Newt Gingrich: Bankruptcy, Not Bailout

"Outrage" is the word on everyone's lips to describe the fat bonuses being paid with taxpayer funds to the failed executives at AIG - and it is an outrage.

It's an outrage that the American people are being asked to pay for the bad behavior of people who should have known better, be they reckless traders on Wall Street or reckless borrowers on Main Street.

But the cure for our outrage is not merely, as President Obama is demanding, that AIG be prevented from paying its executives. The $165 million in planned bonuses - as manifestly undeserved as it is - is chicken feed compared to the $170 billion in taxpayer funds AIG has received so far.

Nor is it acceptable to ask Americans to keep throwing their tax dollars at failed companies and their leaders.

The answer is an old fashioned one: AIG should choose between receivership or bankruptcy. It should not be allowed to choose more bailouts from the taxpayer.

Restore the Rule of Law: Allow Failing Corporations to go Bankrupt

Under U.S. law, Chapter 11 bankruptcy allows a company to reorganize. Chapter 7 allows a company to dissolve itself.

The choices for AIG, as both an insurance and non-insurance company, are more complicated, but ultimately boil down to the same options. And for other companies either receiving or looking to receive a bailout from the taxpayers, the option should instead be bankruptcy.

Bankruptcy would send a needed message to U.S. investors: Don't assume the government will bail you out when you do something stupid.

And most importantly, bankruptcy would replace the rule of politicians over U.S. financial institutions with the rule of law.

Geithner Didn't Inherit the Policy of Throwing Billions at Failing Companies - He Helped Create It

Because when it comes to Washington's handling of the financial crisis, so far we've had the rule of politicians, not the rule of law. Most prominent among the politicians in question is Treasury Secretary Timothy Geithner.

As Americans' level of outraged has risen, so has the level of finger pointing by Geithner and others for the mess we're in.But Treasury Secretary Geithner is disingenuous at best and untruthful at worst when he says that he "inherited the worst fiscal situation in American history."

The truth is that Secretary Geithner didn't inherit the policy of throwing billions of taxpayer dollars at failing companies - he helped create it.

Even before he was Treasury Secretary - when he was still head of the New York Federal Reserve - Geithner was so deeply involved in the government's bail out of Bear Stearns, its take over of Fannie Mae and Freddie Mac, and its bailout of AIG that this was the Washington Post's headline from September 19, 2008:"In the Crucible of Crisis, Paulson, Bernanke and Geithner Forge a Committee of Three".

The first meeting of the first bailout - of Bear Stearns - was held in Geithner's office. And the first meeting of what has become a $170 billion bailout of AIG was held - where else? In Geithner's New York Fed office.

Why Not Bankruptcy for AIG? Because Wall Street Wouldn't Have Done As Well

From the outset, Geithner was central to the developing policy of having the taxpayers bail out ailing financial institutions like AIG rather then allow them to go bankrupt. And for months now, we've been told that these bailouts were necessary to avoid a wider, cataclysmic, financial meltdown.

But now it's clear that other, less noble, considerations were at play.

As the Wall Street Journal editorialized yesterday, the real outrage over the AIG bailout isn't executive bonuses, it's that billions in taxpayer funds intended for AIG have been passed through to benefit foreign banks and Wall Street behemoths like Goldman Sachs.

And as former AIG CEO Hank Greenburg testified last October, these financial institutions wouldn't have faired as well if AIG had filed for bankruptcy protection rather than do what it did, which was to negotiate a bailout with Timothy Geithner's New York Federal Reserve. Here's how Greenburg put it:"Although AIG stockholders could have fared better if the company had filed for bankruptcy protection, other stakeholders - like AIG's Wall Street counterparties in swaps and other transactions - would have fared worse."

For the Cost of Bailing Out AIG, Every American Household Could Have Free Electricity For a Year

So now everyone is outraged, and rightly so. But the lavish executive bonuses being paid with taxpayer funds are just the beginning of the story.

So far, the American taxpayers are on the hook for $170 billion to AIG - that's an astounding $1,224 per taxpayer.

What else could we have done with all this money?

$170 billion would pay for more than doubling the Navy's fleet of aircraft carriers.
$170 billion would pay for a four-year education at a public university for more then two million Americans.
$170 billion would cover the electricity bill of every household in America for an entire year.

