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Archive for the ‘Government’ Category

So says Jon Huntsman:

More than three years after the crisis and the accompanying bailouts, the six largest American financial institutions are significantly bigger than they were before the crisis, having been encouraged to snap up Bear Stearns and other competitors at bargain prices. These banks now have assets worth over 66% of gross domestic product—at least $9.4 trillion, up from 20% of GDP in the 1990s. There is no evidence that institutions of this size add sufficient value to offset the systemic risk they pose.

The major banks’ too-big-to-fail status gives them a comparative advantage in borrowing over their competitors thanks to the federal bailout backstop. This funding subsidy amounts to roughly 50 basis points, or one-half of a percentage point in today’s market.

Read the whole thing.

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So says John Stossel:

I guess Obama doesn’t know that the Transcontinental Railroad was a Solyndra-like Big Government scandal. The railroad didn’t make economic sense at the time, so the government subsidized construction and gave the companies huge quantities of the best land on the continent.

As we should expect, without market discipline — profit and loss — contractors ripped off the taxpayers. After all, if you get paid by the amount of track you lay, you’ll lay more track than necessary.

Credit Mobilier, the first rail construction company, made enormous profits by overcharging for its work. To keep the subsidies flowing, it made big contributions to congressmen.

Where have we heard that recently?

The transcontinental railroad lost tons of money. The government never covered its costs, and most rail lines that used the tracks went bankrupt or continued to be subsidized by taxpayers.

The Union Pacific and Northern Pacific — all those rail lines we learned about in history class — milked the taxpayer and then went broke.

One line worked. The Great Northern never went bankrupt. It was the railroad that got no subsidies.

Read the whole thing.

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From Daniel Howes:

Ford pulled the ad after individuals inside the White House questioned whether the copy was publicly denigrating the controversial bailout policy CEO Alan Mulally repeatedly supported in the dark days of late 2008, in early ’09 and again when the ad flap arose.

Is This Blog On? weighs in:

You’re not allowed, in Obama’s America, to disparage the Auto bailout, or -indirectly – Obama. Especially during the election cycle.

But Ford is hardly a puritan when it comes to government “assistance” and “Chris” may not have fully understood this when he bought his new truck from the automaker:

Howes makes the point:

Whatever the politics, the ad kerfuffle exposes two opposed realities existing simultaneously for Ford:

First, a sizable cadre of current and would-be customers oppose the notion of taxpayer bailouts for automakers, whatever the economic costs to the industrial Midwest and the nation of letting them collapse. Meaning there’s an advantage Ford can press to remind folks that it didn’t receive direct payouts from Treasury.

Second is that Ford supported the bailouts before Congress, in public statements and still does today, despite the recurring snarkiness you hear around its offices in Dearborn that it “didn’t take the money.”

No, it didn’t. But Ford did seek a line of credit from the feds, borrowed billions under a government program to “retool” its plants and effectively failed first. That’s why it recruited a superstar CEO from Boeing Co. and gave him some $23 billion in borrowed money to save the Blue Oval from bankruptcy.

Or it would have taken the money, too.

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Eric Lipton and John M. Broder pen a story for The New York Times about the Solyndra debacle, calling it “one of the administration’s most costly fumbles.”  Some new details are uncovered by the duo:

  • There was intense pressure on senior Energy Department staff to rush stimulus spending out the door and Secretary Steven Chu was personally reviewing loan applications and urging faster action.
  • While Solyndra spent nearly $1.8 million on Washington lobbyists, employing six firms, none of the other three solar panel manufacturers that eventually got federal loan guarantees spent a dime on lobbyists.
  • Tim Harris, the chief executive of Solopower, which got a $197 million loan guarantee last month to build solar panels in San Jose, Calif., said his company had never considered employing a Washington lobbyist to grease the application. “It was made clear to us early in the process that was clearly verboten,” Mr. Harris said. “We were told that it was not only not helpful but it was not acceptable.”
  • The Bush administration, according to the authors, had started the review of the Solyndra application in May 2008 and were anxious to approve the deal, because members of Congress were complaining that the loan guarantee program, signed into law in 2005, still had not given out its first award.

The article continues, focusing largely on intense and expensive lobbyist efforts and misplaced zeal on the part of the administration.

The authors characterize the bankruptcy of Solyndra — and the likely loss to taxpayers — as merely a failure of execution.  If only the administration had exercised less haste, if only the lobbyists hadn’t interfered and company officials were more honest, if only the price of silicon had remained high, if only the DOE had “followed the rules”.

If only.  These two words are the foundation of the liberal mindset, especially when there is failure.  The New York Times has now set the narrative for President Obama and his main-stream media water boys regarding the Solyndra “fumble”.

But in the newspaper’s rush to blame anything and anyone but the stimulus, and more specifically the loan guarantee program, it inadvertently exposes the program’s fundamental flaws and why many simply call it “crony capitalism”.

  • Through the article’s narrative, it becomes obvious that well-connected companies stand a better chance at receiving government assistance than those which aren’t.
  • Political goals can easily outweigh due diligence and sound judgement when spending investing taxpayer dollars in private enterprise.
  • If the Energy Department hadn’t been rushed, would the loan still have been guaranteed?  Of course it would.  There is absolutely no evidence to suggest otherwise.

