Jan. 7, 2009
Let's Stop The Bailouts, Already
Declan McCullagh Wonders When The Flurry Of Financial Lifelines Will End
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(CBS / iStock Photo)
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In-Depth Meltdown Primer Questions and answers regarding various aspects of the current economic crisis.
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Timeline Bear Stearns Bailout A look at recent events at the 85-year-old investment firm.
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It started with Wall Street. Then it was Detroit. Now the list of bailout supplicants queuing for government handouts includes farmers, motorhome makers, home builders, governors, the city of Gary, Indiana, and even some newspapers.
Trust me, that's only the beginning.
When we look back at 2008 a few years from now, the most fateful political development may not be the actual congressional vote for a $700 billion bailout. Instead, it may be the cultural shift that allowed that vote to happen.
As recently as September, the Republicans adopted a platform that said: "We do not support government bailouts of private institutions." The same month, then-candidate Barack Obama said it would be "wholly unreasonable" to bail out Wall Street without meaningful oversight.
But thanks to prodding from the Bailout Party -- whose leaders include George W. Bush, Nancy Pelosi, Hank Paulson, and Barney Frank -- a quiescent Congress gave us just that.
Washington, of course, suffers from no shortage of lobbyists hoping to navigate the political process for financial gain. But until last fall, both major parties generally agreed that bailouts for failing companies should be limited and rare. The Treasury's emergency loan guarantee to Lockheed Corporation in 1971 was only $250 million.
Any semblance of frugality seems to be vanishing from Washington culture. Obama wants a so-called stimulus of $775 billion, while Bush's support for bailout upon bailout has stymied Republican opposition. Most Americans oppose handouts; most politicians love them.
Meanwhile, the bailout's cost has ballooned to $8.5 trillion, not counting the $5.2 trillion in Fannie and Freddie guarantees. (To be sure, taxpayers will recover part of that $13.7 trillion, a figure larger than the combined totals of every war this country has ever fought.)
Other prospective bailout petitioners:
Then there are the even sillier ideas. Even if you believe that AIG, Wells Fargo, Merrill Lynch, and so on truly were too big to fail, who can argue with a straight face that Connecticut taxpayers must bail out two failing local newspapers? Or that dairy farmers in Dane County, Wisc. are crucial to the economy? How about San Jose, Calif. or Gary, Indiana?
Handing out bailouts to failed enterprises does little but ensure a shrinking number of well-managed ones and a growing number of failures. It rewards managers and business owners who acted irresponsibly at the expense of the careful and prudent. The principle of self-reliance becomes forgotten.
In my first column in October, I wrote: "Members of Congress will have a strong incentive to demand preferential treatment for borrowers in their home districts or among politically-favored constituencies." We now know that the House of Representative members who supported a Detroit bailout received 65 percent more auto industry cash than those who didn't. We also know that bailout recipients were big political donors.
This process is toxic to our political system. But unless real opposition to the Bailout Party develops, expect much more of the same.
Declan McCullagh is the chief political correspondent for CNET. He previously was Wired's Washington bureau chief and a reporter for Time.com and Time magazine in Washington, D.C. He has taught journalism, public policy, and First Amendment law. He is an occasional programmer, avid analog and digital photographer, and lives in the San Francisco Bay area. His e-mail address is declan.mccullagh@cnet.com
By Declan McCullagh
Copyright ©2009 CNET Networks, Inc., a CBS Company. All rights reserved.
The secrets of tennis legend 
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See all 34 CommentsIf the lower portion of the income ladder get free money, there is no incentive for them to work and contribute (as little as it is) to tax revenues.
Obama''s plan will give little incentive for people at the top of the ladder to invest . . . they will ride out the storm with already earned millions in the bank. It can only be taxed once and the tax earned on that money has already been taken.
d33pthroat1: We may not disagree that much. You acknowledge (correctly, in my view) that high taxes can decrease revenues. At some point, people decide not to work as hard for a raise, or the black market becomes sufficiently attractive. And of course low taxes can decrease revenues. But I''m not as worried as you about keeping tax revenue as a share of the economy constant; there''s little logic to the idea that the government has a moral claim to a fixed percentage of our national income.
ubrew12: You say that Bush employed the "free-market solution" and created "a mountain of unemployment and the answer is now to try quasi-socialist "deficit spending." I''m not always opposed to deficit spending, but I would say that (a) Bush was not free-market--see above; (b) we have been deficit spending for a decade, which doubled our debt. Maybe now is the time to learn to live within our means, individually and nationally?
Ever hear of "off-shore" banks? Ever hear of tax dodges for the rich and famous? Why do they think that we need so many CPA''s? The majority of the wealthy find loop-holes that allow them to hide a goodly majority of their income.
mtee12 is correct. We never heard from a majority of the Repubs about deficits so long as Bush and Cheney said that they didn''t matter. HYPOCRITS!
I totally second your call to stop the bailouts. However, you are wrong when you say "tax cuts do not increase deflicit, spending does". You support this by saying "In reality, federal tax revenue rose 15% in FY2005 and 12% in FY2006...".
