Economics 101
The Congressional Budget Office, in its role as the God of Economic & Budget Estimates in Washington, DC, has done the unthinkable- it has concluded that putting a tax on the big banks that accepted government money would “invariably be borne to varying degrees by an institution’s customers, employees, and investors.” In non-Beltway speak: Duh.
As a conservative, I am very much against governments playing favorites through subsidies, bailouts etc. However, we must accept the reality that TARP passed. As such, I would note the following: the big banks have paid back a large portion of their borrowed funds. It is the government-owned companies (General Motors, Chrysler, Fannie Mae and Freddie Mac) which are failing to pay back what they owe.
I managed to find the CBO letter, which was sent to Senator Charles Grassley (R-IA) yesterday. According to the letter (Emphasis mine):
What is the overlap between firms that would pay the proposed fee and firms that generated losses for the TARP? For the most part, the firms paying the fee would not be those that are directly responsible for losses realized by the TARP. Some firms subject to the fee are expected to generate such losses, including the American International Group, GMAC Financial Services, and CIT Group (which filed for bankruptcy protection on November 1, 2009). However, the fee would not apply to firms in the automotive industry, which account for $47 billion of the program’s estimated total cost of $99 billion. Other firms that would be subject to the fee have either paid back all of the funds received from the TARP or are current on their repayment schedule and unlikely to generate losses from their participation in the program. However, all of the institutions that might be covered by the fee benefited to varying degrees from the program’s contribution toward stabilizing the nation’s financial system and overall economy.
In defending the tax, Think Progress- which had the link to the letter- made some excellent points rebutting conservative arguments cheering the CBO’s conclusions. They include, but are not limited to, the fact that the letter states smaller banks would have a leg up on their larger competitors because the tax does not go after them, and that the tax’s cost could be offset by lower employee compensation. (Read: executives could be paid less.) Additionally, something I noticed was that CBO said the economic impact would be minimal.
Think Progress and other liberal people and organizations will pounce upon the points noted above, and others, but when it comes down to it, the tax will not hurt the business’ executives, the “if we had to be honest” target of the tax-supporting Democrats. They will hurt, as the CBO said, consumers, investors and employees. It’s economics 101. Unfortunately, Democrats fail to understand this.
Ed Morrissey was kind enough to extrapolate this basic concept to other government policy proposals Democrats sometimes don’t understand- I’ll let him explain them:
Let’s make sure we extrapolate this for everyone onto other public policies, while we’re at it:
- Increasing the minimum wage forces businesses to pay more for labor. Either they hire fewer people or they raise prices — which undermines the buying power of those who make the least amount of money.
- A carbon tax or cap-and-trade bill will force energy producers to either raise prices to its customers or scale back power production, which will force businesses to either raise prices or cut back production, which will mean more cost or more scarcity for consumers — both of which are inflationary.
- Higher fees on insurers, medical-device manufacturers, and other goods and services in the health-care industry mean higher prices for consumers in the form of increased premiums or in greater scarcity as suppliers fail to come to market.
Imposing higher costs on business means higher costs for consumers. It means fewer jobs, less consumer choice, less innovation, and economic decline. I’d be surprised if the CBO analysis itself doesn’t end with the word duh in the last sentence.
To summarize this post:
What Democrats should be saying after this letter was publicized:
What Republicans (and the CBO) are saying to Democrats about their intent regarding the tax after the CBO letter:
Punishing the Guilty- Unless We Don’t
The Heritage Foundation nailed it in their Morning Bell yesterday:
The TARP program has so far distributed $247 billion to more than 700 banks. Of that, $162 billion in principal and $11 billion in interest and dividends have already been repaid. Except for AIG, almost all banks that received taxpayer money are expected to pay back the American taxpayers in full. As The New York Times reports: “The losses from the bailout fund are expected from money paid to rescue Chrysler and General Motors and the insurance giant American International Group, and from a program to help homeowners avert foreclosures.”
So the real deadbeats that are not giving us “our money back” are not the banks, but the union-backed car companies and failed government mortgage modification programs. But guess what? The White House has chosen not to include the car companies among the institutions that will pay this so called “Financial Crisis Responsibility Fee.” Also exempted are Fannie Mae and Freddie Mac, the government-sponsored entities that helped create the crisis.