When You Reward Failure, All You Get is More Failure

What Washington should learn from all this outrage is to return to the common sense that should have guided it all along: When you reward failure, all you get it more failure.

A company that needs a $170 billion taxpayer bailout is a failed company. The executives that led that company are failed executives. But instead of having to face the consequences of their failure responsibly through bankruptcy or receivership, AIG and its Wall Street "counterparties" are being rewarded for their recklessness - with our money.

Thanks to the Bush-Obama-Geithner policy of bailing out failing companies, we now have the worst of all possible scenarios: A taxpayer subsidized, government supervised private company; an unsustainable public/private hybrid that is too public to make its own decisions and too private to be responsible to the taxpayers that are keeping it alive.

Outrages like the fat cat bonuses currently dominating the headlines will only continue as long as the rule of politicians supplants the rule of law on Wall Street.Congress should rethink this entire process. The dangers of a domino-like financial meltdown are real. But so, too, is the danger that the outrage of the American people will reach the point that we no longer trust the dire warnings - or the righteous indignation - coming from Washington.

(Reprinted with permission)

Stimulus Round Up

If you think your voice doesn't count think again. If enough of us call, write, fax, email it's possible we might, just might be able to impact this so-called stimulus package. Go to www.readthestimulus.org and click on the spread sheet they've provided and / or read the text of the actual bill if you can handle government double-speak in print!

Here are some interesting articles and commentary re: stimulus package.

States to win big in stimulus sweepstakes
The House bill allots almost one-quarter of the $825 billion recovery package to states and localities.
http://www.elabs5.com/ct.html?rtr=on&s=o1l,44m9,er,a7nj,g6m3,mbr4,k497

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Fed May Gain More Financial Oversight
(By Neil Irwin and Binyamin Appelbaum)

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Republican Leaders Don’t Like Stimulus Plan, but No Filibuster Expected
(CNSNews.com) – Three top Republicans agree that they cannot support the Democrats’ economic stimulus package as written. But aside from expressing the hope that Republicans’ suggestions will be incorporated, none of them said they would work to block the plan beyond voting “no.”

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Nationalization of banks around the corner?
Yesterday Nancy Pelosi publicly indicated nationalization was on the table (Nancy Pelosi - Nationalization of Banks a Good Idea? Yep.).

Nancy Pelosi - Nationalization of Banks a Good Idea? Yep.
Nancy Pelosi was on ABC this morning with George Stephanopoulos. The entire interview was a dance and dodge performance, but even with all the flowery non-answers there were some whoppers that should have fiscally conservative, anti-socialistic, freedom loving Americans up in arms.

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Nationalization Gets a New, Serious Look
Only five days into the Obama presidency, members of the new administration and Democratic leaders in Congress are already dancing around one of the most politically delicate questions about the financial bailout: Is the president prepared to nationalize a huge swath of the nation’s banking system? Privately, most members of the Obama economic team concede that the rapid deterioration of the country’s biggest banks, notably Bank of America and Citigroup, is bound to require far larger investments of taxpayer money, atop the more than $300 billion of taxpayer money already poured into those two financial institutions and hundreds of others, The New York Times’s David E. Sanger reports.
http://dealbook.blogs.nytimes.com/2009/01/26/nationalization-gets-a-new-serious-look/

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Treasury's demands on banks seen as nationalization
WASHINGTON — The U.S. government's decision to pledge billions of additional dollars with strings attached to Citigroup Inc. and Bank of America Corp. may be nationalization by another name, according to former bankers and regulators. Faced with pressure from lawmakers, banks have shaken up management, eliminated executive bonuses and staff and canceled conventions. They'll be forced to do monthly reports on how they've boosted lending while slashing quarterly dividends to 1 cent a share for three years.

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Pelosi Advocates Greater Government Investment in Banks: ‘Some People Call That Nationalization’
(CNSNews.com) - House Speaker Nancy Pelosi, describing the U.S. economy as “dark, darker, darkest,” indicated that further nationalization of American banks may be necessary, although she shied away from using the word “nationalization.” Pelosi also told ABC’s George Stephanopoulos that investing in food stamps and unemployment insurance would be more effective in stimulating the economy than any tax cut would be.

