James Pethokoukis

Politics and policy from inside Washington

Did Obama just sign a bailout out bill?

Jul 21, 2010 19:58 UTC

I think on this matter, this American Banker interview with Sheila Bair is instructive: But does this bill stop them from happening?

BAIR: It makes them impossible and it should. We worked really hard to squeeze bailout language out of this bill. The construct is you can’t bail out an individual institution — you just can’t do it. In a true liquidity crisis, the FDIC and the Fed can provide systemwide support in terms of liquidity support — lending and debt guarantees — but even then, a default would trigger resolution or bankruptcy.

Would the Fed’s 13-3 emergency powers allow a bailout?
BAIR: Not for an individual institution, no. This is more like the debt guarantee program, or the Transaction Account Guarantee program, which we just extended yesterday. It’s for those types of programs. … This would only help healthy institutions. And if there were a default on those programs, it would automatically trigger resolution or bankruptcy and the government would have priority claim off the top.

But if we ran into the same kind of situation as 2008, won’t the government find some way to prop up the big banks if several were in danger of failing?

BAIR: If there is a true systemwide problem, that’s why you have systemwide liquidity support — through either a debt guarantee program or lending program by the Fed. It would have to be generally available. Again, if there is a default on it, that automatically triggers a bankruptcy or resolution; regulators can decide which.

Me: If multiple banks get in trouble, government does have the option of giving them support. But more importantly, does Wall Street believe it would be bailed out, even if it meant Congress bypassing the law or changing it on the spot? If you look at the cost of bank funding, it seems clear that the implicit Too Big To Fail guarantee still exists. And a gaggle of regional Fed bank presidents agree.

COMMENT

I definitely like that i don’t must transform moisturizer after i get a hankering to bomb down rad trails at mind smashing speeds as an alternative to gussying up and being all ladylike, not all moisturizers can pull double responsibility so be ready to try a couple of distinctive manufacturers for the requires just before getting 1 (or two) that do the work.

The state of Obama’s approval ratings

Jul 21, 2010 15:40 UTC

Well, they’re not good and signal great danger for Democrats in the midterm election. The good folks at RealClearPolitics sums things up nicely:

polls

COMMENT

Isn’t advising Obama that he should be more pro-market about as useful as the same advice to Marx, Lennin, or the favorite in the White House Mao?

Posted by valwayne | Report as abusive

Obama should be pro-market, not pro-business

Jul 21, 2010 11:00 UTC

Should the Obamacrats be friendlier to Corporate America? Big Business has certainly amped up its kvetching of late. But it’s not Washington’s job to be pro-business and make nice with CEOs. That smells of crony capitalism and often just means rewarding big campaign contributors with government favors. The better measure of any given Washington policy is whether it respects markets.

To hear many U.S. CEOs tell it the nation’s free enterprise system, as they call it, is faltering. General Electric boss Jeff Immelt, a member of President Barack Obama’s economic advisory board, says government and business are “out of sync.” Ivan Seidenberg, CEO of Verizon and head of the Business Roundtable, complains that “by reaching into virtually every sector of economic life, government is injecting uncertainty into the marketplace and making it harder to raise capital and create new businesses.”

The cranky guys in the suits make some good points. As the U.S. Chamber of Commerce pointed out in an open letter to the White House and Congress last week, the U.S. corporate tax rate is the second-highest among advanced economies, Congress has failed to push through key trade agreements and federal spending is on a worrying trajectory. In a nation suffering from a sluggish recovery after a deep recession, every government policy should be optimized for economic growth. Addressing some or all of these problems might nudge American companies to put to work some of the $1.8 trillion in cash they are sitting on, according to the Federal Reserve.

Yet while a pro-business agenda may intersect at points with a pro-market one, they are not the same thing. Pro-market public policies make markets function fairer and more efficiently for everyone. They encourage competition and “creative destruction” and entrepreneurial capitalism. Pro-business policies often shift taxpayer money and other government goodies to favored companies, raise barriers to entry and otherwise defend the status quo.

For instance, the Chamber wants the government to cut spending by reforming the social insurance system. That sounds good — but how about also reducing the $90 billion a year in subsidies and tax breaks that the Cato Institute reckons businesses get every year? The oil and gas industries alone benefit to the tune of $4 billion annually. It would be better to eliminate such distorting political blessings and then lower the corporate tax rate for everyone.

It’s clear the 11,000 registered lobbyists working in Washington aren’t all there to foster competition and boost market forces. Their job is to gain an edge for specific corporate paymasters. During the healthcare reform debate, for instance, Wal-Mart actually lobbied for employers to be forced to provide employees with insurance coverage. The company knew it could more easily afford it than many smaller retailers.

Or take financial reform. While big banks may complain about the tidal wave of new regulation, they also know they got off easy in some respects. They weren’t broken up, nor were size limits put in place. In fact, the biggest banks have gotten bigger since the financial crisis and have every incentive to keep doing so since the bigger they are, the more likely Uncle Sam will see them as too big to fail. And what sort of climate change policy has Big Business pushed? Cap-and-trade whose size and complexity make it the perfect target for lobbying and rent seeking.

What’s good for business can also be what’s good for America. Tackling the budget deficit is one example. But whatever companies and their lobbyists would have politicians believe, it’s not always so.

COMMENT

@Lee_A_Arnold The web site is a great idea– one I thought of long before the health bill. The question is, why doesn’t a web site like this already exist? We have ratings and comparison shopping sites for just about everything except for medical care. Why? Likely because government intervention in healthcare and protection of existing health providers and insurance companies has reduced competition and made it impossible and/or unprofitable to create such a web site. I have severe doubts over whether the government will succeed where the market failed.

Posted by Mikeikon | Report as abusive
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