Nathan Scandella (personal)

No More Bailouts without Accountability

When the bailouts started earlier this year with Uncle Sam loaning $30B to JP Morgan to buy Bear Stearns, I said we were on a very slippery slope. Rewarding private entities who didn't deserve it, just because it might yield a good result, was a dangerous game. As it turns out, the Bear Stearns bailout wasn't enough, nor was the Fannie Mae and Freddie Mac bailout, nor the AIG bailout. We've decided to break the bank and dump $700B into the financial sector (plus another $140B of pork to go with it).

And now, we find out that the money already dumped in isn't all getting lent out. Banks are seizing the opportunity to use their government handout to buy other, weaker banks. Why not? This is a golden opportunity to squeeze out competition, and after you're done buying other banks, if you are once again cash-strapped, you can just go back to the government and claim you need more. If you're a bank, you don't need to start lending until your competitors start lending. The longer all the banks can hold out, the more of whatever wealth is left after this crisis will belong to them. Buying struggling competitors has also gotten even sweeter for banks because the Treasury snuck in a tax law change while we were distracted with the bailout. This change will give the banks another $100B or so.

How the hell could we be so stupid? Why weren't strings attached to this money? There should be guarantees, in writing, that every recipient of federal bailout money be required to lend out every dollar they receive. Actually they should be required to lend out far more than that, since fractional reserve requirements allow these charlatans to loan out several dollars for every dollar of capital they have.

What, are we trying to preserve some illusion that we haven't socialized our banking system? Do we not want to hurt the feelings of all the business school grads who mistakenly believed that the private sector could be relied upon to govern itself? Let's be serious here. We are bailing out the banks. They did need the government to prop them up, and they are waiting for the government to solve the problem here. So, let's do it. We give them money, they have to put it back into the economy. If they don't like being told how to run their business, they don't have to take the bailout money. The government can give banks a choice.

When Warren Buffet, who has considerably less purchasing power than the US Treasury, decides to buy billions worth of stock at a time when share prices are depressed, he gets a deal. Why not? He knows that the endorsement of his money is good PR, not to mention the value of the extra capital. He doesn't just login to his E*Trade account and buy shares at market prices. He gets a deal, in exchange for his much needed capital. The government should demand similar benefits. They don't need to get below-market prices. In fact, since the government announces purchases of bank stocks before they actually do it, they have built in above-market prices into their purchase. In exchange, they need to make damn sure that the money they spend will get used to create credit, not to fund takeovers that banks have been eying for years.

Now, Big Auto wants a bailout, too. What a surprise. If we give it to them, and I'm not sure we should, then we need to attach some strings to that money, too. No more uber-SUVs. No more sexy advertising blitz, pushing trucks that tow thousands of pounds, dangling off cliffs, while leaving their small cars to sell themselves. No more 8 cylinders. No more barely passing CAFE standards. You want bailout? You'll sign up to even tougher fuel economy standards. Don't like it? No bailout money. You will not continue to make products that guzzle only one fuel; that being a fuel that we have to import, whose price fluctuates wildly, and whose supply requires us to fight wars. GM, Chrysler, and Ford have all the technology and skill to build cars that don't rob their customers blind at the pump, and don't put our planet on a slow boil. They just don't have the willpower. Now is the chance to give it to them. They have their hands out. In any other circumstance, they'd continue feeding us the same lies about how they can't yet build what we're asking of them. In this case, they won't have an option. If we don't seize the opportunity to coerce Detroit into acting responsibly, it'll probably never happen.

We've already witnessed, in the last six years, what happens when you dump massive sums of money into a cause, with no accountability. Yes, that's Iraq. We had many opportunities to tie our support to actual milestones for the Iraqis. But, President Birdbrain said "No. No stringification." And so, our money has continued to burn along with our Humvees. Let's not let that happen to another trillion dollars.

Posted at 02:21AM Nov 09, 2008 by Nathan in Politics  |  Comments[1]