But, the government already has the power to unwind large insolvent companies which pose systematic risks to our economy.  Large financial–or any other type of companies–can be unwound through bankruptcy proceedings.  Bankruptcy courts can order the liquidation of a company and the sale of its assets.  There is no need to grant this power to the Treasury Secretary, or President Obama, or any one man.

Rather than bailing out companies, and then bailing out our bailouts like we have done with AIG and are about to do with GM and Chrysler, we should send these failed companies to bankruptcy courts and sell of their assets.  Rather than pumping TRILLIONS of dollars into failed enterprises, we should have quickly auctioned off these companies, their properties and assets, and anything else related to them.  Yes, these companies and their assets and receivables may have only sold for pennies on the dollar, but it would have been done without taxpayer money and would have allowed for the quick return to profits (as the purchasing price would have been low enough so that the purchaser could anticipate earning a profit).

You may be saying to yourself that I have said this on previous posts countless times.  You are right.  But, our government is not learning from these recent mistakes.  Instead of learning, we are repeating them over and over again, making things worse and worse and then blaming capitalism for the failures of the government.  For a man who repeatedly criticized President Bush for “staying the course,” Mr. Obama has sure picked a terrible course to stay.  So, for as long as Congress and President Obama continue to repeat their mistakes over and over again, I will continue to repeat myself over and over again, hoping that somehow my words reach their eyes and spark a change of direction.

But, back to the new proposal.  Look at it like this:  the government now controls most of the banking system.  Imagine that it creates new “recommended” lending standards to support an administration program–expansion of loans to increase home ownership for example.   If a company that is not owned by the government were to decide that these new government “recommendations” are too risky and are not a good investment and decided not to participate, the government could effectively force the company to comply by threatening to “wind it down.”

This is a dangerous, undemocratic, and authoritarian proposal which gives the Federal Government way too much control over the financial industry.

Americanly Yours,

Phred Barnet

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Retroactively taxing AIG employees’ bonuses is an unconstitutional act.  Article I, Section 9, Clause 3 of The Constitution reads as follows:  “No Bill of Attainder or ex post facto Law shall be passed.”

The prohibition on passing bills of attainder means that it is illegal for Congress to pass a law that punishes AIG employees (or any other specific group of people) without granting due process.  The prohibition on passing ex post facto laws means that Congress cant pass a law declaring something to be illegal and then punish people for committing the act before it was illegal.

Congress is currently debating passing a bill that would tax AIG executives’ bonuses at 90%.  The House of Representatives overwhelmingly passed a bill that would do preciously this last week.  This bill is unconstitutional and should not be passed by the Senate.  If it does pass the Senate, then President Obama should stand up for the Constitution and veto it.

Americanly Yours,

Phred Barnet

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The government had already spent $150,000,000,000 [$150 billion] bailing out and nationalizing AIG before this latest bailout was announced.  But, now, the governments newest plan has loaned AIG an additional $30,000,000,000 [$30 billion].  That of course gives us a total of $180,000,000,000 [$180 billion], yet many analysts are saying that AIG will probably “need” another bailout and that total money “loaned” to AIG could top $250,000,000,000 [$250 billion]!

Even if the loans were to stop now, AIG would have immense difficulty ever paying them back.  $180,000,000,000 [$180 billion] even without interest is a substantial sum to have to pay someone back.  Even if AIG’s profits were to return to what they were before this whole mess started, it would take AIG over 20 years to pay back not including interest if they were to take every penny of profit and throw it at their debt.

Joseph Stiglitz, a nobel prize winning economist who has advised both President Clinton and President Obama has spoken out against these bailouts of AIG and the banks–he argues that not only will throwing this kind of money at the banks will create an investment bubble even bigger than the one that just burst, but doing so could also downgrade our standard of living for the next 20 years.

Enough is enough!

We should let this company fail, rather than continue to subsidize its failures and stupidity.

