by Bobby Eberle
November 13, 2008 at 7:26 am
America is a capitalist nation, right? I mean, we're not China or the former Soviet Union, correct? In a capitalist economy, a person or group of people has an idea for a product or service, they start a business, and then one of two things happens. The business either grows or it doesn't. If it grows, more products can be made, more employees can be hired, and more profits can be made. If it doesn't grow and it wants to stay in business, there are a number of factors that should be considered. Is the product something the consumer wants? Is the business being run efficiently? Has the business strategically planned for the short term and the long term?
Businesses that fail to address those questions correctly are doomed to fail in America. That's just how things go. Businesses spring up and go away all the time. It is the responsibility of the business owner to run things correctly, right? Wrong. Welcome to the United State of "I'm incapable of running a proper business but bail me out anyway so I can keep running it poorly."
The bailout plan supported by Congress with the help of Republicans (ugh!) has now taken on a life of its own. As more and more businesses feel the pinch of tough economic times, more and more are coming with their hands out looking for government (read taxpayer) money. And the government is considering doing it! First the financial institutions were the beneficiaries of the original $700 billion bailout (oops... sorry... I meant "rescue") package. Next, the Democrats are considering doing something similar for the auto industry. Stories are now popping up regarding companies like American Express and General Electric wanting some of the bailout pie.
Let's start with some background information. Fox Business, in covering Treasury Secretary Hank Paulson's Wednesday press conference, reports that the government is now changing the terms of the original bailout bill passed by Congress and signed by the president. You remember this bill, right? This is the one that was so "urgent" and the future of America depended on it so much that so-called conservatives such as Fred Barnes called House Republicans "idiots" for opposing it. Now, Sec. Paulson says that the "original plan to purchase distressed mortgage assets from Wall Street firms is not the best use of the $700 billion financial rescue package, and officials will now focus on direct capital injections into the struggling financial firms."
This comes after Paulson said buying troubled assets -- the plan originally advertised to the public -- would take too much time in a financial crisis that continues to test the patience of investors, government and the public.
In his statement, Paulson said that nonbank financial institutions, including companies that deal with credit cards, auto loans and student loans, may be eligible for direct capital injections. Companies such as American Express (AXP: 20.05, -2.35, -10.49%), which is one of the country's largest credit card companies, is reportedly seeking $3.5 billion in fresh capital from the government, according to The Wall Street Journal.
Back when all this bailout talk first started, it would have been nice to see conservative pundits actually take a conservative approach to the issue. I wrote about it and talked with friends, explaining how lending institutions make money by lending money. That is their business model. There is no way they are going to stop doing the very thing that they need to do in order to stay in business. Lending institutions don't make pizzas. They don't fix faucets. They lend money, and if they are forced to restructure and revamp their operations in order to continue lending money (i.e., making money), then that's what they should do. But, of course, the Democrats -- with the backing of so-called conservatives -- stepped in and offered a different approach: the bailout.
Now the Democrats want to do the same for the auto industry. As reported today by an Associated Press story on GOPUSA, "Congressional Democrats are pushing legislation to send $25 billion in emergency loans to the beleaguered auto industry in exchange for a government ownership stake in the Big Three car companies." You heard right. First the government is getting involved in banks, and now it's considering owning part of the auto industry.
House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., hope for quick passage of the auto bailout during a postelection session that begins Monday.
Legislation being drafted by Rep. Barney Frank, chairman of the House Financial Services Committee, and Sen. Carl M. Levin, D-Mich., would dip into the $700 billion Wall Street rescue money, approved by Congress last month, for the auto aid.
President Bush is cool to that idea. But the White House says he is open to helping the industry, which is buckling under poor sales, tight credit and a sputtering economy.
The news story does end with an important point: "White House press secretary Dana Perino said Bush understands the importance of the industry, but that the carmakers' problems -- decades in the making -- cannot be blamed on the administration or the recent financial meltdown."
That is exactly right! The American auto industry is in trouble because they are running a poor business. Let's see... hmmm... let's build automobiles but never factor in that gas prices may actually rise someday. Americans love SUVs and pick-up trucks. Great! Let's put all our eggs in that basket and reap short-term rewards. But wait, what happens when Americans no longer want SUVs and pick-ups? Oh silly, that's an easy one... we'll just go to the government and ask for money.
In addition to bailout money, the government is also making trillions of dollars in emergency loans of taxpayer money to financial institutions and other entities but is NOT disclosing the recipients. That's right. The government is loaning our money to institutions, but we have no idea who's getting it. As reported by Bloomberg.com, "House Republican leader John Boehner called for the Federal Reserve to disclose the recipients of almost $2 trillion of emergency loans from American taxpayers and the troubled assets the central bank is accepting as collateral."
Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, there is little disclosure about how the programs are being implemented.
Bloomberg News requested details of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure.
A spokesman for the Federal Reserve didn't immediately respond to requests for comment.
It's getting crazier and crazier, and what's worse, there are no conservative "leaders" out there speaking up and saying enough is enough! This is a capitalist nation and the business cycle will always have its ups and downs. What will certainly make this situation worse is if bad behavior is rewarded! Remember when we all rallied together to oppose illegal immigration amnesty plans? One of the main reasons that I cited was that it would reward illegal behavior and lead to more illegal immigration. The same concept applies here. If we reward poor business practices, then all of us as taxpayers will be monumentally stupid to assume that we will get anything more than poor business practices in the future. If businesses are so poorly run that they will fail, then they should fail! It is a fact of life that new businesses will spring up to take their place.
America is a nation built on freedom. When the government steps in to own banks, automakers, and more, then we lose our freedom. We must stand united and demand a conservative approach from our elected leaders. No more bailouts. No more big government. No more socialism. This is still America, isn't it?
