Where is the coordination of economic policy among the Federal Reserve, the Treasury and Congress? In testimony before Congress, Ben Bernanke, Chairman of the Federal Reserve warned against large budget deficits:
The Fed chief repeated his call for lawmakers to come up with a long-term plan to reduce the federal budget deficit, which is projected to widen to a record $1.55 trillion this fiscal year. “Unless we as a nation make a strong commitment to fiscal responsibility, in the longer run, we will have neither financial stability nor healthy economic growth,” he said. See Bernanke Says Fed Prepared to Counter Effects of Europe Crisis
It is clear that bailouts are not consistent with fiscal responsibility. But it seems the Administration and Congress are tone deaf to these no more bailout pleas.
No Constituency Left Behind
We have analyzed the bailout actions of the Bush and Obama administrations. See Are We a Socialist Country? It has been a long and undistinguished progression from Bear Stearns, AIG, American Express, GM, Chrysler, GE and others. We have collectively decided that banks, insurance, automotive, industrial, credit card and other companies are too systemically important to fail, and are therefore bailout worthy.
Despite all protestation the Obama Administration appears to be on a constant search for new bailout candidates:
- A $23B Bailout for Teachers – Education Secretary Arne Duncan urged Congress to support a $23b jobs bill to prevent teacher layoffs.
- Why Leave Out Pension Funds? – Senator Casey, D-PA proposes affording two large multi-employer Teamster pension plans federal protection. The estimated cost would be $8-10b.
- US Largesse Goes Global – Through IMF membership, the US taxpayer will be funding the bailout of Greece and other European nations. IMF Chairman Boutros-Ghali pointed out the perilous financial position of the IMF and the need for more member capital contributions. Rep. McMorris Rodgers, R-CA highlights the hidden cost to us:
“This should give pause to Treasury Secretary Geithner and others who boasted that the IMF’s bailout bonanza wouldn’t cost U.S. taxpayers a dime,” said Rep. McMorris Rodgers. “In truth, the cost to U.S. taxpayers goes up every few weeks. After the Greek bailout, it stood at about $7 billion; after the EU bailout, it stood at about $60 billion. Now – based on Mr. Boutros-Ghali’s comments – we’re talking at possibly $100 billion or more. This has got to stop.” See Congresswoman McMorris Rodgers Responds to IMF Statement Europe Bailout will Cost US Taxpayers 100 billion+
- As we have pointed out, Fannie Mae and Freddie Mac are uncapped, growing, perpetual bailouts. See Shredding the Social Fabric.
The Hidden Costs of Bailouts
Politicians are constantly on the prowl for a free lunch. Bailouts and promises of “little cost to the taxpayer” provide that seemingly free repast. A closer look at the bailout phenomenon shows us its high and hidden price tag. A look at some unintended consequences:
- Bailouts only add to the burgeoning federal deficit.
- Ultimately, they will be paid for either through higher taxes, higher inflation or both.
- We are eroding financial discipline. GM was roundly criticized for giving away a new Corvette to a Detroit Tiger, who pitched a near perfect game.
- Likewise, we are eroding fiscal discipline in states and municipalities, which should be cutting budgets and raising taxes rather than seeking bailouts.
- We are compromising our most basic federal system of separation of powers, as a state and local function, education, becomes a federal ward.
- We are encouraging moral hazard with reckless and profligate behavior (and prudent behavior is punished).
- Bailouts beget other bailouts, as it become impossible to draw the line when future constituencies come to Washington for their bailout.
- Today’s funding of bailouts limits the flexibility of the Administration to respond to future, more serious crises.
Fundamentally, bailouts are unfair, as one group is leveraging its political clout to earn a bailout at the expense of innocent taxpayers. Rewarding the profligate and the irresponsible makes little sense as public policy. It is time to end the bailouts.
loading...
Related posts:
- Bailout Nation Lives: Revisited, a Short Update
- Are We a Socialist Country?
- Is the Administration Determined to Make the Elderly Poor?
- Who Pays?
- Extend, Pretend and Crash?
Tags: bailout nation, bailouts, Europe, Fannie Mae, Freddie Mac, GE, GM, Greece, teachers, Teamster Pension Funds
