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January 6, 2009
Exclusive: Bailout Nation – Can Obama Outdo Bush's Big-Government Legacy?
It is difficult to understate the massive increase in the size and power of the federal government that has occurred since Labor Day: President Bush's big-government legacy will rank right up there with those of Franklin Delano Roosevelt and Lyndon Baines Johnson. As someone who twice voted for Bush and finds much to admire in his conduct of the war against radical Islamists, I say good riddance to his form of "compassionate conservatism." The Bush record may make Barack Obama, who takes the oath as president in two weeks, sound like a moderate when he talks about $850 billion economic stimulus programs, fuel-economy mandates; "green" technology schemes and subsides for creation of electronic superhighways, and "middle-class tax cuts" for people who already pay little or no income tax (which seem more like backdoor welfare checks.)
In the past 18-19 weeks, the United States government, with the support of Democrats and Republicans alike, has already committed to spending trillions of dollars to bail out one private business after another. The amounts mentioned are breathtaking – in inflation-adjusted dollars, the taxpayer is on the hook for more than the combined costs of the Marshall Plan; the Louisiana Purchase; NASA; the S&L crisis of the late 1980s and early 1990s; the Korean War; the New Deal; the invasion of Iraq; and the Vietnam War. This includes using tax monies to finance the takeover of once-private entities like Fannie Mae and Freddie Mac, bailing them out of the mess created largely by Washington's pressure on them to help increase homeownership by lending money to people with abysmal credit histories.
Since then, the recipients of corporate welfare in its various forms have included titans of American capitalism like Chrysler; General Motors; GMAC; AIG Insurance Co., Bear Stearns; Wachovia, Citigroup, Bank of America, Wells Fargo and J.P. Morgan Chase. Many of these companies would have gone out of business without the federal money. But others, like Wells Fargo (which protested that it had remained in good financial health because it had not engaged in making irresponsible subprime loans) were in essence ordered to take the taxpayer largesse by Treasury Secretary Henry Paulson at an October meeting in Washington. Paulson was given $350 billion in taxpayer money to dole out to favored companies; the $350 billion is part one of the $700 billion Troubled Assets Relief Program (TARP), passed by Congress and signed into law by Bush in early October. The remainder will be doled out next year by the new Obama Administration in collaboration with House Speaker Nancy Pelosi, Senate Majority Leader Harry Reid and their Democrat colleagues.
Obama and the overwhelming majority of congressional Democrats voted for the bailout. Republicans on Capitol Hill, by contrast, were deeply divided on the issue. While House and Senate Republican leaders supported the $700 billion, many conservative rank-and-file GOP lawmakers were opposed. Bailout backers overcame the opposition by arguing that the money was supposed to be for freeing up credit – not to inject capital into failing nonfinancial businesses. When Paulson last month decided to spend TARP money on the auto bailout, many conservatives objected, pointing to the legislation's definition of a "financial institution."
The key part of the statute defines a financial institution as "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" and any territory in possession of the United States "and having significant operations in the United States." Recently, contributors to the Heritage Foundation's excellent blog, "The Foundry," asserted that "Treasury lacks the statutory authority to direct TARP dollars to the automakers." I'm not so sure. While I find the auto bailout abhorrent, the critical language above is "but not limited to." That language sounds elastic enough to permit someone like Paulson to do pretty much anything he wanted with that money.
Reluctantly, I have to say that based on the wording, Paulson didn't break the law. Instead, Congress, stampeded by panic, voted for legislation that gave Treasury carte blanche. By providing the original $700 billion in bailout money to Paulson, all of the members of Congress who voted for it – including a fair number of conservatives – are indirectly responsible for the auto-company bailout: After the Bush Administration's effort to win congressional approval for the latter corporate-welfare scheme failed in the Senate (thanks to the United Auto Workers union's refusal to reform the absurdly generous compensation structure at the Big Three), Paulson disregarded Congress' will and spent the earlier trough of money as he pleased. Paulson was encouraged to behave this way by congressional cheerleaders intent on bailing out the UAW, including House Speaker Nancy Pelosi and Senate Banking Committee Chairman Christopher Dodd. (Remember that the next time these people start lecturing the rest of us about how Bush purportedly flouted the Constitution by trampling the "right" of foreign terrorists at Guantanamo Bay to be tried in open court.)
But this breathtaking arrogance only scratches the surface of what's wrong. For the political left, the problem is not that money is being spent irresponsibly or that we are piling massive amounts of debt on the backs of our children and grandchildren. It's that the government might not redistribute enough taxpayer money. Appearing on "Face the Nation," New York Times columnist Paul Krugman expressed concern that the incoming Obama Administration might spend less than $1 trillion on an "economic stimulus" program. But that figure is actually small compared to all of the money that the Paulson and Company have already committed to bailing out someone or something.
In November, journalist Barry Ritholtz added up some of the numbers while doing research for his forthcoming book Bailout Nation, (available in hardback January 15th). Using figures compiled by Bianco Research, Ritholtz calculated that in the wake of the Citigroup bailout, the total cost of today's bailout commitments was $4.6 trillion. By comparison, the total cost of the Marshall Plan; the Louisiana Purchase; the race to the Moon and NASA; the S&L crisis; the Korean War; the New Deal; the Vietnam War; and the invasion of Iraq comes to $3.92 trillion in inflation-adjusted dollars. The bottom line: All of today's credit crisis-related bailout commitments will cost $686 billion more than the combined cost of all these massive government projects. This almost certainly understates the eventual cost. When Bloomberg News, crunched the numbers, it calculated that the taxpayer is on the hook for a staggering $7.76 trillion, or $24,000 for every, man, woman and child in the United States.
And the cost is certain to get much bigger. Since that time, the auto companies received their $17.4 billion. Credit-card companies and real-estate firms are seeking federal assistance. And recently 36 executives representing state university systems, public universities and higher education associations took out a two-page advertisement in the New York Times begging Obama and the new Congress to rescue them, too. Ritholtz, according to WSJ.com believes the credit-crisis bailout cost will eventually hit $10 trillion.
Thus far the political class in this country has, in the worst tradition of bipartisanship, responded by pandering. Too many Americans seem to live in a fantasy world, apparently believing that some "rich" people will pick up the tab for everyone getting a loan, a guarantee or a welfare check from Washington. Sometime soon, the bills will come due, and lots of people will get a rude awakening.
FamilySecurityMatters.org Contributing Editor Joel Himelfarb is an editorial writer for The Washington Times. The views expressed here are his own.
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