Tag: Bailout

Waste, Fraud, and Stimulus

At Capitol News Connection, brought to you each morning by your tax dollars, they reported this morning:

With more than a trillion tax dollars tied up in the Troubled Asset Relief Program and stimulus spending, Congress is trying to figure out how to account for every penny.

Uh-huh. Congress is always on top of our federal dollars.

Coincidentally, just hours after the CNC report, the Government Accountability Office released a report warning about the lack of oversight procedures in the kitchen-sink stimulus bill. And a few days earlier the inspector general for the TARP program reported that Treasury has no real details on how TARP funds are being spent. In fact, IG Neil Barofsky told Congress that there were 20 criminal investigations into possible TARP fraud already underway.

Two months ago Barofsky and the comptroller general had warned of the likelihood of waste in huge new government programs:

Neil Barofsky, the special inspector general for the $700 billion Troubled Asset Relief Program, told a House subcommittee that the government’s experiences in the reconstruction of Iraq, hurricane-relief programs and the 1990s savings-and-loan bailout suggest the rescue program could be ripe for fraud…

Gene Dodaro, acting comptroller general of the U.S., told the subcommittee that a reliance on contractors and a lack of written policies could “increase the risk of wasted government dollars without adequate oversight of contractor performance.”

One of Greg Mankiw’s readers worked on the new Department of Homeland Security and reported recently:

[Y]ou cannot juice up a government agency’s budget by tens of billions (or in the case of the stimulus package, hundreds of billions) and expect them to be able to process the paperwork to contract it out, much less oversee the projects or even choose them with any kind of hope for success. It’s like trying to feed a Pomeranian a 25 lb turkey. It’s madness. It was years before DHS got the situation under control and between the start and when they finally assembled a sufficiently capable team of lawyers, contracting officials, technical experts and resource managers, most of the money was totally wasted.

Linda Bilmes, coauthor with Nobel laureate Joseph Stiglitz of The Three Trillion Dollar War: The True Cost of the Iraq Conflict, analyzes the massive problems in three somewhat smaller government projects — the Iraqi reconstruction effort, Hurricane Katrina reconstruction, and the Big Dig artery construction in Boston — and finds that “in any organization that starts to increase spending very rapidly there are risks of waste, fraud and inefficiency.”

Milton Friedman summed up the basic problem with government waste back in 2002:

When a man spends his own money to buy something for himself, he is very careful about how much he spends and how he spends it. When a man spends his own money to buy something for someone else, he is still very careful about how much he spends, but somewhat less what he spends it on. When a man spends someone else’s money to buy something for himself, he is very careful about what he buys, but doesn’t care at all how much he spends. And when a man spends someone else’s money on someone else, he doesn’t care how much he spends or what he spends it on. And that’s government for you.

Members of Congress can make all the speeches they want about their commitment to ferreting out waste and fraud, but waste and fraud are inevitable in government spending and inevitably large in such massive programs. Some people think that’s fine. At least they’re realistic. But reporters shouldn’t fall for politicians promising to spend unprecedented sums of other people’s money quickly and wisely.

The Joys of Stock Ownership

I happen to own shares in Bank of America, so I’ve just received a proxy statement for the upcoming annual meeting. The Board of Directors recommends that I authorize them to vote my shares FOR an uncontested slate of candidates for the board. Usually I go along with such proxy requests.

But this time I thought: Why should these people get something like $250,000 a year to take orders from President Obama and Secretary Geithner? It’s become pretty clear that the Obama administration intends to use the bailout money to control private companies. He intends to tell companies what cars to make, how much to lend, how much to charge for credit cards, what to pay their executives, what kinds of bonuses are acceptable, and other crucial management decisions.

So I decided to write in “Barack Obama” for all 18 positions on the Board of Directors. However, neither the paper ballot nor the online ballot allowed for write-ins. I guess the official slate will win. But make no mistake. Obama’s the boss.

New at Cato

Here are a few highlights from Cato Today, a daily email from the Cato Institute. You can subscribe, here.

  • “Bright Lines and Bailouts: To Bail or Not To Bail, That Is the Question”: Vern McKinley and Gary Gegenheimer have a new Policy Analysis that discusses the failure of bank bailouts.
  • Nat Hentoff reports on Obama’s broken promises of transparency in the Washington Times.
  • In Tuesday’s Cato Daily Podcast, foreign policy analyst Benjamin Friedman discusses the record of Defense Secretary Robert Gates under Obama.

Who’s Blogging about Cato

Here’s a round-up of bloggers who are writing about Cato research and commentary:

  • QandO’s Michael Wade offered his own thoughts on the New York Times blogger who said Cato’s voice against bailouts has not met her “expectations of adequate noise.”
  • The Atlantic’s Clive Crook reviewed the new Cato book, The Beautiful Tree, which explains how private education efforts are empowering children in Third World nations.
  • Blogging on Tax Day, Jacob Grier cited Charlotte Twight’s essay in Cato Journal on the history of income tax withholding in the United States.
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Cato and the Bailouts: A Correction for the NY Times ‘Economix’ Blog

At the New York Times Economix blog, economist Nancy Folbre of the University of Massachusetts writes:

The libertarian Cato Institute often emphasizes the issue of corporate welfare, but it’s remained remarkably quiet so far on the topic of bailouts.

Excuse me?

