First crack at the big bailout

Canadian David Warren points out that those who are blaming capitalism and free markets run amok for the financial crisis couldn’t be more wrong:

http://www.realclearpolitics.com/articles/2008/09/bailout_blues.html

In fact, one of the major factors that led to the creation of the dubious subprime loans was *anti-capitalist* pressure, from governments, non-profits, and discrimination lawyers, on financial institutions to ignore credit math and create programs to help poor people with bad credit buy homes. We were told that home ownership was a basic human right – but that means that the financially irresponsible have that right, too. Not that this excuses deceptive, fraudulent, and manipulative practices by the firms in question and their CEOs. But it does suggest that maybe regulation of the industry by people with agendas other than the smooth sailing of the economy isn’t the best solution.

The mini-bailout no one is paying attention to

All political eyes are currently on the $700 billion financial bailout proposal currently being negotiated in Washington. And understandably so, as it’s an extremely important issue. I am waiting to see exactly what the legislation is going to look like before weighing in. I have concerns, but I also know that the mortgage sector is *very* complex and there are factors you and I as laymen don’t understand.

However, at the same time there is another bailout going on, which is not gathering much attention, and this one is a bad mistake. It comes in the form of a stopgap spending bill which has just passed the House and is expected to be taken up by the Senate shortly. You may recall this is the bill House Republicans threatened to hold up – which would shut down much of the government – if the Democrats insisted on keeping an extension of the offshore oil drilling ban in the bill. The Democrats gave in on that issue and took the extension out, meaning that the ban will expire, and the Republicans in turn voted to pass the bill. (The Democrats know they can pass a new law limiting offshore drilling in the new Congress after they pick up more seats.)

The problem is that there is something else stuck in this bill that does not belong. It contains a $25 billion loan program for automakers, to allow them to modernize their plants which will supposedly help them stay competitive and preserve jobs. The language is crafted to exclude most foreign auto companies even if they have plants in the US. So what this amounts to is a bailout for American auto companies. When did Ford, GM, and Chrysler become federal charities? You may remember in the 1980s the Feds bailed out Chrysler. That didn’t stop the company from being sold to the Germans twenty years later. Similarly, this bailout will do nothing to preserve auto industry jobs or make American car companies more competitive. It’s a reward to these companies for failing. And there is no argument that the risk of failure of these companies approaches what we are talking about with the financial sector. So why is the House perpetrating this corporate charity?

Because it can. The spending bill has to pass, and the Congressmen from Michigan and Ohio have the clout to put this provision in. It is possible the Senate could strip the program out of the bill (and I have asked my Senators to do just that), but more likely they will just let it go under the radar while everyone is focused on the bigger bailout bill. So we, the taxpayers, will lose about $7.5 billion, the cost of offering these loans to the automakers at below-market rates. That my friends, is corporate welfare, and Democrats and Republicans alike should be aghast at it.

http://www.ft.com/cms/s/0/83bfe68c-8a8f-11dd-a76a-0000779fd18c.html

http://politicallydrunk.blogspot.com/2008/09/house-passes-no-strings-attached-25.html