The Ferguson Effect...
Caution: Government At Work|
September 20, 2008
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
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,'
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
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
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
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
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?
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.
Nancy Morgan is a columnist and news editor for
She lives in South Carolina
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