I wonder if our free market system still has a heartbeat sometimes. There is no question that the interventions of Government, Inc. over the last 6 months has severely wounded the vital organ. Our income tax chief who can’t calculate his own taxes correctly and who also happens to be the Secretary of the Treasury announced with some fanfare the imposition of stress test on the banks a couple of months ago. Now those results are about due. It has become clear however that “passing” the stress test is going to be in the eyes of the beholder. In this case the beholder is Government, Inc., the entity wearing mulitple hats and having more conflicts of interests than a Rostenkowski aide. (For those under 40 or so he was the Democratic speaker of the House in the ’80’s who was finally caught with his hand literally hanging out of the cookie jar–another famous or infamous Chicago politician.)
Even though several banks have said they are prepared to return the TARP money the Treasury has demurred and told them no. They can’t do it without regulatory approval. Geithner acts like the FDIC is some foreign entity from Mars that has no connection with Treasury. I assume the same is true with the Comptroller of the currency. Why does Government, Inc. keep trying to hide who is in charge? Another thought that is just as troubling is that maybe they don’t know who is in charge. Is it Larry Summers? Is it Geithner? Paul Volker? The testimony yesterday from Geithner was confusing at best when he stated the government would like to get back the TARP money but wouldn’t allow the banks to do it if in the opinion of “regulators” that such payment would have a negative impact on the macro-economic situation. He can tell the regulators what to do why he is trying to hide this fact? The market responded in a sensible way and concluded that this vacillation was merely a ruse to cover a deepening government desire to control the entire banking system. This was especially true given the idea floated by Government, Inc. in the last couple of days that it was considering converting its preferred stock to common stock in some of the banks who received the TARP funds. That gives Government, Inc. direct voting power in the banks. With that power they wouldn’t have to make those offers that can’t be refused like the Mob and could assert direct control of banking decisions in the future. The current administration doesn’t like the negative publicity of financial aid to the banks but is chomping at the bit to exercise dominion over that vital section of our economy. You can rest assured that the spin will be that they had to do it for our own good to expunge the market place of those corrupt bankers.
The government is owed money by the banks and some of those large banks in turn are owed billions by GM. Government, Inc. is already running GM. Anyone who doubts that should recall the “dismissal” of Waggoner as the President of GM. The government wants the large banks including Citigroup and JP Morgan to take at least an 85% haircut on their loans to GM. They could probably recover 100% of their debt even in a Chapter 7 liquidation of GM. They do hold the first liens on the assets of GM. The banks don’t want to do that understandably enough. Why should they take a loss when they don’t have to? Well, because they are being bullied by Government, Inc. The g0vernment runs GM, is owed money by GM and is owed money by the banks who want to repay their TARP loans and now Government, Inc wants to force the banks to take a loss from the GM loans. I wonder how that loss will be calculated under the stress test? If the market was truly free the banks would push GM to the limit and it would file a Chapter 11 to reorganize it company. A substantial portion of GM would emerge from that process. It would be smaller but stronger. The banks would recover their money and GM would survive to fight another day and compete with cars the public wants.
It would appear however that the designs of Government, Inc. are driven purely by political ambitions. Populists notions and numbers of votes on election day will be driving these decisions, not the free market system. They will complain that the market system broke down and can’t recover without their help. Balderdash! They are not allowing the market system to function and make the corrections it would impose on losers and then move on and grow again. Government, Inc. is involved in centrally planning key and large segments of our economy. It has bootstrapped itself into the role of regulator, creditor and owner of the banks and GM simultaneously. That is the grossest of conflicts of interest. The puppet master is pulling all the strings behind the curtain. Our market system with all its flaws and ups and downs over the last 200 years has been the most productive and wealth creating one ever seen on this earth. By any measure you want to use, any metric as the moderns like to say, we have outperformed any other nation on earth. Our people are healthier, richer and have the most modern of conveniences and freedoms so far. The “heart” of our free market system is under stress for sure. There are those in power who wish to replace it with an artificial heart designed and operated from Washington. Please keep up with the news. Observe the reach of government into an ever expanding behemoth striding across our economy. Along the way Government, Inc. is ignoring the rights of due process for companies and individuals and breaches the private property rights guaranteed under the Fifth Amendment. Where are those shareholder suits under the Fifth Amendment against the Government? What about the rights of the shareholders of GM, the large Banks, (remember some of the banks were strong-armed into taking the money in the first place by government) and even AIG? But that is a topic for another day. Would the failure and closure of any or all of these entities have produced results any worse than we are facing now? Think about it. Papers will be written on that subject in a few years.
Am I the only one that has doubts about the efficiency of the modern computer and printer making drafting documents quicker to produce. I remember in the ancient days when the secretary had to type the document and use carbon paper and make corrections using “white out” ink. It was laborious. But because of that you and your secretary were pretty darn careful with the very first draft of any document. Normally only typos would have to be corrected. Then with the advent of the modern system where everyone hits the “print” button and corrects on the computer screen I noticed that the guys in the office were making 4 or five drafts of a document. They would go back over it and had in their head it would only take a minute to make the corrections on the screen then hit the print button again. I really wonder if that has expedited the process. I actually think the old way was quicker from composition to finished product.
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