Is Tim Geithner Really “Too Big to Fail?”

Many of the headlines over the past week read “Confirm Geithner or Else!” As corruption in Washington continues to run amuck, “too big to fail” seems to be the excuse to overlook past and current wrongdoings.

Tim Geithner is now too big to fail. The economic crisis is too dangerous to let a man who is too big to fail sit on the sideline. Geithner must be “Superman.” He must have powers that are extraterrestrial, as there is no one else in the financial sector that has the ability to put the economy back on track again according to President Obama and members in the Senate who approved of his nomination.

Well folks, all I can say is if you liked the way the economic crisis has been handled under the Bush Administration, you will no doubt be thrilled with what’s to come. For those who expected change, brace yourselves for a difficult dose of reality. Real change would have been a free-market solution. Instead, Geithner will continue policy that will further erode the free market and expand the power of the government.

Tim Geithner has not sat idly on the sidelines for the past year. He has already had extensive involvement in the government’s response to the financial mayhem. Based on Geithner’s record, he seems to think that bailouts are the solution. He advocated the rescue of Bear Stearns and played a key role in the rescues of American International Group (AIG), Bank of America and Citigroup. It’s a good thing that top executives in these companies put the funds to good use. AIG felt lavish executive retreats were necessary. Bank of America paid huge bonuses to Merrill Lynch executives. Citigroup partnered with the New York Mets baseball team by paying a $400 million naming-right expenditure to call the stadium where the Mets play “Citi Field.” Some may rightfully argue the cost/benefit of such a decision, and it would be a legit argument if the company did not receive federal money. Besides, I thought the credit markets were frozen!

Based on the testimony Geithner gave at his confirmation hearing, I am left wondering what exactly those “superpowers” are.

Geithner said, “Senators, the ultimate costs of this crisis will be greater, if we do not act with sufficient strength now. In a crisis of this magnitude, the most prudent course is the most forceful course.” He says Obama’s stimulus plan “will meet that test.” (1)

It is interesting that the scare tactics continue in an effort to give the government an excuse to spend trillions of dollars and hold stakes in our largest banks; when in reality, this “crisis” isn’t even close to what was experienced in the 1970’s. Has Geithner seen Obama’s stimulus plan? Perhaps he could explain how the same tax incentives that were part of Bush’s plan last year and the massive government spending that includes handouts to states to fund safety-net programs as well as free contraceptives would stimulate the economy. The aim is to stimulate the economy isn’t it? It’s possible that Speaker Pelosi was thinking about a different kind of stimulation…

Geithner mentions the Senate’s passage of the second Troubled Asset Relief Program (TARP) tranche, but says “we have to fundamentally reform this program” to ensure there’s enough credit to support the recovery. He also says the nation needs “investments” in infrastructure, a strategy “to get us back as quickly as possible to a sustainable fiscal position” and then “comprehensive financial reform” so the world will “never again face a crisis of this severity.” (1)

It seems that Citigroup didn’t have a problem getting credit. Nowhere in his testimony does Geithner mention repeal of the Community Reinvestment Act – the act which played a key role in the housing debacle. This act forced banks through government mandates to loan money to people who could not afford to repay which led to the birth of the subprime mortgage market. Instead of overusing the word “crisis,” his plan should focus on transparency and prudent lending standards.

Geithner may not wish to tip his hand at the moment, but I would expect to see proposed changes to the Financial Accounting Standards Board Statement Number 157 which has failed in the attempt to value illiquid assets and has earned the phrase “mark-to-make-believe accounting.”

As for infrastructure spending…there is an idea that’s never been tried before. His expertise in economics should reveal to him that most of the benefits of infrastructure spending are delayed and could take effect during an inflationary period. In addition, the money is rarely used for what it was intended, and we don’t see real economic growth when the government spends money. History has proven that the government cannot spend the country out of recession. This kind of spending can make our dollar worthless, however!

Geithner’s responsibilities also include oversight of the Internal Revenue Service (IRS). It is comical that we entrust a person who has evaded taxes to be in charge of the IRS. Geithner claims his mistakes were innocent. However, if they were innocent, should America have confidence in a man who has difficulty using Turbo Tax (a software that people with no accounting/financial background can easily use), has difficulty understanding IRS Publication 503, and doesn’t realize he has to pay Social Security tax, Medicare tax and employed an immigrant housekeeper who lacked proper work papers?

