October 30, 2008
The Early Results of the Government Bailout: Classic Complaints
An amazing combination of stories today show already show problems with government bailout money that, I suggest, we will see repeated over and over for the next decade.
1) The Cash is Lost. See "Where Did the Cash Go?" by Mary Walsh in the New York Times. AIG took $123 billion in just a few days and spent it. Ms. Walsh cannot trace the use of the cash in the company's financials.
2) The Cash is Not Spent the Way It is Supposed to Be Spent. Banks Are Not Lending Bailout Money (multiple stories). They are using the cash to pay dividends, make acquisitions, and just as hoarding fodder.
3) Government Guarantees (or government ownership) Do Not Lower Capital Costs for Guaranteed or Owned Companies. See Mortgage Plan Isn't Cutting Rates, by James Hagerty in the Wall Street Journal. Lenders to Fannie Mae and Freddie Mae are demanding high interest rates and therefore increasing mortgage rates for consumers even though the banks have been seized by the government.
4) Government Money Comes with Non-Financial, Political Strings. See "Cuomo Asks Bonus Data From Banks" by White and Glater today's New York Times. Any getting bailout money must pay executives what government officials want them to pay. See also the recent articles on Cuomo's forcing environmental disclosure's by energy companies.
5) Government Bailouts Are Empty Holes for Money: See "UK Bank Bailout May be Costlier Than Planned," by Munoz and MacDonald in todays Wall Street Journal. See also the new tax break for bank mergers and the Democrats plan for another $300 billion in stimulus grants.
6) Government Bailouts Lead Government to Try and Restructure (Unsuccessfully) Entire Industries. See "As Merger is Pursued, G.M. Sales Plummet," by Vlasic in the New York Times. Government officials are now brokering mergers in the automobile, banking, insurance and airline industry.
7) Government Bailouts Stimulate Socially Wasteful Expenditures on Government Lobbying: "Factions Lobby to Shape Possible New Stimulus," by Conkey in the Wall Street Journal.
This is one day's stories. These stories will keep on coming.
October 30, 2008 | Permalink
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Didn't see this coming.
Posted by: Josh | Oct 30, 2008 11:50:30 AM