Obama to Give Capitalism Seizures

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So here's today's big story:

He had a seizure on the sidewalk and they wrapped him up tight

The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy, according to an administration document.

The government at present has the authority to seize only banks.

Giving the Treasury secretary authority over a broader range of companies would mark a significant shift from the existing model of financial regulation, which relies on independent agencies that are shielded from the political process. The Treasury secretary, a member of the president's Cabinet, would exercise the new powers in consultation with the White House, the Federal Reserve and other regulators, according to the document.

The administration plans to send legislation to Capitol Hill this week.

A follow-up question: What will be the definitions of 1) "non-bank financial companies" and 2) "whose collapse would damage the broader economy"? Because if recent history is any guide, the answer will be 3) at the least, such non-financial and non-gargantuan companies as seat-cover manufacturers.

A brief history of time: In September, then-President George Bush signed into law the Emergency Economic Stabilization Act, which created the Troubled Assets Relief Program (TARP), authorizizing the Treasury Department "to purchase, and to make and fund commitments to purchase, troubled assets from any financial institutions." Note that this doesn't mean "take a controlling interest" in financial institutions, which is why the administration's new plan is such an eye-opener. Still, consider the ensuing politicization and mission creep:

* In November, GMAC, which is the financing arm of troubled automaker General Motors, asked the Federal Reserve to be designated as a bank, so that it could receive TARP funds.

* In early December, president-elect Barack Obama declared that "The auto industry is the backbone of American manufacturing," and therefore "I don't think it's an option to simply allow it to collapse."

* In mid-December, lame duck President Bush announced that GM and Chrysler would get TARP funds regardless of their decided non-bankiness, an action that Reason Senior Editor Jacob Sullum accurately described as "illegal by definition, not to mention unconstitutional." Obama called the move a "necessary step."

* In March, hands squarely on reins, the Obama administration announced that $5 billion in TARP funds would go to companies that couldn't even pretend to have a serious financing arm: namely, auto parts manufacturers. One of the bailed out suppliers, American Axle, has sales of just a couple billion dollars per year.

Now let's look back again at the original TARP-creating bailout, just six months before. Here's what then-Treasury Secretary Henry Paulson said at the time:

We must now take further, decisive action to fundamentally and comprehensively address the root cause of this turmoil.

And that root cause is the housing correction which has resulted in illiquid mortgage-related assets that are choking off the flow of credit which is so vitally important to our economy. We must address this underlying problem, and restore confidence in our financial markets and financial institutions so they can perform their mission of supporting future prosperity and growth.

We have proposed a program to remove troubled assets from the system.

Got it? TARP was specifically designed–actually I think "sold" is the technical term–to sponge up "illiquid mortgage-related assets" owned by giants in the financial sector. And in less than half a year it was being used to throw cash at manufacturing midgets.

There are many, many reasons to oppose giving the Obama administration "unprecedented powers" to nationalize companies. But surely here's one: If less-absolute power corrupted so totally in six short months, just how voracious will an unchecked Treasury be under unified Democratic governance? And if the root problem is indeed an "illiquid" market, how in hell do you incentivize the trading of assets and companies–in other words, liquifying markets–by empowering the single biggest financial entity in the country to pounce willy-nilly on companies based on political decisions?

This is disaster socialism at its unfinest, and for six months' worth of reasons why, click here.

NEXT: Reconsidering Franklin Roosevelt

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  1. I was all for us doing the American thing and letting the free market sort itself out without all this govermne tnannism. But since they are going to be socialist about it anyway. WOULD NOT THIS HAVE FIXED THE PROBLEM
    Step 1
    Give the money to the idiots who cant pay thier morgatge, car note whatfuckever. Then the banks have thier loans back in good standing. the people have their socialist little homes, and the recession/depression is avoided altogether

  2. No way this is going to go through.

    No fucking way.

    ….right?

