September 17 was Constitution Day. The federal government celebrated by staging the largest intervention into the private sector in history. With an injection of $85 billion of our tax dollars, our
federal government now owns a majority stake in insurance giant, American International Group.
AIG should fit nicely with the two mortgage giants, Fannie Mae and Freddie Mac that our government seized last week. Of course, Fannie and Freddie also came with
liabilities of more than $5 trillion worth of mortgages, which are now liabilities of the U.S. taxpayers. Not to worry, the government doesn't intend to
incorporate the assets or liabilities of Fannie and Freddie onto the federal books, for now.
The outgoing CEO's of the failed Fannie Mae and Freddie Mac will be leaving with a
$24 million severance package, also paid for with our tax dollars. Ditto with failed giant AIG. Even though AIG shares have dropped 94 percent since Robert Willumstad, was named chief executive officer on June 15, this soon to be ex-CEO may get a $7 million exit package after a Federal Reserve take-over forces him out. Had enough yet? Hold on, there's more.
The Big Three’s chief executive officers are now in Washington, tin cups in hand. They were granted a
rare Capitol Hill meeting Wednesday with House Speaker Nancy Pelosi and other Democratic leaders to ask for $25 billion in government loans for the auto industry.
Meanwhile, Congress has just approved and sent to President Bush an
$8 billion rescue package for the federal highway trust fund. Apparently its going broke, which threatens road and bridge projects in every state.
Government bailouts, in effect, use our tax dollars to reward bad behaviour, while at the same time, putting more and more private business under government control. While America's eyes are eagerly following the presidential election, our government is turning the US into a corporate welfare state. Its called socialism, and it has failed everywhere its been tried.
No doubt, these business failures will be used as a further indictment of capitalism. But, as Burton Fulson points out in his book, 'The Myth of the Robber Baron,' there are two very different types of capitalists operating in America.
The true capitalists, the market entrepreneurs, are subject to the vagaries and risks of the market and fail or succeed based strictly the age old rule of supply and demand. The political capitalists are entrepreneurs whose fortunes are not determined by market forces as much as they are by political forces.
Political capitalists, instead of relying on market forces, rely instead on politicians and the political process to further their own interests and undermine their competitors'. This appears to be the case with both AIG and mortgage giants Fannie Mae and Freddie Mac.
As Jennifer Rubin points out in
Commentary, Fannie Mae and Freddie Mac "survived by manipulating, cajoling and lobbying politicians and hiring board members who were politicos (e.g. Jamie Gorelick) rather than mortgage gurus. They hired lobbyists, gave massive donations, obtained nice tax breaks and sailed below the regulatory radar screen."
Ditto for investment bank Lehman Brothers, which also failed this week. The government chose not to bail Lehman out, despite the $395,574 in campaign donations to Obama and the $145,100 to McCain. Go figure.
The financial markets remain in a turmoil, with banks and investment groups struggling to consolidate, sell themselves or find a favorable political solution for their failed businesses. The one thing that remains clear, is that all the failed businesses have one thing in common. They were all political capitalists.
Political fingerprints are found all over every single failed business, from the 'favorable' mortgages to politicians, to the campaign contributions, to the lack of regulatory oversight by key members of banking and regulatory committees.
As the blame game starts, as politicos start to distance themselves from the very policies that contributed to the failures, expect more of our tax dollars to be spent on CYA activities. That's liberal speak for 'plausible deniability.' House Speaker Nancy Pelosi was first out of the gate, announcing the launch of an investigation of Wall Street. This should make for good theater, if you're into sound and fury that signifies nothing.
When the dust finally settles, the federal government will have ever more power over the housing industry, the mortgage industry and the banking industry. Next up will most likely be the airline industry. All justified under the rubric of protecting the American people. The question never asked is: What government program, other than the military, works?
Most American's don't have to spend millions of dollars, summon legions of experts, and study the vast intricacies of the latest politically correct theory on how the market works in order to see the obvious. Most of us know we just need to get politics, politicians and our tax dollars out of the private market, and allow it to work. Its called capitalism.
