Big government isn't the answer

Re: 'Congress forgets role in $350B whodunit' (Dec. 12)

Dear Editor:

It's repugnant to see senior members of Congress, administration spokespeople and Washington bureaucrats -- whose advocacy for polices that helped create today's economic crisis -- pontificate daily about the abuses of Wall Street and others. Albeit, there is ample blame for those individuals and corporations, but when do these politicians and bureaucrats ever accept responsibility for their failures and misjudgments?

While the $700 billion "we-can't-delay" bailout package sailed through Congress, a $25 billion auto-industry loan guaranty was quietly passed almost unnoticed. Typical of such emergency bills, the details of how the funds were to be used were non-existent. The fact banks might use such monies to acquire other institutions, pay executive bonuses, fund expensive off-site meetings and/or invest in T-bills as opposed to making new credit available to individuals and businesses apparently never crossed the minds of the bill's supporters.

Beltway insiders appear to be making up the rules on the fly. While Secretary Paulson's rationale for almost weekly changes in how to use the bailout funds may be sound, are such changes legal and are stringent controls on recipient institutions now required?

Sensing Congress's commitment to giving away taxpayer money, the auto industry, Toll Brothers, credit card and insurance companies, and a host of other corporations and industries with political clout -- not to mention a growing cadre of state and municipal governments -- have been queuing up for similar rescue monies to compensate for prior mismanagement, executive extravagances and an irresponsible lack of foresight when negotiating long-term contractual obligations. Can retailers be far behind?

A lame-duck Congress recently debated a second emergency assistance package for a failing automotive industry. While it may assuage key Democratic contingencies, simply rewarding an industry and its unions for their prior failures will not address the systemic problems that have and will continue to make them increasingly less competitive in a global economy.

An auto-industry bailout will only defer the inevitable downsizing of the domestic automobile industry, which will continue to be crushed by $73/hour labor rates and an inability to plan for the future. Even GM's much-hyped Volt has a 2010 introductory price of $30,000; 36 percent higher than Toyota's Prius.

Auto-industry executives, the UAW and their minions continue the drumbeat that a bankruptcy by Ford, Chrysler or General Motors would be tantamount to throwing some 2.5 million people out of work. However, bankruptcy does not work that way.

Rather, Chapter 11 provides companies immediate relief from existing creditors, often encourages lenders to become more willing to make new loans, ensures post-filing creditors will be paid in a prompt and efficient manner, enables the restructuring of prior debt and even permits the cancellation of certain onerous obligations that would hinder the future survivability of the company. Meanwhile, their business can continue in an uninterrupted fashion.

Most of the major U.S. airlines are still in business today because of the protections and benefits provided by bankruptcy when they faced similar crises.

Whether for financial institutions, automobile manufacturers, insurance companies or other industries, Congress should insist that no executives of companies receiving federal bailout assistance should receive annual compensation in excess of the base salary of the U.S. president ($400,000).

Corporate officers and directors who were complicit in creating the financial morasses or other material problems leading to the requirement for federal monies should be summarily fired.

Going forward, corporate officers and directors should be granted significant financial and stock incentives based on the long-term (several years in duration) successes of their companies, specifically including the repayment of all loans or other bailout financing. Golden parachutes should be eliminated.

If Congress and the existing or incoming administration commit billions of taxpayer dollars for bailout or stimulus packages, it will have two options: print more money or finance the new debt. The former is hugely inflationary, while selling government-backed securities will eventually push interest rates higher. The effect will be to increase the costs of borrowing for state, county and municipal governments as well as private-sector corporations, if not drying up such capital altogether.

However enticing federal largess may seem, it's prudent to remember Thomas Jefferson's warning: that a government that is big enough to give you everything you want is big enough to take everything you have.

Dick Newbert
Commercial real estate agent
The Prestige Group
Devon, Pa.

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