  3. The Challenged one and his special needs cabinet strike again. New Zealand is looking better all the time.

  4. spongepaul, now that makes sense. It’s all because of defaulting loans right? Just pay the loans and it’s all better. Even I can understand that. I suppose it would have cost less as well.

  5. What will be the definitions of 1) “non-bank financial companies” and 2) “whose collapse would damage the broader economy”?

    1) Any company that either pays or accepts finances.
    2) Any company the SecTrez damn well says.

  6. I thought the answer to “2” was “if anyone loses a job”

  7. This is off-topic, please don’t shoot me.

    Rod Blago-however-you-spell-it is going to be on WLS AM 890 from 7 to 9 AM Central time tomorrow. He is going to be filling in for/ hosting the Don and Roma show, taking calls and talking to guests.

    http://wlsam.com/Article.asp?id=1234460&spid=18042

    you can listen live at http://www.wlsam.com

    I might actually try to get to work before 9AM so I can listen.

  8. As I said earlier, it’s a sad, sad time to be alive. This is then end of the great experiment called the U.S.

    If the above referanced powers are given to the Treasury, that is, if the government begins taking control of private companies, what is left in this country that can be considered “free”?

    We have:

    -No private property (thanks, New London, Conn.)
    -No private enterprise (soon gone)
    -No control of health decisions
    -No free speech (FCC, “Free Speech Zones”, takeover of news organizations)
    -No right of denfense (Heller was basically ignored)
    -No say in government (Executive power consolidation)
    -Daily attcks by our authorities (see Balko, Radley)
    -No rule of law (contradictory and intrusive laws make everyone a criminal by law, making law enforcement subjective)
    -No right to a fair trial (see Bush, George W.)
    -Cruel and Unusual Punishment (see Arpiao, Sheriff Joe)
    -No States’ rights (see DEA, Highway Funding)

    Fuck, all we need to do is to start quartering soldiers and we’ve invalidated every fucking right we’re supposed to have.

    Freedom is dead, we are slaves to the state and we haven’t even begun to realize it yet…

  9. I’m too mad to type correctly, sorry…

  10. I thought the answer to “2” was “if anyone loses a job”

    Reinmoose, if we’re not going to wait until Iraq actually attacks someone before invading, why would we risk waiting until someone actually loses her job before we nationalize her employer?

  11. Geez Taktix, it’s bad enough without having to exaggerate. To say we have “no free speech” because of the FCC and not being able to be right next to the president at his appearances is a bit melodramatic, don’t you think? We have oodles more free speech than in Canada, for instance.

  12. I dunno, as someone said when this stuff first was starting:

    We won’t be socialists. Socialists nationalize *successful* companies.

  13. Geez Taktix, it’s bad enough without having to exaggerate. To say we have “no free speech” because of the FCC and not being able to be right next to the president at his appearances is a bit melodramatic, don’t you think?

    It’s not complete, but how about: McCain-Feingold, eventual internet regulation (you know it’s coming), newspapers (you think that bailout comes with no strings?), increasing zealotry at the FCC I should say, more draconian permiting to shut down protests, increasing non-leathal weapon technology to shut down protests…

    Just to name a few…

  14. Good boy, Comrade Barak, you serve the cause well. All power to the workers. The new day has come as the sun rises above the United Socialist State of America.

  15. One of those things has happened so far, Taktix.

    One. Yes, there are dangers to our freedoms, but the cause isn’t helped by getting all hysterical.

  16. This question about what “non-bank finance companies” are is an important one. If it means finance companies as in “state-regulated, non-bank subprime lenders”, well, okay, that has a certain meaning. However, I’ve encountered some very broad definitions of financial institutions in the various BSA definitions as well as under ECOA and GLB (esp. its privacy provisions). It could end up including any entity that touches lending–like auto dealers, pawn shops, retailers, casinos, etc.

  17. But I must admit it does get worse in this summary of today’s testimony to Congress:

    Geithner suggested his Treasury Department’s powers be expanded. Bernanke was noncommittal, even suggesting the FDIC.