It’s time we told our elected officials to stop picking winners and losers, and voted in people who are in favor of term limits and in favor of a separation of business from government. Beyond liberal or conservative, these are the issues that are so important to America. After all, when Howard Dean, Markos Moulitas and Arianna Huffington agree with The Heritage Foundation…perhaps it’s time for- and I dislike using this word- change to how our system works. Of course, it’s up to us, the voters and citizens of America, to make said change.
Big News of the day or BIGGEST News of the day?
Read the article below and let me know what you think in the comments section:
WASHINGTON (Reuters) – U.S. taxpayer profits from bank bailout investments are being offset by estimated losses from American International Group and automakers and mortgage payment cuts for struggling homeowners, a U.S. Treasury report showed on Monday.
The Treasury estimated net losses on its $700 billion bailout program at $68.5 billion for the fiscal year ended September 30, 2009.
The December report for the Troubled Asset Relief Program, or TARP, showed that the fiscal 2009 net loss included estimated losses of $30.4 billion for AIG and $30.4 billion for automakers, with $27.1 billion in losses from the Home Affordable Modification Program.
These were much larger than a $15 billion profit registered from the Capital Purchase Program for banks and $4.4 billion in profits from other bank investments, asset guarantee and lending programs.
A senior Treasury official said the bank investments will ultimately produce a positive return for taxpayers. But the department was not yet ready to update its estimate of the final taxpayer costs for the bailouts.
The official said the Treasury would update its cost estimates on a quarterly basis as the bailout program shifts its focus toward small business lending and housing relief in its final 10 months of operation.
The Treasury in November said TARP’s ultimate cost estimate had been reduced to about $141 billion from $341 billion earlier in the year. Further reductions in the final cost estimate could aid the Obama administration as it faces pressure to produce a new budget that starts to show deficit reductions.
(Reporting by David Lawder; Editing by Dan Grebler)
Unfortunately, this story was not the lead anywhere today, though Fox did have a related one on their top three stories. Drudge’s lead story today is about Scott Brown, the candidate for former Senator Kennedy’s seat (okay, that one’s fairly important). Yesterday, he had an accusation that Senator Reid (D-NV) had a facelift or something. Drudge did have this story, but buried several stories down. Meanwhile, cable news is failing as badly as usual to provide important news. Fox has the “tell-all” story about Senate Majority Leader Reid (D-NV) as their lead story, and CNN has David Frum’s newest column as theirs. MSNBC actually has the most important lead story of the three, with an article about the death of an Iranian opposition leader. ABC is also not doing their job, with a massive lead story about President Obama allegedly playing favorites regarding the race card.
Once again, I’ll ask Americans to look at the important news. Who really cares if Sarah Palin is on Fox? Is anyone surprised? Reid has said two racial statements in recent weeks. Why are we letting our elected officials waste our taxpayer money over his comments? (Note- every time they go after or defend Reid instead of doing their job they are wasting taxpayer money.) We are losing billions of dollars to corrupt government, business and other officials and executives…and we care about something stupid Reid said or the common-sense career move of Sarah Palin? Give me a break. Let’s worry about the troops dying overseas, our sovereignty, the education of our youth and the other critical issues facing this country. Our mainstream/professional media certainly won’t do it, obviously, but in the age of the Internet and other technologies, we the people have no excuse.
Have White House Officials Ever Had A Real Job?
“Name and shame” is apparently the Treasury’s new tactic for going after mortgage companies that don’t do what the government wants. In short, some mortgage companies *gasp* are running a business like a business! The fiends…
Okay, enough sarcasm for the moment. Apparently, the Treasury people don’t want mortgage companies to keep their interest rates where they are, and the situation has become so bad that “[t]he Obama administration will crack down on mortgage companies that are failing to do enough to help borrowers at risk of foreclosure, as part of a broad effort to boost participation in its mortgage assistance program.” In other words, more government intervention in the markets. Just what we need. (Note the sarcasm…)
According to Investor’s Business Daily, “To shame loan servicers into doing a better job, Treasury will publish a list in December of those that are lagging.” First they came after Limbaugh, then after Cramer, then AIG and Fox. Now they are coming after mortgage companies. Whatever one’s opinion is of AIG, Limbaugh and the rest that the current administration has personally targeted thus far, it is bad public policy for the president of a democratic republic to go after private citizens and companies like this. Mind you, the mortgage companies haven’t been accused of doing anything illegal (unlike ACORN). They have merely not bowed and scraped to President Obama.