The real free market solution here is not to continue to throw unfathomable sums of money at AIG hoping that this money will eventually stabilize it.  Rather, the real solution here is to let AIG fail.  AIG’s assets should be auctioned off in the open market under the guidence of a bankruptcy court.  No, their assets and businesses wont get anything enar their “book values.”  Investors and business, however, will pay something for AIG’s name, businesses, real estate assets, and receivables.  In a real free market solution, investors would put up their own money and buy these pieces of AIG at a low enough price that they will believe that they have a good chance to make a profit.  This price would probably only be pennies on the dollar, but repricing “bad” or overvalued assets is a very important aspect of the free market system.

Under this solution, AIG’s pieces would probably become parts of other insurance and financial companies, or they would end up being owned by large investors.  With assets and receivables being bought at rock bottom prices, AIG’s new owners would be able to operate with confidence that good decisions will lead to profit, as they wouldnt be saddled with such an enormous debt.

This would also prevent the credit markets from further locking up by allowing AIG and its parts to continue to operate, although most likely as parts of other companies.  And, most importantly, all of this is accomplished without creating a new “bubble” that will inevitably burst in the not so distant future, causing yet another financial crisis and risking our future.

Americanly Yours,

Phred Barnet

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President Obama says that he wants to cut the $1,300,000,000,000 [$1.3 trillion] deficit that he inherited from President Bush down to a deficit of $533,000,000,000 [$533 billion] by 2013.  While this seems like a tough goal that will cut spending, this will actually result in increased spending.  The reason for this is simple:  the present massive deficit is an aberration from the normal, including hundreds of billions of dollars in spending that was supposed to be one time spending.  For example, included in the $1,300,000,000,000 [$1.3 trillion] deficit is the $700,000,000,000 [$700 billion] spent on the bank bailout, the additional billions spent on the bailouts of Bear Stearns and AIG, and last years stimulus plan that sent most Americans a $600 check.

In fact 2008′s deficit was $438,000,000,000 [$438 billion] a massive number, but a number that is dwarfed by the $1,300,000,000,000 [$1.3 trillion] deficit that is to be expected in 2009.  The vast majority of this money was supposed to be for one time things.  In fact, without adding the increased spending from the “one time items,” the deficit for 2009 looks a lot like the deficit for 2008.

President Obama’s 2013 budget deficit figure still represents an increase of over 21% from 2008′s number.  This “cut” looks more like an increase to me.

And Mr. Obama’s own numbers still admit that he will have a deficit of over $1,000,000,000,000 [$1 trillion in both 2010 and 2011].  No numbers were given by his office for 2012′s predictions, but lets give him the benefit of the doubt and assume that 2012′s deficit equals 2013′s deficit of $533,000,000,000 [$533 billion].  This means an increase in the national debt of at least $3,000,000,000,000 [$3 trillion]–equal to $10,000 per American.  I think the numbers will be much higher.

More on that later.

Americanly Yours,

Phred Barnet

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With people saying things like “Well, we bailed out AIG, it isn’t fair for us to not bail out GM,” I have been thinking about this book a lot lately. People have been using flawed logic by saying that because we bailed out one failing company, we ought to bail out the next failing company. It was wrong for us to bailout Bear Stearns, AIG, Citigroup, or any of the hundreds of other businesses that the government has bailed out and taken an ownership stake in. Just because we have committed several wrongs doesn’t mean that we need to abandon what is right and continue doing wrong. Think about someone who is on a diet, but splurges once and eats a piece of cake in a moment of weakness. Should that person then eat a cookie, a cheeseburger, and a plate of delicious Chicken Wings because they have already fallen off the wagon, or should they admit they made a mistake and return to their diet?

Our government made a huge mistake in bailing out Bear Stearns. This led to the government being asked to bail out more and more companies. Using the flawed logic that I described above, the government bailed out more and more companies, not wanting to be “unfair” to any company or industry. In doing so, our President and Congress were unfair to the American people who are to be saddled with the large debts created by the costs of the bailouts which we do not support.