    Anyone surprised that a politician wants more power? Bueller?

    Both officials sought to channel the widespread public outrage over the millions of dollars AIG spent in post-bailout bonuses into support for regulatory overhaul. Geithner was expected to lay out more details on the administration’s plan Thursday when he appears again before the committee.

    Wait a minute…I thought Geitner and Obama were taking responsibility for fucking this up. Now they’re asking for more power to make sure they don’t fuck up again? I need to feel the walls of my room — I’m half expecting there to be padding!

  18. Oh yeah, here’s the link to the summary

  19. Hugh –
    Touche

  20. Yes, there are dangers to our freedoms, but the cause isn’t helped by getting all hysterical.

    Dude, the Federal Government proposed taking over the country’s banks today.

    Just let that sink in and tell me it’s not cause for alarm…

  21. What will be the definitions of 1) “non-bank financial companies”

    Any family trust with more than $10K in assets, I’ll bet.

    -jcr

  22. No right to a fair trial (see Bush, George W.)

    That started way before GWB.

    -jcr

  23. Or rather, the Federal Government has proposed taking over some of the largest companies in the country, and the companies that control most of the money flow of the country…

  24. So, if the bar where I run a tab has troubles paying the bills does Geitner come to the rescue? After all serving wenches would be damaged. Aren’t they part of the “broader economy”?

  25. that would be a good way to by pass the 2nd, just take over the US arms companies and shut them down.

    Good thing i am 75% foreign on mine…

  26. Matt Welch should have written a book called “Obama -The Myth of a Martyr,” a few years before the election. That way, Reason could have switched editors at the last minute AND they wouldn’t have been in the tank for Obama for the last few months running up to the election.

  27. give the money to the idiots who cant pay thier morgatge, car note whatfuckever. Then the banks have thier loans back in good standing. the people have their socialist little homes, and the recession/depression is avoided altogether

    Jon Stewart has been saying this on his show for a long time and it does make sense.

    If the problem is all these mortgages that aren’t going to be paid, why not take a Trillion dollars and give it to the people in debt to pay the mortgages and let that money trickle up to the banks.

    That wouldn’t be any worse than handing out the money to banks and paying top dollar for assets that aren’t worth sqaut.

  28. That started way before GWB.

    Sorry, am at work and posted hastily. I don’t want to be accused of being a mindless anti-Bush-bot…

  29. What will be the definitions of 1) “non-bank financial companies”

    Any family trust with more than $10K in assets, I’ll bet.

    Don’t think for a moment that the “progressives” don’t have their eyes on your 401K.

  30. The cause isn’t particularly helped by pretending it’s not happening either.

    Iraq is a success. Mission accomplished. Dead enders.

  31. Here’s where I agree with Taktix?: The shackles that limited government heretofore have been loosened. Has the government taken full advantage of its unshackled state? Not yet. But it’s pushing things mightily and, from administration to administration, on all fronts.

  32. George Will reference the biggest problem which is that the Federal Reserve bank, once considered semi-independent, has in a few short months become a extension of the executive branch, directly acting on presidential political orders.

    I.e. direct fiat control of the banking system by the president.

  33. Don’t think for a moment that the “progressives” don’t have their eyes on your 401K.

    I’m not worried about that one.

    It’s the Roth IRA I’m concerned about.

  34. …and not being able to be right next to the president at his appearances is a bit melodramatic, don’t you think?

    I think it’s more than just this. The fact the government creates “Free Speech Zones” and forces them to only be able to protest within those defined cages is clearly a restriction on the right of the people to assemble.

    It’s one thing to say that for security concerns you can’t assemble right next to the President, and quite a different thing to say that “You can only assemble in this area — a few miles away from where the press or the politician you are protesting can see you”.

    There’s reasonable limits for a legit purpose like security, and then there is unreasonable bullshit (like free speech zones at the Conventions or forcing protesters to stay away from the motorcade route and outside of the line of sight of the president) that is done simply to hinder the ability of protesters to be seen/heard.