In summary, Geithner’s appointment further illustrates that there is no real change in Washington. In addition to Geithner’s tax problems, there is a very questionable record of “expertise.” He’s played a pivotal role in managing TARP funds. It’s quite clear that the first half of TARP funds were misspent. As President of the New York Federal Reserve Bank, his supervision of corporate giants like Citigroup was questionable. Although Geithner talked about holding such institutions to the highest regulatory standards, the record shows that New York Fed relaxed the standards as the company bet big on subprime mortgages and had massive risk exposure to other perilous investments.

So why is it that we have so much confidence in people such as Geithner to fix a problem when they have shown poor judgment and played a role in causing the problem? Answer: the elite financial club has its benefits.


(1) http://blogs.wsj.com/economics/2009/01/21/live-blogging-tim-geithners-confirmation-hearing/

This column is also cross posted at our new website: http://www.conservativetoday.org/

George W. Bush: Czar or President?

Republicans in Congress, who are being closely watched by their constituents, stood their ground and killed the bailout bill for the “Big Three” automakers. Finally, a victory against corporate welfare; and Republicans are acting like conservatives again! Not so fast…

Until today, the Bush administration was opposed to using funds from the Troubled Asset Relief Program (TARP) to aid the ailing auto companies according to a Bloomberg report. “Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry.” This statement is indicative of the Bush administration’s position according to Treasury spokeswoman Brookly McLaughlin.

The last line of President Lincoln’s Gettysburg address states: “and that government of the people, by the people, for the people, shall not perish from the earth.” It seems that the people no longer have a voice in their government. Our elected officials spoke on our behalf, yet President Bush feels he has the power to override the decision.

Bush’s use of the term “czar” is very disconcerting. His administration has presided over government intervention at extraordinary levels in every aspect from national security to the most disturbing involvement in the economic sector. The administration’s intervention in the financial sector has led to forced partial nationalization of nine of America’s largest banks. Billions of dollars have been given to politically connected institutions to jumpstart and continue peculiar monetary policy along with the continued abuse of credit.

As for the auto industry, the government takes a stake by way of the bailout and will appoint the industry with a “car czar.” Why the term czar? Is there an advantage to using the governing style of former Russian emperors? Just who will this car czar be, and what gives him/her the expertise in overseeing such a transaction? A business does not have to look any further than the federal government for examples of gross mismanagement. With the federal debt approaching $11 trillion and deficits that are likely to surpass $1 trillion, the government isn’t the institution to seek cost structure advice. Therefore, how does a person appointed by a President who has presided over the worst monetary policy arguably since the Hoover and FDR administrations going to get the “Big Three” back on track again? Answer: It won’t happen.

We loan the industry the money so they can pay their bills, then what? Without the major changes that I and other writers have outlined in previous columns, the American taxpayers will be at a crossroads again shortly – this time with a $15 billion sunk cost.

The events that have transpired over the latter half of 2008 have fiscal conservatives and free-market advocates in frenzy. True conservatives know that crisis is a friend of the state. Crisis and people’s desperation give the government the power to overrule the will of the people in order to experiment – experiment with trillions of dollars as if it were pennies. As Herbert Hoover laid the groundwork for FDR, George Bush has laid the groundwork for Barack Obama. George Bush has set up the framework for the largest governmental intervention experiment in possibly all of America’s history, as I believe it will surpass the New Deal.

For those fiscal conservatives who still think they have representation in the Republican Party, it is unwise to have blind faith. Don’t be fooled by temporary victories such as the Senate’s. There is no need to be frustrated with Barack Obama or the Democratic Party. Obama will do what he was elected to do and execute the principles his party has always stood for and conservatives have always opposed. After all, it’s not his administration who is agreeing to appoint “car czars,” approved government handouts to select income groups passing it off as “fiscal stimulus” and handed out billions of dollars to irresponsible companies as if it were pocket change.