Update: Regarding the title of this post, Jonah Goldberg of NRO says only 10% of the current presidential cabinet has private-sector experience. So maybe the answer is a giant NO. (Big surprise, that.)
Update 2: Goldberg’s information is incorrect. I apologize for the error. Many of the advisors President Obama relies on do have private sector experience- but they’re still wrong. (And the experience is limited…)
GMAC “Needs” More Taxpayer Help
American taxpayers, who have already bailed out GMAC (a consumer finance company partially owned by General Motors) twice, may be hocking over more money very soon. The company is in talks with the government to get the money without letting the government have too much control of the company. According to The Wall Street Journal, at least $2.8 billion is likely to be injected. GMAC is formerly the financial holdings arm of General Motors, and is currently a bank holding company.
As a libertarian-leaning conservative, I’m all for government not having control of much. However, this stance by GMAC is going too far. If they wants another bailout, the executives will have to eat some humble pie and stop pretending they have a leg to stand on with negotiations. Despite what Michigan Democratic Senator Debbie Stabenow said last year, the $25 billion that slipped under the radar during the TARP debate wasn’t small, nor was the bailout GMAC received last December from the Bush adminstration. GMAC should have two choices: government control or bankruptcy.
I say this for two reasons; first, the board members and executive leaders of the company would be in serious danger of losing their jobs if the government took over. Thus, they would be hesitant to let the government step in. Additionally, since the government has (hopefully) learned its lesson about specifying payments in contracts with companies being bailed out, after the AIG bonus debacle this past spring, their pay cuts and bonus cuts would be absolutely substantial IF they were allowed to stay on. As George Will said in a speech I saw last year, executives should sign a contract stating they make no more money than the President of The United States during the time they are using American taxpayer money.
The second reason only two choices should be offered is that if the executives and board members cannot push their egos down enough to accept full government takeover and readjustment, bankruptcy would allow specialization of resources to kick in. At that point, Toyota, Honda, Ford and the other auto companies (and their respective loan organizations) that have actually done a market-satisfactory job of making vehicles would immediately receive the market share opened by a GMAC bankruptcy, given the influence the company has on the automobile industry. This would decrease the amount of resources- including taxpayer money- used to make cars in this country substantially, and allow greater economic growth to take place as the unused resources are used elsewhere. In what is being called “The Great Recession,” this could be a great boon to hard-working Americans as well as Americans who want to be hard-working but can’t due to the recessionary times.
Personally, I prefer bankruptcy for businesses that can’t succeed. Let’s put the pressure on our legislators to do the same.
Pay for Performance Act of 2009: An Encroachment of a Free Society
Nearly two weeks ago the House of Representatives acted with great haste and without sound discussion and passed a bill that would impose a 90 percent retroactive tax on the bonuses paid to the executives of AIG.? The idea of government specifically targeting a small group of people who they disapprove of and then taking their money away from them which was guaranteed to them in their contracts is completely immoral.? Judd Gregg, senior Senator from New Hampshire declared; ?It is wrong?to propose to use the taxing authority of the government in a manner that is arbitrary, punitive, and targeted on a single group of people who they have deemed as having acted improperly.? When the populist cloud of anger began to settle, the Obama Administration backed away from the bill as did the Senate Democrats who were its most fervent advocates.
The House Financial Services Committee led by Massachusetts Democratic Congressman Barney Frank is championing an even more immoral and unethical bill targeting businessmen.? Mr. Frank who played an infamous role in the fiasco of Fannie Mae and Freddie Mac and who controversially stated, ?These two entities…are not facing any kind of financial crisis,? ?approved a measure that would impose government control on the pay of all employees — not just top executives — of companies that have received a capital investment from the U.S. government.? It would, like the tax measure, be retroactive, changing the terms of compensation agreements already in place.? And it would give Treasury Secretary Timothy Geithner extraordinary power to determine the pay of thousands of employees of American companies.”
This sort of government control of the private sector is in direct violation of capitalism and our free market system.? Government should have no role in restricting pay and has no authority to determine what pay is ?excessive? and ?unreasonable.?? The bill is limitless and targets not just top executives but all employees, from the chairman to the janitor.? What is even more disheartening is that bill would void all current contracts and pay arrangements.? Employees will be subject to salary control even if their job within these companies had nothing to do with financial crisis, as we know was the case with the AIG contracts.? This is completely unethical, as former AIG executive Jake DeSantis said, ?None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house.?
