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.
Add a Comment See all 34 Comments
- You never grow an economy from the bottom up. Small businesses need their corporate rates cut to stay competitive and allow them to hire more people. Most small businesses are owned by middle class people.
If 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. - Reply to this comment
- talkingham: Bush is hardly a "free market" president. Look at how federal regulations (measured in terms of pages published in the Federal Register) ballooned during his presidency. Also doubling the amount on the national credit card by running up debt is the opposite of free market. Though there''s no reason so far to believe Obama will be any different.
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? - Reply to this comment
- Do you "supply-siders" really believe that if you save a wealthy man on his taxes that he will automatically invest it in an enterprise that results in more federal taxes being raised than is lost by that amount.
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! - Reply to this comment
- Comon, you have to bailout the porn industry. All those people need work too. LOL
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- There are no parallels between Wall Street and Detroit. Detroit actually makes something. Wall Street just sucks money.
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- Borrow, borrow, borrow, spend, spend, spend. It is easy to point fingers, but all of us American citizens are to blame. We live in a system where it has become impossible to say no and get reelected, and most politicians want to get reelected and keep power for their parties. Allegiance to politics and political parties has surpassed allegiance to what is best for the country--loyalty to money and power over being loyal to taking care of the ones that matter--the people of the country. If this government won''t give us the money, then by golly we will vote in another group that will. Debt? Who cares, let''s just keep spending and spending and spending . . . .
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- Don''t you "get" it. -- Madison Avenue psychology won! -- Americans are now so gullible that we are completely willing to believe ANYTHING we are told. -- Someday we will be told that Blue is Red, and we will probably believe THAT rather than climb over all the manipulations, and actually think for ourselves. -- We have become, as a people, truly weak and stupid. -- We have been trained out of existence.
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- What we are doing is not bailing out anyone. -- We are simply giving away billions of dollars from those who think $5.00 is a lot of money TO those who think nothing of using a corporate jet helicopter to get across town. -- For the most part, it really is just more of the "Teeth in the Jugular" syndrome we have all been suffering from during the Bush reign. -- We are so used to it now, that we think nothing of doing it yet again, blindly believing that this time it will be different. -- This time our government will care about us, and not be the bad guys they have been revealed to be. -- Yeah, this time! -- I will believe it when I see it.
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- Mr.Declan:
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 - Reply to this comment
- Supply-side trickle-down economics has finally been exposed as nothing more than an upward redistribution scheme.
It%u2019s a little late for all the dumb bubbas out there who voted for it. - Reply to this comment
- declanm said: "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... that did."
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. - Reply to this comment
- Just shows to go you what happens when a "free market" prex drops $1.25 trillion down the toilet of Iraq to "bail out" his failed war on weapons of mass destruction that did not exist just so he could be the war president.
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! - Reply to this comment
- jlpruitt: Good point. Without the government subsidizing farmers, how would they ever manage to grow food?
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- Welcome to bailout-land where all your problems can be solved by borrowing money that doesn''t exist, but will have to be paid back from everybody.
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! - Reply to this comment
- I think saying that farmers cannot ask for assistance is stupid. How are we supposed to get food for ourselves? Are you going to take the time and effort to grow food, or watch and herd cattle, etc? No, that''s why we have farmers who are dedicated to helping this economy by providing goods for the American people. We need farmers. Not helping them would be drastic to an already unstable economy. Then there would be no money, no credit, and NO FOOD. Not a smart way to go.
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- 700 billion dollars is enough buy solar cell arrays to produce ONE THIRD of the US''s electricity FOR THE NEXT 25 YEARS!!!
Actually longer then that, 25 years is just the manufacturers warranty. AND that is at TODAY''s prices with current technology. - Reply to this comment
- Where can I apply for a bailout? I only need about $20,000 to put me on easy street! But I''ll take what they would give me--LOL
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- Some replies to folks who posted in response to my column...
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. - Reply to this comment
- I think the big question is:
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. - Reply to this comment
- The $700 Billion TARP has been a total failure - the money has gone principally to Wall Street pals of Paulson (aside from the inept d-crat congress, who couldn''t have seen that coming?) And the marxist drug-addict plans to waste another TRILLION on "public works" - most likely a narcissist''s dream: monuments to himself on every street corner. And, as if that were not bad enough, the marxist will proceed with his WEALTH RE-DISTRIBUTION PLAN (corrupting the tax code to take money from hard-working American citizens and give it to slugs and slackers) as one of his first horrific actions.
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". - Reply to this comment
The road ahead in Afghanistan, and the crucial decision Obama faces.