Sadly, the world will have to see the fallout first before it sees the light…

New Year’s Resolution for Consumers: Add a “Credit” Diet to a Weight Loss Commitment

The government has been non-stop in rewarding irresponsibility. A recession is the perfect excuse for the government to spend trillions of dollars propping up politically connected institutions. Capitalism goes further and further down the drain as the government continues to buy ownership in failed financial institutions. There is no end in sight to reckless government spending as more and more “needy” institutions line up for some cash. Currently, the government has not drawn the line on bailouts. In fact, there are plans for another $500 billion in spending. With China (one of our biggest buyers of Treasury bonds) enacting an enormous stimulus package of its own to the tune of $586 billion, one has to wonder if they will sell their Treasury bonds to finance their own government spending. Investors have turned to the U.S. dollar during these turbulent times, which can induce China to sell. However, upon sale of said securities coupled with insane amounts of government spending, it is very likely that the U.S. dollar will suffer a worse fate than it did in 2007. Don’t get used to those low gas prices just yet…..

The government refuses to learn from history. Government-injected spending has always prolonged the agony and has paved the way for bigger and more costly problems in the future. Over the years, “funny money” has severely weakened consumer purchasing power. What ever happened to the days of buying cars for cash, and a $20,000 mortgage? Answer: the Fed, World Bank and the International Monetary Fund (IMF) bailouts. In addition, these institutions were only interested in protecting large commercial banks. After decades of protection, now they are too big to fail! There’s a reason why small banks are virtually non-existent in your local neighborhood.

The IMF has been bailing out entire countries since the 1940’s. From Mexico to Hungary, Iceland, Pakistan, Tanzania, South Korea, Ukraine … the list goes on. As a result, the world has all of this “funny money” floating around. Currencies are devalued, global inflation sets in; and nations are riddled with debt. With each “crisis,” the price tag for bailouts grows. The Fed dealt with million-dollar crises in the early part of the 20th century. Today, the Fed is dealing with trillion-dollar crises, and the more artificial money the Fed injects into the economy, the more costly bailouts will be in the future.

Some economists are predicting a global financial apocalypse. I don’t believe the future is that dismal, but something does need to change because there will be a point in time where the Fed, IMF and World Bank will no longer be able to supply money to crashing economic sectors and nations. That time is coming soon – possibly in the next 20 to 30 years.

What is the solution? It’s certainly not the government. Rather than treat the disease, the government treats the symptoms. The remedy starts with the consumer. In the coming months, our new President and government officials are going to tell you, the consumer, to SPEND SPEND SPEND! Help is on the way. People in lower-income brackets may even get another $600 check from the government to spend away in order to “boost” the economy. It worked wonders last time, didn’t it? My condolences to all who thought Obama wouldn’t continue Bush’s economic policies.

There IS a solution. Consumers must go on a credit diet. People must learn to exercise some fiscal discipline. The government won’t do it, but consumers can lead the way. People have always been the solution to our nation’s problems, and that will not change. Consumer contractions in spending will force the market to react. Short-term deflation will pale in comparison to the long-term problems that lie ahead if consumers do not force the government to change its economic policy.

For those who have read my columns for some time, there is one message that is constant: BAD ECONOMIC POLICY. You, the consumer, can reverse course by changing your household economic policy:

1) Minimize credit card debt with an ultimate goal of paying off everything that is charged on a monthly basis. All credit cards charge a higher rate of interest depending on the type of card and individual risk. It is impossible to forge ahead when minimum payments comprise a portion of your monthly expenses.

2) Don’t buy too much house! The mentality that a big house = wealthy cannot continue. A home is NOT an investment when you will repay 3 to 4 times what it is worth in mortgage interest alone. In addition, state governments have raised property taxes to the point where one is basically “renting” their house from the government. Owning a home is still the best option. After all, why pay the landlord’s taxes through rent and forego a tax deduction? However, the key is to own a smaller home and avoid a huge tax burden and mortgage.

3) Take advantage of easy-to-use software programs that help with budgeting. Do not live beyond your means. If you are borrowing money for the family vacation, something is severely wrong.

In summary, the consumer needs to kick their addiction to credit. The government will continue to feed into the problem by propping up failed institutions for appeasing the hunger for credit. The only way to reverse course is for the consumer to overcome their addiction. It is a fallacy to believe that the supply of “funny money” is endless. What’s next? Quadrillion dollar bailouts? The government may have killed capitalism, but it cannot destroy the will of the consumer to prosper by making smart credit decisions. Opportunity will always be out there even in the most precarious situations.

