Economics

No End in Sight

Obama needs a bailout exit strategy

|

"Most men die of their remedies, not of their diseases," a smart-alecky Frenchman once observed. At this point, many Americans might be pondering a similar thought: What's worse, the recession or the prescription?

It began with the federal government rescuing financial institutions because they were, allegedly, too big to fail. Somewhere along the line, treating this ailment included cajoling perfectly healthy financial institutions into accepting taxpayer medicine (some of those have returned the TARP funds) for the common good.

Inevitably, a few institutions abused their new funding in supposed "reckless" corporate extravagance. Congress dealt with the ensuing populist fury by passing a bill that retroactively and punitively taxes nearly all of executive bonus pay—undercutting both the spirit of the Constitution and the sanctity of contractual agreements.

If you accept government money, you should be prepared to have your salary regulated, right?

OK, well then why, according to The New York Times, is the Obama administration considering oversight of all executive pay of banks, Wall Street firms, and "possibly other companies," whether they accepted government funds or not?

What is the justification for capping a private citizen's salary? Actually, don't say a word. I can already hear the president's moralistic splendor (maybe on David Letterman?) about sacrifice and greed in times of crisis.

This week, the crisis means doing away with pesky financial regulation and independent oversight (in place to try to mitigate political interference). Instead, the Treasury wants to give itself new power—"in consultation with the White House, the Federal Reserve and other regulators"—to sweep in and take over any financial institution that poses a threat to the broader economy.

And seeing as how Tim Geithner's done such a bang-up job with the banking crisis so far, why not?

Obama has said he hopes "it doesn't take too long" to pass this legislation. By which, of course, he means he hopes there's no debate. Don't worry, Mr. President.

(I suppose it would be a waste of time to point out to Democrats that they won't be eternally in charge and that this kind of executive power grab will only make complaints about the next Republican president's abuse of power even more impotent.)

But moreover, if we really believe that the state can save a company from inflicting broader damage to the economy, why not have government unilaterally take over other failing institutions? Why not run the steel industry? The auto industry? Why stop?

Think big.

In any event, one doesn't have to dig hard to understand the kinds of conflicts of interest and the thousands of unintended consequences we inject into the market with flailing remedies.

Let's mention just one. Most of those AIG execs have returned their bonuses—immediately making them far less contemptible than most of Congress.

According to Newsweek, the Federal Election Commission shows that some institutions that received TARP money, such as Bank of America (which got $15 billion) and Citigroup ($25 billion), have been doling out campaign cash to many of the same elected officials intimately involved in bailing them out.

Yet one of the most concerning aspects of all of this meddling is that every sweeping action of government has necessitated another more intrusive, more far-reaching action—with no end in sight.

When does the prescription run out? Or does it ever run out?

David Harsanyi is a columnist at The Denver Post and the author of Nanny State. Visit his Web site at www.DavidHarsanyi.com.

COPYRIGHT 2009 THE DENVER POST
DISTRIBUTED BY CREATORS SYNDICATE INC.

NEXT: Videos of the Day: Is Gordon Brown a Devalued PM? Who is Tim Geithner's CEO?

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Hey, whatever happened to the shill Weigal?

    Did he run off with joe to get gay married in Vermont?

    Anyone else support Obama in November and actually have the balls to defend it?

    I guess not! Morons.

  2. We don’t need an exit strategy for the bailout. Talk of exit strategies is defeatist nonsense. Besides:

    -Already we can see the light at the end of the tunnel.

    -We will be greeted as liberators.

    -American boys will never do what we should have Asian boys doing.

    -Your sons will never be sent to fight in a foreign war.

    -The boys will be home by Christmas.

    -On to Richmond!

  3. Timmy has adopted the Bush-ERA of “failure is not an option”, just clap harder Iraq strategy:

    http://www.youtube.com/watch?v=9GK9Rg9M6-g

  4. See “Operation Enduring Freedom” for the answer to the question.

  5. In what I hope will become a multi-million dollar catchphrase for me in the near future, here is my solution to the whole credit situation:

    “Army of Accountants”

  6. Failure is not an option. It’s inevitable.

  7. “Already we can see the light at the end of the tunnel.”

    The light at the end of this tunnel is a train.

  8. So early in the thread and so many contenders for the win…

    “Failure is not an option. It’s inevitable.”

    “We will be greeted as liberators”

    “The light at the end of the tunnel is a train”

    Man… all great.

  9. “The light at the end of the tunnel is a train”

    An appropriate observation, perhaps, but well worn joke!

  10. Well the FDIC already has the authority to deal with banks and the other financials can be dealt with using existing anti-trust laws. They broke up Standard Oil and Bell Telephone because they were too big why not AIG?

  11. Exit strategy? Why would you want to get out of something that will so obviously work? And why bother returning control of companies that you now control? Capitalism is eeeeeeevviiiiiiil! Who cares if it’s the system that gave us the highest standard of living in the developed world? That’s just coincidence.

  12. What the government doesn’t want to accept is the fact that the recession is the cure, because it would leave them nothing to do and no justification for stealing from future taxpayers to pay off their pals who made bad bets on derivatives.

    If they really must do something fiscally reckless to look like they are taking action, how about permanently repealing the federal income tax? It would increase the annual deficit by less than the combined bailouts and spending increases have done so far, and would give almost everyone a quick and substantial raise in take-home pay.

  13. “The light at the end of this tunnel is a train.”

    Said train is (a) assembled in China (b) using parts made in India (c) powered by oil from the middle east. Globalization at its finest!

  14. [quote]Well the FDIC already has the authority to deal with banks and the other financials can be dealt with using existing anti-trust laws. They broke up Standard Oil and Bell Telephone because they were too big why not AIG?[/quote]

    That only occurs if the firm is so large that it is anticompetitive – not systemically importatnt.

  15. Eric…

    I’m not sure I get your point. Isn’t it a great thing that China, India, and the middle east can get along to create something so widely beneficial as a train? Sure beats them shooting at each other.

  16. Any bets on when we’ll start seeing wage and price controls?

  17. Isn’t it wonderful how the Sunnis and Shiites can cooperate to fight the Americans? See how we have united Iraq (against us)?

    (Circa 2005)

  18. I tend to be leery of conspiracy theories, but I’m starting to wonder if bailout failure is a bug and not a feature. It’s a short step from “don’t let a crisis go to waste” to “the longer the crisis, the more we can do with it.”

    Of course it could just be their ideological blinders. To a statist all failures in the individual, corporate, or nonprofit spheres should be addressed by more government power/spending/taxing. Unfortunately, their prescription for government failure is the same thing.

  19. Any bets on when we’ll start seeing wage and price controls?

    Haven’t we already?

    For Example…

  20. I tend to be leery of conspiracy theories, but I’m starting to wonder if bailout failure is a bug and not a feature. It’s a short step from “don’t let a crisis go to waste” to “the longer the crisis, the more we can do with it.”

    Worked for FDR.

  21. Perhaps we need a law that anyone in government who got a campaign contribution from any organization that received TARP funds should immediately return that contribution.

  22. jsh: Well, I’m no fan of FDR, but I think he was sincere in his efforts. At the time there was much “informed opinion” that the USSR and Germany were having economic success with their policies. Of course most of us know better now.

Please to post comments

Comments are closed.