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We are moving ever more quickly into socialism and, if the inevitable huge jump in inflation kicks in before our economy can recover, then we will have stagflation that will make us pine for the good old days of the Carter economy. The Obama administration is now seeking to take effective ownership of both our auto industry and our banking industry. This is on top of the cap and trade plan and Obamacare. And it is on top of massive public spending that threatens us with more debt than that created by all previous administrations combined. And that's only the first 100 days. There are many more to go. Indeed, when cap and trade and Obamacare hit, the numbers get too big for my five year old calculator.
Let's tick these off, one by one. The government refused banks the right to pay back TARP funds and floated a plan, still alive as far as I know, to coercively turn TARP loans into common stock, effectively nationalizing the banks and giving the Obama administration the right to set bank policy. Since it was setting bank policy through the Community Reinvestment Act that is at ground zero of our economic crisis, this ought to be doubly troubling.
As to the auto industry, we have already seen the incredible intervention of Obama forcing the CEO of GM to step down - apparently to get someone in the top spot who would be more amenable to the government's plans for the company. Now we have the government floating a plan that for GM and Chrysler that would have the government become the primary owner of both, with Big Labor as a junior partner. As to holders of common stock and bond holders who are legally entitled to far more - well, they are evil capitalists anyway who didn't likely vote for Obama, so they get shafted. See here, Powerline and Big Lizards.
Just to add here problem with government ownership of the means of production is that they will direct production and costs in ways that help them politically - or that are ideologically driven - rather than do what makes economic sense for the business and its customers. It is only the latter that helps all parties. It is why not a single socialist economy has ever prospered. Well, the ruling elites and their cronies all prosper, but the average Jack and Jill certainly do not.
Then there is the Troubled Assett Relief Program (TARP) that is growing in size and corruption by the day. As reported in the WSJ, Neil Barofsky, the Special Inspector General (SIG) for TARP, spoke before Congress in February, telling the legislators that far more transparency was needed to prevent vast fraud and abuse. At the time, Treasury concurred and said that they would institute changes to the program. Treasury since has dug in its heals and it really looks like TARP is out of control. The Special Inspector General (SIG) issued a report to Congress just the other day. I have not yet had time read the Quarterly Report of the Inspector General to Congress, but Powerline did - and their report is troubling indeed. Some snippets:
- - report documents the stunning and at least partly illegal expansion of TARP from the $700 billion originally allocated by Congress to what is now a $3 trillion complex of programs.
- - 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.
- - The Treasury Department is now managing a vast portfolio of "troubled assets" on behalf of the American people. It has not, however, developed any plan for how to dispose of them, or how to manage them
- - The SIG discusses the "Public-Private Investment Program," one of the most controversial aspects of TARP. PPIP is intended to form public-private "partnerships" to buy distressed assets, mostly mortgage-backed securities. But the vast majority of the risk lies with the taxpayers, while the program is rife with opportunities for connected insiders to make a fortune.
There is much more and, if you do not have the time to read the SIG report, I would urge you to see the post at Powerline. As John Hinderaker sums it up in his post:
1) The government's $3 trillion and counting TARP program represents the greatest opportunity for sharp operators to profit at taxpayer expense in history.
2) The Obama administration is either in favor of giving Wall Street sharks this opportunity or, at a minimum, doesn't much mind doing so. (If this seems odd, remember where Obama got the biggest chunk of campaign contributions in 2008.)
3) It may be that the TARP complex of programs is the beginning of a national-socialist type takeover of the financial services industry by the federal government.
4) We can only hope that this turns out not to be the case, and TARP is only the biggest--and perhaps, by the end of the day, the crookedest--waste of taxpayer money in history.
5) so far the only person or organization who appears to be looking out for the taxpayers is the Special Inspector General. We will be reading his future reports with great interest.
Why is it that we did not see this splashed across the papers as a huge scandal in the making?
One last note relating to TARP, though hardly least in importance, is that the programs - and people - who gave us this economic meltdown are still in place. As I wrote months ago, our credit rating system - the one that regularly gave us triple-A ratings for mortgage backed securities based on subprime mortgages - was completely broken. It was a huge contributing cause to the mess we are in, and truth be known, it is wholly unclear why and how this happened. Regardless, as the SIG wrote in his report to Congress, and as quoted in the WSJ, "credit ratings on residential mortgage-backed securities (RMBS) 'have proven to be unreliable and largely irrelevant to the actual value and performance of the security. Arguably, the wholesale failure of the credit rating agencies to rate adequately such securities is at the heart of the securitization market collapse, if not the primary cause of the current credit crisis.'" So can we at least get a correction of the systemic problems in our credit rating industry? Fat chance with Barney Frank at the helm. Indeed, Barney Frank's sole contribution to adjusting the credit rating system since Obama and cronies took power was to call on credit agencies to give higher ratings to municipal bonds than their risk justifies so that states could raise more money.
As to Obama's plan to revitalize the economy, he rammed through his massive spending bill without any meaningful debate. While tax cuts gets the money into the economy near immediately and can have long term effect as businesses expand, government spending can take years to have any impact and the effects are largely transitory. As far as I can tell, we have yet to see in history a government successfully borrow and spend its way out of an economic crisis such as we are in. It did not work for FDR, and most recently, it did not work for Japan. Dale Franks at Q&O has done a very interesting post how closely our current economic plans mirror those that failed utterly in Japan in response to its own financial crisis.
Then there are Obamacare and cap and trade. The former is an intermediate step towards socialized medicine expected to add a trillion dollars to our tax bill. The latter is designed to force us off of oil and coal - at the modest initial annual cost of $4k per American family - and into a world of green energy that does not exist. Those pushing cap-and-trade the most are those people and industries who stand to make a true windfall - GE and Al Gore chief among them.
Further, Obama is now warring on domestic production of energy plants using coal - and I seriously doubt this administration will consider any sort of expanded domestic oil production. Oil costs are low now. That said, the pendulum will, as it always does, swing. The massive markets for oil in China and India will again take hold. When it does, we will be even less prepared for the huge jump in oil and gas costs then when we were a year ago, when merely $4 a gallon for gas was putting a world of hurt on American families. Obama, despite his promises to the contrary during the campaign, is doing nothing to prepare us for this inevitability.
We are in a mess and the left, having primed the nation with class envy and then convinced a majority that they could improve the economy, are now spending us into penury for generations to come. Obama - who in fact himself bears some personal responsiblity for our current financial crisis through his strong arming of Chicago banks on behalf of ACORN - is nothing if not an opportunist. He and his like minded cronies are using the economic crisis to work a fundamental change to our nation. We are on the road to European socialism. I wonder if we will even stop there between now and 2012? Or will we run past that line following the rainbow to Utopia?
