrat) – Senator from Connecticut – Chair of the Senate Banking Committee (Responsible for overseeing banks and mortgage insurance companies) – Fails to explain how he received a free cottage in Ireland after helping a felon-on-the-run get a presidential pardon from Clinton AND how he managed to get a low-interest loan from CountryWide Mortgage (a company he is suppose to be regulating and overseeing) when others could not.
- Jack Murtha (Democrat) – Representative from Pennslyvania – Chair of the House Defense Appropriations Committee (determines how much money is spent on national defense) – Has been accused of accepting lobbyist contributions to his campaigns in exchange for funneling defense contracts to his contributors.
- Rahm Emanuel (Democrat) – Representative from Chicago – Current Chief of Staff or Obama – Has been paying zero rent since moving to DC.
- Louis Susman (Democrat) – Banker from Chicago – Fundraised for Obama and “gave” $300,000 for the inaugural ball – Tapped to be the Amabassador to England which is a break from his promise to have nothing to do with “pay-to-play” politics.
It sounds like there just might be a corruption problem when it comes to Washington! And for those of you who want to say “but the Republican’s do it too!”, remember that
- (a) Democrats are in charge of both the House, Senate, and the Presidency, and
- (b) It’s a bit hypocratic to say that it is patriotic to pay taxes for programs that American may not want when it’s own political leaders aren’t even paying taxes, and
- (c) Show me who within the GOP currently has the same amount of personal problems as the Democrats, and, on top of that,
- (d) Congress (which is runned by Democrats) killed a bill that would have required the Ethics Committee to investigate lawmaker-lobbyist ties.
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