Solyndra provides a multitude of examples as to why the government should not be in the business of “investing” in private businesses.  Here are a few:

  • The company’s success or failure depended upon one important commodity and its price: silicon.  Once this dependency is acknowledged, the loan guarantee is no longer investing, but speculation.
  • The price of silicon is a major — if not the major — risk factor the company faced.  But I don’t see in the company’s S-1 filing for its proposed IPO any mention of it.  Goldman Sachs and Morgan Stanley (as well as the attorneys) even missed this elementary point.  Why should we expect the government to recognize the risk?  Moreover, there is no evidence of protective hedging.  By the way, had the company been successful in its IPO and subsequently declared bankruptcy, class-action lawyers would now be licking their chops.
  • Over a half billion dollars’ worth of Factory 2’s assets were highly specialized manufacturing equipment that likely had little use outside its specific purpose, making for very poor collateral, or as junior commercial loan officers would say, “there’s no second source of repayment”.
  • After the loan was drawn, the agreement specified repayment of principal and interest over only four years.  There was no evidence of sufficient cash flow to service this kind of debt.  Banks call this “betting on the come.”
  • The government allowed a restructuring of the debt, placing itself junior to private investors.  A review of the statute makes it clear the action broke the law.  The rationale given was ridiculous.  It’s called “good money chasing bad”.

These simple examples are clear to any junior banker and illustrate how the government failed so spectacularly in its fiduciary duty to taxpayers, who will see over $500 billion in their hard-earned money evaporate.  And it’s likely we’ll see more failed government “investments” in the very near future.

We’re experiencing the worst economic environment since the Great Depression.  In times like these it is especially imperative that our government acts as a careful and thoughtful steward of hard-earned taxpayer money.  It’s bad enough that this ill-conceived program was even launched, but what’s most  insulting is the carelessness in which it has been executed.

Tar and feathers.

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Joel Kotkin analyzes the shocking Republican victory in New York’s ninth congressional district using the context of Mayor Bloomberg’s view of New York City as a “luxury product”.

For a decade, the Bloomberg paradigm has held the city together: Wall Street riches fund an expanding bureaucracy that promotes social liberalism and nanny-state green politics. Indeed, Wall Street’s fortune — guaranteed by federal bailouts and monetary policy under both Presidents George W. Bush and Barack Obama — has been the key to the mayor’s largely self-funded political success. Under Bloomberg, Wall Street’s profits allowed city expenditures to grow 40% faster than the rate of inflation. Bloomberg was also able to buy political peace by bestowing raises two to three times the rate of inflation on the city’s unionized workers.

Now this calculus is falling apart. Layoffs are mounting on Wall Street, while bonuses — the red meat that fuels everything from high-end condos to expensive boutiques and restaurants — are expected to drop 30% from last year.

Then there’s this:

But something is stirring in the boroughs.  The district’s voters not only embarrassed their civic betters by voting Republican, but they also demonstrated that New York’s middle class, politically quiescent under Bloomberg, may need to be taken seriously again.

This gives hope for what Bronstein calls “the real New York” — a place that is neither particularly glamorous nor severely bifurcated between the rich and those who service their needs. With a more diversified economy and family orientation, this unexpected rebellion could represent the first step toward restoring New York’s roots as a city not of luxury but of aspiration.

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That seems to be the driver in world markets since Thursday trading began in Asia.  This morning it hit the US with no investment escaping save Treasurys.

Walter Russell Mead weighs in:

  • Chinese stocks fell almost 5 percent and key real estate company stocks were down by double digit percentages as fears grow that the long-delayed bursting of the China property bubble is here;
  • the European bank crisis is deepening, with the IMF sticking to its guns about the massive capital losses faced by the continent’s banks and BNP Paribas apparently trolling the Middle East in search of a big capital injection
  • the Federal Reserve’s new worries about the economy made a deeper impression on investors than its plans to support growth
  • some US banks are starting to look shaky again.

There are many more reasons for concern.  The continuing inability of Europe to cope with the euro troubles, the political impasse over economic policy in the United States, and the deer-in-the-headlights immobility of Japan do not inspire confidence.  The emerging economies — China, India, Turkey and Brazil — face increased difficulties of their own and will not pull the global economy out of the dumps.  That large corporations are sitting on cash hoards or buying back stock rather than making new investments is bad news; that consumers are cutting down debt and doing what they can to increase their savings is good news for the long term, but bad news now.  And it seems clear that two years of frantic efforts in Washington have failed to breathe new life into the nation’s housing market.

Plus this:

I still hope the old house can weather one more storm, but it is clear that we can no longer take that for granted.  The ground under the foundations is washing away; the wind threatens to rip off the roof, and cracks are appearing in load bearing walls. Sooner rather than later we are going to have redesign and rebuild.

Financial market crashes come and go; the world may spin back into recession or the economy may wobble for a bit and then stabilize.  But we’ve had a glimpse into the abyss; in Europe, in Asia and in the Americas some of our most fundamental institutions and social policies are going to have to change.

Sobering, indeed.

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Bruce Krasting does some digging on the latest goings on at the Federal Financing Bank (FFB), which I’m guessing will soon become a household name.

Here’s the worst part:

There is one more attractive feature for the Chairman of the FFB. With the exception of the notes from the Post Office, it’s all off balance sheet. When the “Debt to the Penny” calculation is made by the Treasury, the (net of PO) $33b at FFB borrowings are excluded.

In Wall Street terms, that makes the FFB a SPIV and it’s a whorehouse.

Read the whole thing.

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