America’s Hefty Stimulus Packages: Money Just Might Grow on Trees!

Think back to speeches President Bush gave during spring of 2008 assuring Americans and the rest of the world that the fiscal stimulus package, which gave checks to a select group of taxpayers (lower income people who pay little, if any tax), would keep America out of a recession. We saw the results of this effort in the latter part of the summer – a hemorrhaging Dow Jones Industrial Average and negative third-quarter GDP growth. Remember Bear Stearns, and the assurance to taxpayers that if they bailed them out, it would stop a domino effect of collapsing banks and investment houses? Then came Fannie Mae, Freddie Mac (both partly owned by the government) AIG, Citigroup, Bank of America, Goldman Sachs and many others lining up for federal handouts. The line for free money has now expanded to the auto industry, possibly the airline industry and network television.

On one side, we have the federal government handing out money with little consequence; and on the other side, the recipients of said federal dollars have plenty to spend lobbying the government. These actions give merit to the old saying “money grows on trees.”

All of the financial institutions who received government assistance actively lobby the federal government. As a matter of fact all of these institutions have received a very nice return-on-investment (ROI)*:

While lobbying should not be banned, it is worth noting how much money these cash-flow deprived firms invest in their “best interests.” If America was still a capitalistic society, lobbying would not be an issue. However, when the government decides to bail out poorly run and irresponsible companies from an ROI standpoint, capitalism has given way to a mild form of extortion!

In spite of all that has happened, the spending that the Bush administration has enacted is only a drop in the bucket compared to what the Obama administration plans to spend. Hard to believe, isn’t it? After all, the Bush administration doubled the size of our national debt. Obama initially proposed a plan with a price tag of $175 billion during his campaign. The cost of his package could now easily exceed the Bush/Paulson $700 billion plan. We all know how these plans have their way of “porking up” as they move through Congress. This, of course, does not include the cost of all of the other promises Obama has made: tax cuts for many of whom do not pay federal income tax and healthcare reform, for example.

All through the campaign, Obama convinced voters that a vote for McCain is a vote for a third Bush term. If he represents change, then why does he plan to continue where Bush left off in terms of injecting billions of federal dollars into large corporations that are horribly run and fiscally irresponsible? None of these companies are required to restructure, change their business models, streamline their processes or obtain new leadership. One has to ask how this plan is nothing more than a band-aid. If the aid carries these companies through a recession, what will their position be when inflation sets in and interest rates rise? The absence of a long-term solution is eminent.

The Obama administration doesn’t seem to be too concerned with the fact that our federal deficit will be over $1 trillion after all of the “fiscal stimulus” is enacted. It makes one wonder if money really does grow on trees. This is the change America has elected. Haven’t we seen this before? Does the “New Deal” ring a bell? When has government-injected spending been successful in the past? The harsh reality is that America’s total debt could very well exceed 80% of the nation’s GDP in two years – its highest level in over 60 years.

My Response to GM’s “Urgent Message”

If I were in the “Big Three’s” top management, I’d be ASHAMED to send this kind of a letter to customers – pathetically asking for financial aid. As a matter of fact, this is so pitiful; I’ll commit it to a column. My comments are in italics below each paragraph.

Dear Michelle,
Dear under-worked and overpaid GM executive,

You made the right choice when you put your confidence in General Motors, and we appreciate your past support. I want to assure you that we are making our best vehicles ever, and we have exciting plans for the future. But we need your help now. Simply put, we need you to join us to let Congress know that a bridge loan to help U.S. automakers also helps strengthen the U.S. economy and preserve millions of American jobs.

I’m glad you think I made the right choice, but I wish I could say the same for the decisions GM has made over the years. If GM is making their “best vehicles ever,” why are 4 of your 6 brands’ market share rapidly evaporating to your competitors? GMC, Pontiac, Saturn and Buick have not been viable players in the market for quite some time. Exactly what are those exciting plans for the future? I’ve been hearing about all of this good news in your annual reports for the past 10 years – I’m still waiting.

Despite what you may be hearing, we are not asking Congress for a bailout but rather a loan that will be repaid.

