Regardless of accuracy, many politicians and members of the American public bought into fear that if Congress did not bailout Wall Street, Americans would become homeless ‘en masse’ and the very essence of the economy would be destroyed forever.
However, in the government’s latest bailout efforts, such a greatly exaggerated case for bailing out the automotive and insurance sectors cannot even be made with a straight face.
Six governors have recently coauthored a letter to Congress officially asking for a bailout of GM and Chrysler. The letter, sponsored chiefly by Gov. Jennifer Granholm, D-Mich., has found welcome reception in the Bush Administration.
White House Press Secretary Dana Perino echoed Granholm’s statement.
“We also recognize how big the companies are, how many families rely on these companies and what it would mean for the overall economy,” Perino said Oct. 30.
The American public has been inundated with the “too big to fail” line for quite sometime; is there no end in sight?
There are two fundamental arguments against this bailout: Every dollar sent to Detroit to bail out failing corporations will be one less dollar spent on productive sectors of the economy. And foreign automakers operating domestically produce more cost-effective products, which in turn will be seen as America rewarding failure.
Disregarding sound macro-economic policy, this bailout has caused a cascading snowball from its former position atop a slippery slope.
The expanded offer of a bailout has now created a free-for-all as rival industries fight for access to bailout funds, while the federal government decides which companies to reward and which to ignore.
For instance, The American Council of Life Insurers has welcomed the possibility that U.S. insurers facing credit-rating problems might get some taxpayer money.
But in a letter to Treasury Secretary Henry Paulson Oct. 28, Travelers Chairman and Chief Executive Jay Fishman said his wellcapitalized company did not want federal help.
He added the insurance industry should not be eligible to receive taxpayer money under the newly created Troubled Assets Relief Program.
This type of corporate warfare will inevitably digress into a battle of the lobbyists. Instead of corporations engaging in traditional tactics like improving their product, cutting their bottom line, using innovation and public relations campaigns, the new method of attack will simply be who can out bribe government officials into handing them taxpayer money to compete.
Speculation concerning a possible moral hazard is finished.
It is clear the warning bells Austrian economists and free-market advocates sounded at the beginning of this bailout melodrama have come to fruition.
E-mail James Cannon II at asst.news@unfspinnaker.com.