    But we still do have more free speech rights than most of Europe and China etc. For now.

  35. What’s the difference between Hugo Chavez and Barack Obama?

    One of them is a socialist who wants to seize every private business he possibly can …

    … and the other is Hugo Chavez.

    America sure was nice while it lasted. I’ll have to figure out how to explain to my kids how we fcuked it all up.

  36. Don’t Care: Yes, I’m waiting for the big Reason cover story with Dave Weigel and all the other libertarians for Obama confessing to being fooled into voting for an old-fashioned lefty. McCain was no prize for the many reasons discussed around here, but there’s no way he’d have been this bad.

  37. I didn’t vote for this bitch.

  38. Here’s where I agree with Taktix?: The shackles that limited government heretofore have been loosened. Has the government taken full advantage of its unshackled state? Not yet. But it’s pushing things mightily and, from administration to administration, on all fronts.

    Exactly, but all I am saying is this:

    If Obama, or the next President in 2012 or 2016, just decided to say “Screw you, I’m now King of the U.S.,” there is nothing to stop them from seizing power.

    Nothing…

  39. This Obama dude makes Robert Moses look like he was a small time crook.

  40. “Matt Welch should have written a book called “Obama -The Myth of a Martyr,” a few years before the election. That way, Reason could have switched editors at the last minute AND they wouldn’t have been in the tank for Obama for the last few months running up to the election.”

    That fucker makes me sleepy.

  41. Don’t think for a moment that the “progressives” don’t have their eyes on your 401K.

    House Democrats contemplate abolishing 401(k) tax breaks:

    http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20081012/REG/310139971

  42. “Don’t think for a moment that the “progressives” don’t have their eyes on your 401K.”

    That is going to happen within the next 10-20 years. I’m almost sure of it at this point. I quit putting money in my 401k & Roth IRA about a year ago. Thanks to these assholes they aren’t worth much anymore anyway.

  43. I’m praying for rain. I’m praying for tidal waves. I wanna see the ground give way.

  44. It should be noted that the plan in the link @ 7:34 is pretty much just the plan of Teresa Ghilarducci herself. It got some attention when she came out with it last year (because it is so ‘outside the box’), but is more of a trial balloon from a single think tank vice a serious policy proposal (yet).

  45. I too am awaiting the mea culpa. Alas, we won’t see it. They’ll claim they couldn’t vote because they live in DC, or some other pussy way around it.
    They were clearly in the tank, yet now they decry the situation. It is hollow.

    Matt, save your faux outrage for those with credibility, uat least until you write something to get your credibility back.

  46. Don’t think for a moment that the “progressives” don’t have their eyes on your 401K.

    House Democrats contemplate abolishing 401(k) tax breaks:

    The Democrats have this deranged belief that company pension plans are somehow more secure than 401(k)s.

    Nevermind that nobody works for the same company long enough to get one, or that the employer-based retirement system would cause as much job-lock as employer-based health-care.

    They seem determined to create a system where workers are enslaved to a particular company specifically so the state can justify turning that company into a branch of government. Happy worker paradise now that the “means of production” are in the hands of “the people” (i.e. the politicians).

  47. The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy, according to an administration document.

    Get ready for a steady stream of lawsuits against the government, as bureaucrats try to determine what it means to “damage the broader economy” – it may be easier to just intervene in ALL and let God sort them out.

  48. Forgive me for not getting in a huff over this. If AIG had been nationalized in August, we would not be having a discussion about bonuses or the lack of transparency in all these financial bailouts. In fact, the bailout of Citigroup et al would probably not have been necessary. I much prefer an orderly dissolution of a “too-big-to-fail” company than any of the current solutions offered.