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Editorial: Congress Must Stop the Stimulus
The $825 billion economic “stimulus” plan now being proposed by President Barack Obama and Congressional Democrats could well result in a federal deficit in excess of $2 trillion for 2009. Which means that it is now up to Senate and House Republicans to make certain that the American people are not consigned to a future of permanent serfdom to foreign creditors.
That is, if those creditors will continue to even service the national debt, now totaling nearly $10.7 trillion. http://alg31blog.timberlakepublishing.com/default.asp?Display=905

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The Heritage Foundation's Morning Bell:
A Conservative Alternative to Obama's Permanent Spending Plan

Last Friday we told you that even by the left's own ideological criteria, President Barack Obama's trillion dollar spending plan would fail to stimulate the economy because nothing about the massive spending increases in the bill was temporary. This Sunday, the Washington Post wrote an editorial essentially agreeing with us:

[S]ome in Congress and the new administration apparently see the country's
present recession as an opportunity to change the federal government's spending
priorities more generally or simply to reward loyal political constituencies.
... [I]t's risky to make new, multiyear commitments in the middle of a crisis
without debate over competing priorities -- and without paying for them through
some means other than borrowing.

Helping hire, equip and pay police, a $4 billion item under the bill, might
be a good idea, but writing checks to individual households for the same amount
would do more to stimulate the economy. Ditto for $16 billion in Pell Grants for
college students, $2.1 billion for Head Start and $50 million for the National
Endowment for the Arts. All of those ideas may have merit, but why do they
belong in an emergency measure aimed to kick-start the economy?...Fiscal
stimulus can be a part of the solution, but only if it is "targeted, timely and
temporary." The efforts so far don't quite match that description.

Our only quibble with the Post's assessment of Obama's trillion dollar spending plan is that it is not quite stern enough. There is nothing "targeted, timely and temporary" about the massive and permanent spending increases in this bill. And the Post left out some of the most flagrant examples. Among the hundreds of billions of dollars in new spending is hundreds of millions of dollars for contraceptives. Speaker Nancy Pelosi (D-CA) unrepentantly defended this money as stimulus on ABC's This Week:

Well, the family planning services reduce cost. They reduce cost. ... One of
those - one of the initiatives you mentioned, the contraception, will reduce
costs to the states and to the federal government.

Got that? If you want to help stimulate the economy, then Nancy Pelosi believes you should not have any more children. Apparently having less children "will reduce costs to the states and to the federal government."

National Economic Council director Lawrence Summers turned in a similar performance on Meet the Press, defending the above mentioned Pell Grants and police hiring as "good investments."

Neither of these stimulus defenders even bothered to claim that these spending increases would be temporary in any way. The deficit for 2009 is already projected to exceed $1 trillion. If deficit-fueled government spending was effective, then our economy ought to be in recovery already. Obviously that is not the case. An alternative is needed.

The American economy does not rise and fall with the level of aggregate demand or deficit spending. There are normal processes that launch a recovery and drive an economy. These processes involve individuals and businesses responding to opportunities and incentives. Lower marginal tax rates stimulate the economy because they improve the incentives facing individuals and businesses to work, invest, take risks, and seize opportunities. The centerpiece of an effective stimulus policy should involve two elements

- Make the 2001 and 2003 Tax Cuts Permanent: The American public faces a massive tax hike in 2011 when all of the tax relief enacted in 2001 and 2003 expires. It is difficult for the economy to gain its footing when facing the threat of a punitive tax hike.

- Reduce Marginal Tax Rates for Individuals and Businesses: Cutting tax rates by 10% for individuals, small businesses and corporations will reduce the cost of doing business in America and make it easier for Americans to create new private sector jobs.

According to an analysis performed at the Center for Data Analysis at The Heritage Foundation, using the widely respected Global Insight U.S. Macroeconomic Model, these policy changes would strengthen the economy significantly this year. Adopting the Heritage tax proposal would mean that 500,000 more Americans have jobs by the end of 2009, and, by the end of 2010, employment would increase by a million jobs. This two-step tax policy would reduce tax receipts relative to current policy by about $670 billion over five years, a number significantly smaller than Obama's $850 billion and growing spending plan.