Releasing the Special Interest Hounds

So the much anticipated "stimulus" package to be enacted soon after the new Congress comes into session with a price tag potentially reaching $1 Trillion, will likely become the largest pork barrel bill in history. The centerpiece of the plan is infrastructure projects. Now infrastructure can be beneficial if there is a positive return on investment. However, considering the size and the speed at which this bill is likely to be enacted, it is likely going to be dominated by special interest “bridges to nowhere” and not legitimate public investments.

Also embedded within this bill will be all the various special interests who try to direct the funding to their pockets. One of these is the steel industry, which is currently lobbying Congress to include a “made in America” clause into the bill, which would force all projects to use solely American made inputs, specifically in this case – steel. This will only benefit the steel industry at the expense of everyone else. Projects will be slowed down due to supply bottle necks if potential supply sources are limited, and the costs of the projects will be higher. This means a worse deal for the taxpayer. Possibly more importantly however, is that it will divert greater amounts of capital to these projects then would have been required, displacing it from other areas of the economy. Ultimately this will destroy more jobs in other industries that are competing in the capital markets.

The irony is that one of the first things the Bush Administration did when it entered office was place a steel tariff on imports in order to “protect” steel producers. However, many more companies use steel then make it and the net result was a loss of jobs and higher prices for consumers. The Obama Administration would be prudent to not follow in Bush’s footsteps and create his own steel industry bailout at the expense of everyone else.

-EJB

The Auto Bailout Is Here and on Shaky Legal Grounds

So details are yet to come out, but the Treasury announced this morning that GM and Crysler will get a $17.4 billion loan through at least March 31st to be taken out of the TARP program (the $700 billion bank bailout). This is likely only the first installment.

But you've got to love this administration. The bailout failed to get Congressional approval, so they just go around it and do it themselves with the proverbial FU. Where the Treasury gets the legal authoirty to do this when the bill passed uses language that clearly states it is to be used for financial institutions only, is a mystery to me. The bill defines "Financial Institution" as:

FINANCIAL INSTITUTION- The term ‘financial institution’ means any institution, including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company, established and regulated under the laws of the United States or any State, territory, or possession of the United States, the District of Columbia, Commonwealth of Puerto Rico, Commonwealth of Northern Mariana Islands, Guam, American Samoa, or the United States Virgin Islands, and having significant operations in the United States, but excluding any central bank of, or institution owned by, a foreign government.

But then again since when does this administration or the Federal government in general care about following the law? I will be interested in seeing if and how many Democrat Congressmen come out against this action, considering it is violating the bill but at the same time the end result is something they want and tried to get through Congress. We will have an oportunity to see if the years of complaints by Democrats about the Bush administartion breaking laws was true outrage in principal or whether it was just political opportunism. In this case they are fine with breaking laws as well as long as its for their purposes. I'll be watching.

UPDATE: Obama's reaction:

Today's actions are a necessary step to help avoid a collapse in our auto industry that would have devastating consequences for our economy and our workers. With the short-term assistance provided by this package, the auto companies must bring all their stakeholders together — including labor, dealers, creditors and suppliers — to make the hard choices necessary to achieve long-term viability.

Maybe he would have preffered it go through Congress, but it looks like he's ok with the executive branch stretching and bending both the spirit and letter of the law as well. So much for "change." It will just be a different set of issues in his Presidency in which the end justifies the means.


-EJB

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Sorry for my absence lately, everyone. EJB has done well to hold down the fort while I finish up my finals. It's all over now so, let's get right back into it.

I'm pretty sure that absolutely nobody is shocked by this move. The Bush Administration has done nothing if not circumvent federal law every step of the way. Let's talk about the language of the TARP that EJB highlights.

Clearly, the plain meaning of those words leads to the conclusion that an auto company is NOT a financial institution. I fully expect a lawsuit to climb the court-ladder and be available for certiorari soon (though, the tricky aspect will be who has standing to actually bring the suit). But the Bush Administration has a plan - of this we can be certain. They would not have pushed forward with this move if their legal counsel hadn't advised them of a litigation strategy, should their move be challenged.

One clause, in particular, worries me. That a "financial institution" can be labeled as a "security broker or dealer" or an "insurance company" might be the text that the Bush administration relies on. Do the automakers insure their sales? Do they buy and trade in other company's securities? If so, it is entirely possible that a court could label them a "financial institution." EBAY was so labeled in a case under Delaware Corporate law - despite the obvious fact that EBAY is not a financial institution. But because EBAY dealt in corporate securities - and lots of them - the court found it fit to consider them a securities dealer. This, I think, would have to be Bush's defense plan, should his illegal move be challenged.