The *real* reality is that these increases were seen over the *bottoming out* that occured from 2001-2004. Measured as a share of the economy, revenues in 2004 were at their lowest level since 1959. Given this historically low starting point, it is not surprising that revenues have recovered since then. If you look at the full 2001-2008 span, revenue increases were negligible and had it not been for the tax cuts, we might still have a surplus!
There is no doubt that spending increases deflicit. There is also no doubt that *extremely* high taxes can decrease revenues (thereby, making a case for tax cuts). But, excessive tax cuts (especially when given mostly to the rich) did contribute to the deflicit and could continue to do so.
I invite you to get a better perspective on this by visiting these web pages:
http://www.cbpp.org/9-27-06tax.htm#m2
http://www.cbpp.org/4-14-04tax-sum.htm
It%u2019s a little late for all the dumb bubbas out there who voted for it.
First, I appreciate your response. Second, I must insist that deficit spending on the ''free market'' doesn''t automatically constitute ''investment'' that will pay off in the long term. I have a deep suspicion of the ''free market'', perhaps unwarranted, that it tends toward investment in the ''lowest-common-denominator'' in preference to the highest. Not to put too fine a point on it, to the ''free market'': a Big Mac and fries is food, a Hummer is transportation, ''57-channels-and-nothin''s-on'' is entertainment, and Bernard Madoff is an astute investment.
In contrast, deficit spending on roads, electrical infrastructure, schools, energy-production-facilities, and bridges constitutes investments that pay off in the long term and then contribute ''free money'' to the economy for decades to come.
Some middle-ground must exist. Yes, the ''invisible hand'' is a better allocator of investment resources, generally. But, as mtee12 has indicated, Bush got the chance to ''break the bank'' on the free-market solution: and so far all it created is a mountain of unemployment. At the least, perhaps we ought to give the other side a chance at deficit spending on ''socialist solutions'', and so end up with a balanced solution.
great job. mission accomplished. u destroyed the American economy along with the billionaires who have sent our jobs over seas so that that hispanics and red necks can buy cheap stuff at Walmart.
Yeah, now that the greedy s o b s at the top have gotten theirs it''s time to shut things down right!
Banks, ok they have their bailout, but it has been handled with the same lack of oversight that got us into this mess. That needs to change!
The housing market needs to be stabilized, but that would not require a bailout, that would require asking the lenders to freeze interest or no interest for six months. This would give people a chance to catch up, working with home owners, increasing the loan duration to allow for easier monthly payments. This does not require a bailout!
A great way to jump start an economy would be infrastructure rebuilding. And boy do we need it, crumbling bridges, and freeways, schools, alternative energy. This would create jobs which would help, we would be getting something for our buck!
But I don''t believe this next and I hope final bailout should be used for any more businesses. Auto industry should be the last, if the country had not already been hit with the wall street blunders, I would have let the auto''s file for bankruptcy. But the country didn''t need to be kicked when it was already down.
Create jobs, no more bailouts; it worked for China, it can work here too!
Actually longer then that, 25 years is just the manufacturers warranty. AND that is at TODAY''s prices with current technology.
timonthyone: You didn''t say who you were referring to when writing, blissfully ignorant of the truth: "You are no more than a die-hard George Bush idiot cheerleader. I''ve read your nonsense Neocon garbage many times." Well, I only started this column in October, but I''ve been consistently critical of bailouts during that time. Also, if you think I''m a George Bush cheerleader, read my column that posted the day after the election that said in the first sentence "The Republicans deserved to lose":
http://www.cbsnews.com/stories/2008/11/05/politics/otherpeoplesmoney/main4575337.shtml
sly_64: One way to pull that off would be this rule of thumb: vote out all incumbents.
mtee12: "Now with Obama coming in, Republicans are all in a tizzy about deficit spending." Yep, there''s plenty of hypocrisy to go around. And I imagine the Democrats will become far less skeptical of broad assertions of executive power in a few weeks.
ubrew12: You say: "where was Declan McCullagh when Bush was cutting taxes on the rich? By doing so, Bush added $5 trillion to the national debt." In reality, federal tax revenue rose 15% in FY2005 and 12% in FY2006, while the budget deficit fell by $165 billion over two years. The Bush tax cuts didn''t add $5 trillion to the national debt -- it was out-of-control bipartisan spending (and an unnecessary war) that did.
where was Declan McCullagh when Bush was cutting taxes on the rich? By doing so, Bush added $5 trillion to the national debt. According to the Economist Magazine, 3/4th''s of the economic growth this created went to the richest 1% of Americans.
Was McCullagh out there prostletizing that this was irresponsible, to benefit just 1% of the country by taking us into unprecedented debt levels? I don''t recall so. Could we use $5 trillion right about now to bail out forces of our economy that actually build stuff? SURE. Bush bankrupted the economy, and McCullagh had nothing to say about it cuz it benefitted the rich. Now that Obama is trying to bail out the parts of the economy that actually help BUILD America (as opposed to PREYING upon it like the benefactors of the Bush tax cuts), well, NOW McCullagh has PLENTY to say.
Lets take a cue from Nancy Reagan, and JUST SAY NO, to McCullagh.
And, if you can''t figure out who will actually pay for all this, your head must also be up bailout fantasy-land.
What is the "bailout exit strategy"?
"Irrational exuberance" has been replaced by "bailout insanity".
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