Repaid, how? Has GM realized that they cannot continue on the current path? Explain to the taxpayers what changes your company intends to make and convince them that a loan will not simply prolong the inevitable. Chrysler’s Lee Iacocca at least had a sound PLAN… not just a promise of a bright future and to make the “bestest” vehicles ever! He also did not use federal dollars. The government simply guaranteed private loans in exchange for stock warrants. Seeing that Chrysler is now back in the same predicament, why should the taxpayers commit resources AGAIN?

The U.S. economy is at a crossroads due to the worldwide credit crisis, and all Americans are feeling the effects of the worst economic downturn in 75 years. Despite our successful efforts to restructure, reduce costs and enhance liquidity, U.S. auto sales rely on access to credit, which is all but frozen through traditional channels.

Successful efforts? Why is GM’s labor cost almost double that of their competitors’? Exactly what has GM restructured? Why do losing divisions like Pontiac, Saturn and GMC still exist? Why did the executive team use corporate jets as transportation to beg taxpayers for money? Is that an example of cost reduction? I think GM’s problems go far beyond the limited access to credit markets.

The consequences of the domestic auto industry collapsing would far exceed the $25 billion loan needed to bridge the current crisis. According to a recent study by the Center for Automotive Research:

• One in 10 American jobs depends on U.S. automakers
• Nearly 3 million jobs are at immediate risk
• U.S. personal income could be reduced by $150 billion
• The tax revenue lost over 3 years would be more than $156 billion

Please don’t insult the average consumers’ intelligence by quoting an Ann Arbor think tank. Let’s look at the bigger picture. This is not about lost jobs and tax revenue because a reckless loan to a company who STILL doesn’t have a firm grasp of competition in a global environment will only make the OVERALL economic environment worse, and put GM, Ford and Chrysler in a shoddier situation in the future. How many jobs and lost tax revenue will be at stake at that point? Do we patch the leak here, or do we figure out what is causing the leak?

Discussions are now underway in Washington, D.C., concerning loans to support U.S. carmakers. I am asking for your support in this vital effort by contacting your state representatives. Please take a few minutes to go to www.gmfactsandfiction.com, where we have made it easy for you to contact your U.S. senators and representatives. Just click on the "I'm a Concerned American" link under the "Mobilize Now" section, and enter your name and ZIP code to send a personalized e-mail stating your support for the U.S. automotive industry.

Let me assure you that General Motors has made dramatic improvements over the last 10 years. In fact, we are leading the industry with award-winning vehicles like the Chevrolet Malibu, Cadillac CTS, Buick Enclave, Pontiac G8, GMC Acadia, Chevy Tahoe Hybrid, Saturn AURA and more. We offer 18 models with an EPA estimated 30 MPG highway or better — more than Toyota or Honda. GM has 6 hybrids in market and 3 more by mid-2009. GM has closed the quality gap with the imports, and today we are putting our best quality vehicles on the road.

I’ll show my support for GM by offering the following suggestions:

1) Stop whining to taxpayers, and file Chapter 11. You’ve let the United Auto Workers’ Union govern you, and as a result your labor costs are almost twice that of your competitors. Chapter 11 bankruptcy laws will allow you renegotiate your labor contracts, pension plans and other employee entitlement programs in an effort to reduce costs. GM, Ford and Chrysler can no longer afford to sacrifice the quality of their vehicles to make up for higher labor costs.

2) Replace management across the board. Your leadership is horrendous. Your current CEO has seen GM’s stock drop NINETY-FIVE percent during his watch. If an NFL team loses ninety-five percent of their games, do the head coach and his coaching staff return next year? Hire leadership who has an understanding that corporate jets and other executive perks cannot be afforded in a highly competitive global environment. A cost-reduction effort needs to be implemented at ALL levels – not just the bottom.

3) Dissolve your unprofitable brands, and consider joining forces with one of your American competitors – perhaps Chrysler. These actions will result in an immediate costs savings of billions.

4) GM is still lagging behind in fuel efficiency in spite of your boasting about new hybrid vehicles. Fuel efficiency is the road to victory in regaining market share.

Please share this information with friends and family using the link on the site.

I most certainly will – just not in the way you intended.

Thank you for helping keep our economy viable.

Thank you in advance for scrapping your plan to beg for money and devising a long-term strategy that will restore confidence in our markets.

Can You Imagine Mini-Pelosi?

Wouldn't that just be the creepiest thing ever?