It might not be as good of a children’s book as If You Give A Mouse A Cookie, but here is an excerpt from my new book entitled If You Give Bear Stearns A Bailout:

If you bailout Bear Stearns, they will ask you to bailout AIG. If you bailout AIG, they are going to ask you to bailout the rest of the financial industry. If you bailout the financial industry, they are going to ask you to bailout the auto industry. If you bailout the auto industry, they will ask you to bailout the airlines…

We should have told that “mouse” no.

Americanly Yours,

Phred Barnet

Well, in the past 24 hours, Obama has announced his plan to help the Big 3 American automakers. His plan includes a $50 billion loan to the automakers. But, the plan doesn’t end there. In a similar manner to the bank bailout plan recently passed against the wishes of the American people, this plan also requires the federal government to take ownership stakes in Ford, Chrysler, and General Motors. Additionally, Obama wants to appoint an “Oversight Czar” to “oversee the companies” thereby giving the federal government both ownership and control of three massive American corporations. Of course all of this is being done in the name of the “common good.”

The $50 billion price tag is most likely a large underestimate of the amount of money it will take to save these automakers. The government doesn’t exactly have the best history of predicting the total costs necessary in an intervention. Some recent examples: the $152 billion stimulus package passed earlier this year which was supposed to save us from a recession, the $250 billion bailout plan which quickly ballooned into a $700 billion bailout package, and of course the $85 bailout for AIG in September which has already cost $143.7 and could cost much more. When $50 billion turns out not be enough for the automakers, the government will surely throw more money at the problem to “protect” its investment as it did with AIG. And, the automakers will need more money too. In 2010, several state-owned Chinese car companies intend to start marketing very inexpensive Chinese cars in America.

This will not stop with the automakers either. If there is one industry in this country worse off than the automakers, it is the airline industry. The airlines have been hemorrhaging money for years and now that the economy is bad, companies are laying off workers and cutting corporate travel, while regular Americans are also cutting back on flying. The airline industry will be the next to go and its lobbyists will swarm on Congress and demand the same favors that were given to the financial industry and the automakers. Then, the government will also own our airlines in addition to our banks and our automakers.

To me, that is a definite. The only maybe is how far this will go. When no new airplanes are being built due to the collapse of the airline industry, what will become of Boeing? Their bottom line will be hurt, and considering that they are a major defense contractor, would the government deem them to be too important to fail? If the automakers and airlines are suffering then of course the steel industry suffers. Will the government then take control of our steel giants like US Steel and Nucor in order to “protect” them from domestic problems and foreign competition?

Now, I am not opposed to helping the automakers. If a loan is absolutely needed, and if the government believes that there is a reasonable chance that it can get its money back, then the government definitely should help the automakers, but under no circumstances should it buy the automakers and take control of them.

This isn’t all about business either. The Democratic Congress is considering passing laws to reinstate the “Fairness Doctrine” to the radio. The Fairness Rule was established in the late 1940’s to guarantee that time would be given to both sides of an issue on the radio. The courts gradually struck down more and more of this doctrine until 1986 when it was completely abolished. Democrats, lead by New Mexico Senator Jeff Bingaman want to reinstate the rule which would effectively force conservative radio stations to place just as many hours of liberal talk radio on their stations as conservative talk radio (to me this is like requiring Christian radio stations to broadcast Jewish or Muslim programming). Of course, there are no Democratic Senators currently pushing legislation that would require CNN, MSNBC, NBC, and CBS time to conservatives or to require FOX News to give time to liberals.

We as a People voted for change last week. Change can be good, yet this is not the change that we need. We must not abandon the free market and free thinking ideals which brought us from a small, weak country of 13 states into a great Nation. If we are to continue to be a great Nation and a leader among other nations, we must not walk down this road.

Americanly Yours,

Phred Barnet