Catastrophe - Dick Morris [38]
Joseph E. Stiglitz, a Democrat who was chairman of the Council of Economic Advisers under Clinton from 1995 to 1997—and who won the Nobel Prize in 2001—is an unlikely critic of Obama’s proposal, but he has it about right. He says Geithner’s proposal is a “win-win-lose proposal: the banks win, investors win—and taxpayers lose.”119 He notes that “the government would provide 92 percent of the money to buy [bank] assets, but would stand to receive only 50 percent of any gains.” And the government would “absorb almost all of the losses. Some partnership!”120
But such public largesse creates its own problems. The end result is likely to be that the taxpayers will be stuck holding a rather large bag of debts that will produce no money—as investors walk away with tens or hundreds of millions—or even billions—of dollars.
But those private investors have watched the decapitation of AIG and General Motors. They know that once House Banking chairman Barney Frank (D-MA) learns how much they made, all hell will break loose. Even though it’s his plan, Obama will lead the chorus of outrage—and Congress will respond by passing one of its 90 percent tax bills. The public anger will force them to do so.
So a lot of investors—the smart ones—will stay away.
If the Geithner plan fails, which it will, Obama will be faced with the second option: nationalization. If the feds take over the banks, they can lend money directly to consumers and businesses, just as they now do for many student loans and loans from the Small Business Administration.
Ultimately, as Obama’s war on wealth continues, it’s likely that he’ll nationalize the banks. The more he demonizes those who get big bonuses and castigates the greed of the firms that made the mistaken investments, the more he will sap their confidence, stoke their fears, and deter them from buying up toxic assets or from new lending.
Any lingering doubt about Obama’s intentions toward the financial sector should have been dispelled on March 24, 2009, when the Washington Post reported that “the Obama Administration is considering asking Congress to give the Treasury Secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy.”121
At present, the government has the right to seize banks but not other financial institutions. The power the administration seeks is, literally, the ability to impose—unilaterally and without legislative approval—a socialist economy on the United States. It comes as close as anything we have seen to a legislative equivalent of the Bolshevik Revolution.
As the Post noted, “giving the Treasury Secretary authority over a broader range of companies would mark a significant shift from the existing model of financial regulation, which relies on independent agencies that are shielded from the political process.”122 What an understatement!
One of the proposals the administration is reportedly considering could “impose greater requirements on company boards to tie executive compensation more closely to corporate performance and to take other steps to ensure that compensation was aligned with the financial interest of the company,”123 the New York Times reported.
This intrusive regulation would affect not only companies that receive federal funds, but all financial-sector companies! The Times specifically noted that “the new rules will cover all financial institutions, including those not now covered by any pay rules because they are not receiving federal bailout money. Officials say the rules could also be applied more broadly to publicly traded companies, which already report about some executive pay practices to the Securities and Exchange Commission.”124
Even speculation that the administration is considering limits on executive pay amounts to a declaration of war against the private sector. The fact that Obama’s people leaked the story—whether or not Congress approved