And can I just mention one more time, what the hell is going on with this Republican administration!? Congress, despite being strongly Democrat, shoots down a bill that would help auto companies (traditionally a strong Dem interest) and then a Republican president circumvents Congress and exerts fictional Article II powers to redistribute capital!? WHAT!? What country are we in? What year is it? This whole thing blows my mind.

~JSK

A Caricature of Bush's "Conservatism"

President Bush, in what could be the final important act of his presidency, is lobbying hard for a $25 billion dollar "bailout" (read:investment) of the Big Three American automobile makers - GM, Ford and Chrysler. Taxpayer money would essentially be used to buy an ownership stake in the companies, with the attempt of keeping them afloat and potentially reimbursing tax-payers once their stocks rise in the distant future. Essentially, this would be a partial nationalization of the automotive industry; and it comes under a GOP President - oh, the irony.

I would like to think of this act, should it pass, as a caricature of Bush conservatism. In other words, the exact opposite of what conservatism meant only 20 years ago. There is little doubt that, had you told Goldwater or Reagan that a conservative President would expend political capital to nationalize a major American industry, they would not have believed you. Small government and free market ideology were at the heart of conservatism.

But oh how things have changed. Bush, who recently publicly defended the free market system, has either changed his mind on that sentiment, or just does not understand the definitions of the terms "free" and "market." Or maybe even "the" and "system." (It's not unprecedented for a President to be unsure of even the simplest definitions, remember that Bill Clinton was perplexed by the meaning of "is.") Now, Bush advocates for bailing out companies that have failed on the market. Consumers agree (as indicated through horribly failing stock prices), GM, Ford and Chrysler cars are not worth their price. Facing competition from Honda and Toyota, Japanese imports that are - on the whole - cheaper, more efficient, get better gas mileage and last longer, American car companies have struggled in the last decade. Some chalk this up to the incredibly poor business decision made by many of these companies to pursue an increased development and production of gas-guzzling SUV's. That is certainly part of the picture. What seems to be going unsaid, however, is that the products these companies make are just horrible. Have you driven a Chrysler lately? It is not worth its weight in salt. My family owned a Chrysler mini-van for a few years. I can remember the transmission falling out of that van on at least three separate occasions. The front axle was always misaligned. And it handled incredibly poorly in snow and ice. These factors -and doubtless many more - played substantial roles in pushing customers towards buying foreign cars. Now, suddenly, we're talking about bailing out businesses that create and market inferior products. They have failed on their own merits - it is time to let them find their own way to succeed. I would suggest (should the CEO's of these companies be reading this page, which I'm sure they are) that they retool their operation entirely. Trucks and SUV's are floundering thanks to a surge in consumer gas conservationism. Hybrids and low gas-mileage cars are clearly the future. Work on that.

Now, I am not blind to the other side of the story. Two competent reasons are put forward for saving these industries. First, they employ a great deal of workers. Allowing them to go under would drastically increase unemployment and the poverty rate - especially in Detroit, a city which could itself use a bailout. Second, if these companies were to collapse, we would miss their manufacturing plants if we ever become involved in an old-fashioned international state-to-state war. The likelihood that this will happen is remote; it seems like the "war on terror" is the foreseeable altercation our country has decided to engage in. But should a war with Russia or China or some other mechanized state erupt, the loss of car manufacturing plants would cripple our ability to domestically manufacture military trucks, tanks and other necessary equipment.

Thus, I am not advocating that we should not bailout the auto industry. There are valid arguments on both sides. What I am merely pointing out is that our current President, a purported conservative, is fighting the hardest for this attempt at nationalizing the automotive industry. I find that ironic and indicative of the current state of the GOP.

~JSK

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First, I'm not so sure the Bush administration is the one really pushing for the nationalization of the auto industry. They have been luke warm thus far. This one has been more driven out of Congressional Democrats. But obviously it was the administration that initiated the push for the financial bailout.

But I agree with this point. One of the most frustrating things from the viewpoint of a Conservative is that Bush is seen as the example of what conservatism is. Goldwater and even Reagan are rolling over in their graves right now. We have had a huge government Republican claim the mantle of conservatism. Under his rule, government power, and in particular executive power has only increased in any way you measure it and government spending has exploded. This is no conservative. He is more synonymous with the old socially conservative Southern Democrats - he's a Dixiecrat. With the exception of some of the social issues, his presidency has more in common with LBJ's then any other modern president.

Though this was written before the financial mess in September and October, Charles Wheelan has a similar discussion on Bush in that he doesn't know what he is. He calls him a "neo-neoconservative", all the liberal spending without the perks. Read here.

-EJB