If salary control isn?t the road to serfdom then I don?t know what is.
-sam
Frankly, I was Kinda Schocked…
I was slightly saddened by the vote cast by the Conservative movement?s ?New and fresh face? in the House of Representatives.? The vote was for H.R. 1586 over a week ago regarding the illegal and unconstitutional forfeiture of AIG bonuses that were mandated by law.? Representative Schock gave his explanation as follows:
?I share the outrage of the American people that AIG would use taxpayer dollars to award executive bonuses during this economic crisis,? said Schock.? ?The fact that these bonuses were protected is the fault of both administrations and is a reflection of the dereliction of duty by Treasury Secretary Timothy Geithner.?
I am a bit perplexed by the ambiguity of this language.? Also, the opening sentence reeks of unmitigated populism; which should be avoided by anyone who espouses Conservative principles (but not so much for Libertarians).? Either way, Representative Schock could have a very prosperous and long tenure in the House of Representatives.? I hope that we don?t see anymore votes such as this one, however, or he will be denoted to the fresh face of the Republican Party, after having abdicated his membership among the Conservatives in the House.
-rj
I hope you’re happy…
I hope you?re happy. The populists who write letters and e-mails to these AIG workers threatening to kill them, to cause harm to their families, etc. This populism transcends mere ideological labels, and I will address that matter a little later. I wanted to elucidate for you all an article in the New York Times Opinion section entitled Dear A.I.G., I Quit! In the letter, we hear the cries from a gentleman who did nothing but work to get where he got, only to have his character and integrity viciously attacked by the media, by faux Conservative populists, and by the members of Congress that allowed for the bonuses in Federal legislation. This is a man, an American, a human being with a family. Such situations remind me of the scene in HBO?s John Adams series when they demonstrate the atrocity of tar-and-feathering. When John Adams asks of his cousin if this is justified, is it justified to ruin the lives of people and trounce the rule of law (grounded in either civil institution or provided by Providence, do unto others??) because they are being guided by their unbounded passions.
I ask that everyone read the words of this man, and actually attempt to understand both sides of this situation before continuing down the road with pitchforks and torches in hand. I am not condoning the bonuses for all of the individuals involved, but I would be much more satisfied knowing that I knew the true ramifications of the populist rhetoric were I to perpetuate it on any medium I could.
There is a dangerous faction taking hold of our dear philosophy. They do not extol a true strength in numbers, but they are the most bombastic wing. The people who forward Alex Jones e-mails, the people who update their Facebook statuses with constant hatred and vitriol: CONSTANT! How did we feel when people were disrespectful to President Bush? We dismissed the liberals who made their nefarious comments about President Bush?s administration as overzealous and classless. Now we are acting just as those we held contempt for years earlier. I do not agree with anything about President Obama, but I will address him as such and grant him the proper title of which my country men bestowed upon his being. He is our President, get over it. Don?t like his policies, don?t like his past, don?t like him; but act with candid class nonetheless. We are not going to advance our cause if we allow these intellectually incompetent buffoons speak for Conservatism as a whole. Theirs is a philosophy that borders anarchy.
I want to go back to the Facebook statuses. These have now become billboards for the extraordinary. People posts hundreds of statuses forwarding the most random and sometimes obtrusive indictments. If you want to believe in FEMA camps, if you want to believe in the New World Order and the Illuminati (who were very much libertarians of their day), then go ahead. But people are posting these YouTube clips as sole testimony of unadulterated fact! Animosity runs rampant and ?conservatives? are forwarding and continuing these messages of distrust and hate.
In the end, I just want people to calm down for a second. I agree with the Tea Parties, I work where I see first hand what is going on with the economy, and day after day I have to try and ameliorate situations where people face their worst fears: losing a home, a job, their health. Acting like rabid dogs sicking the mail-man because he symbolizes the government is not going to advance our cause. We have to take a deep breath and articulate our philosophy, because it is the best one. We have to win over moderates not by becoming more moderate as Mr. Frum advocates, but by relating to the moderates by showing we understand how government works, we understand the problems people face, and we know how to run a better and more efficient government. How is someone supposed to trust a ?Conservative? Huey Long, who babbles from his pulpit about hating the government, that they can run the government better? I want to be reactionary as well, but sometimes when we start to get out of hand, we need to sit, count to seven, grab a handful of Jelly Bellys and just think.
-rj