  49. I quit putting money in my 401k & Roth IRA about a year ago.

    Agreed: I did the same thing. Any tax-less-disadvantaged accounts—401(k)’s and IRA’s—will be the first accounts that are targeted for nationalization. I’d rather take the tax hit now, both knowing that marginal rates will have to go way higher in the future and wanting to have better control over my money. It’s also rather sad that the *best* option I had in my 401(k) plan lost nearly 40% of its value over the last year (!!).

    You should all be at least a little concerned about the possibility of capital controls. I would put at least some of your money in accounts outside the US. Even if you report it on your tax return—which you are required to do under penalty of PMITA prison—you want it outside of the immediate reach of the US government in case things continue to go terribly wrong here.

    There is no honor among thieves, and the US government is the biggest thief in history: always keep in mind when planning your future that the government is not your friend, and would throw you under the bus at the first opportunity should it stand to benefit from doing so.

  50. McCain was a big spending douchebag just like Bush & Obama. Obama might be a little worse than McCain, but was he going to start paying down the deficit & quit running up massive deficits? He would have coutinued down the same unsustainable path toward economic ruin just like any other politician.

  51. This is just the beginning. If you’re having a nervous breakdown now….

    The expansion of the state that will ultimately result from this crisis will make the New Deal a footnote. Obama has only been in office two months and before that we had a lame duck who lacked the will, ability and time to commit to anything dramatic. The state will take full advantage of the opportunity presented.

  52. The Treasury secretary, a member of the president’s Cabinet, would exercise the new powers in consultation with the White House, the Federal Reserve and other regulators, according to the document.

    The guy would become the Plenipotentiary of the Finance System – much like Herman Goering.

  53. squarooticus,

    I invest my money in whoring, drugs & remodeling my home now. I’m trying to enjoy the good times while they last. I have my home paid off, so as long as I pay the property taxes they can’t take that away.

  54. Yo, fuck.

  55. This is not economic ruin. This is not nationalization per se. This path is sustainable and a good idea if you are in control of it… I’m guessing the taxpaying citizen is not the controller. Someone, somewhere is winning in this and they are in whatever is the opposite of a huff. Dreadful for most others though.

  56. Also in the article, neglected here:

    The Treasury secretary could act only after consulting with the president and getting a recommendation from two-thirds of the Federal Reserve Board, according to the plan

    Now, I have heard ruminations on this blog that the Fed is becoming politicized but I have seen no evidence of that. It is still controlled by a board of independent banks, and its first priority is a stable financial system, with monetary policy coming in second. I wish it weren’t that way but that’s the system we have. By giving the President the authority to seize firms rather than write them checks, this plan is the most transparent and most effective way to stabilize the financial system.

  57. Now, I have heard ruminations on this blog that the Fed is becoming politicized but I have seen no evidence of that.

    Which universe do you live in?

  58. By giving the President the authority to seize firms rather than write them checks, this plan is the most transparent and most effective way to stabilize the financial system.

    There’s already a legal mechanism for a firm’s assets to be seized, unravelled, and distributed to creditors, without writing them a check, and it doesn’t involve “El Presidente”.

    It’s called “Chapter 11 bankruptcy”, and it involves the judicial branch, not the executive.

  59. This power grab scares me. I’m starting to feel helpless. When are all the Obama voters gonna line up for us so we can slap them?

  60. Tell me more about this “bankruptcy.” What a novel concept!

  61. Tell me more about this “bankruptcy.” What a novel concept!

    Well, see there are these people called “lawyers” and they, like, argue the cases for their clients, who are people that have some claim to the company’s assets, and then this guy called a “judge” has to dcide who is entitled to what share of those assets, based on these things called “laws”. They are like guidelines for how to fairly distribute resources between all the people who have a claim to them.

    It’s all about this thing we call “justice”. You know people being treated equally under the law and stuff.

    I know you’ve heard about “social justice”, but this is, like, the original kind.

  62. It’s all about this thing we call “justice”. You know people being treated equally under the law and stuff.

    Oh, equality, I know that. Where you spread the wealth around, right.

  63. “manufacturing midgets…”

    Matt, there really should be a hyphen in there.

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