Since she linked to one of our papers on corporate welfare, we assume she’s visited our site. How, then, could she get such an impression? Cato scholars have been deploring bailouts since last September. (Actually, since the Chrysler bailout of 1979, but we’ll skip forward to the recent avalanche of Bush-Obama bailouts.) Just recently, for instance, in – ahem – the New York Times, senior fellow William Poole implored, “Stop the Bailouts.” I wonder if our commentaries started with my blog post “Bailout Nation?” last September 8? Or maybe with Thomas Humphrey and Richard Timberlake’s “The Imperial Fed,” deploring the Federal Reserve’s help for Bear Stearns, on April 14 of last year?

Cato scholars appeared on more than 90 radio and television programs to criticize the bailouts during the last quarter of 2008. Here’s a video compilation of some of those appearances.

Folbre complains that some people seem more concerned about welfare – TANF, in the latest federal acronym – than about welfare for bankers – TARP. Google says that there are 138 references to TANF over the past 13 years or so on the Cato website, and 231 references to TARP in the past few months.

Now she has a legitimate point. Welfare for the rich is at least as bad as welfare for the poor. And as much as welfare for the poor has cost taxpayers, the new welfare for banks, insurance companies, mortgage companies, and automobile industries is costing us more. Samuel Brittan of the Financial Times has written that “reassignment,” an economic policy that changes individuals’ ranking in the hierarchy of incomes, is far more offensive than a policy of redistribution, which in his idealized vision would merely raise the incomes of the poorest members of society. By that standard, taxing some businesses and individuals to subsidize the high incomes of others is certainly offensive. Of course, Brittan underemphasized the harm done by welfare to people who become trapped in dependency. But there’s good reason to oppose both TANF and TARP, and Cato scholars have done both.

Lest the good work of Cato’s New Media Manager Chris Moody go under-utilized, here’s a probably incomplete guide to Cato scholars’ comments on the bailouts of the past few months. (Note that it doesn’t include blog posts, of which there have been many.) Quiet? I don’t think so:

Articles:

September 9, 2008, “Fannie/Freddie Bailout Baloney,” Gerald P. O’Driscoll Jr., New York Post.

September 18, 2008, “Why Bailouts Scare Stocks,” Alan Reynolds, New York Post.

September 17, 2008, “Bailout-Mania,” Jagadeesh Gokhale and Kent Smetters, Forbes.com.

October 1, 2008, “The Bailout’s Essential Brazenness,” Jay Cochran, Cato.org.

October 3, 2008, “The Big Bailout – What’s Next?” Warren Coats, Cato.org

October 13, 2008, “Should Taxpayers Fund the American Dream?,” Daniel J. Mitchell, Los Angeles Times.

October 20, 2008, “Is the Bailout Constitutional?,” Robert A. Levy, Legal Times.

November 11, 2008, “There’s Nothing Wrong with a “Big Two”,” Daniel J. Ikenson, New York Daily News.

November 21, 2008, “Don’t Bail Out the Big Three,” Daniel J. Ikenson, The American.

November 5, 2008, “Is it Constitutional?,” Richard W. Rahn, Washington Times.

December 14, 2008, “Consequences of the Bailout,” Richard W. Rahn, Washington Times.

December 5, 2008, “Bail Out Car Buyers?,” Daniel J. Ikenson, Los Angeles Times.

December 3, 2008, “Big Three Ask for Money — Again,” Daniel J. Ikenson, Los Angeles Times.

December 10, 2008, “Dissecting the Bailout Plan,” Alan Reynolds, Wall Street Journal.

January 14, 2009, “Bailing out the States,” Michael New, Washington Times.

February 28, 2009, “Stop the Bailouts,” William Poole, The New York Times.

Papers:

Bailout or Bankruptcy?,” by Jeffrey A. Miron (Cato Journal, Winter 2009)

Freddie Mac and Fannie Mae: An Exit Strategy for the Taxpayer,” by Arnold Kling (September 8, 2008)

Financial Crisis and Public Policy,” by Jagadeesh Gokhale (March 23, 2009)

Bright Lines and Bailouts: To Bail or Not To Bail, That Is the Question,” by Vern McKinley and Gary Gegenheimer (April 20, 2009)

On Television and Radio:

Dan Ikenson discusses auto bailout

September 30, 2008 Daniel J. Mitchell discusses the failed bailout on NPR Affiliate KPCC’s “The Patt Morrison Show”

September 29, 2008 Peter Van Doren discusses government bailouts on WTTG FOX 5.

September 29, 2008 Daniel J. Mitchell discusses the failed bailout on NPR Affiliate KPCC’s “The Patt Morrison Show”

September 26, 2008 Jagadeesh Gokhale discusses the bailout on BNN (CANADA)

September 26, 2008 Steve H. Hanke discusses the bailout on BBC Radio’s “Have Your Say”

September 25, 2008 Patrick Basham discusses the bailout on Radio America’s “The Michael Reagan Show”

September 24, 2008 William A. Niskanen discusses government bailouts on WUSA 9

September 24, 2008 William Poole discusses government bailouts on NPR DC Affiliate WAMU’s “The Diane Rehm Show”

September 23, 2008 William A. Niskanen discusses government bailouts on CNBC’s “Closing Bell”

September 23, 2008Bert Ely discusses government bailouts on WOR’s “The John Gambling Show”

September 22, 2008 Daniel J. Mitchell discusses government bailouts on the CBS “Early Show”

September 22, 2008 William Poole discusses government bailouts on Bloomberg Live.

September 22, 2008 William A. Niskanen discusses government bailouts of financial institutions on Bloomberg TV

September 22, 2008 Steve H. Hanke discusses government bailouts of financial institutions on Bloomberg Radio’s “On the Money”

September 19, 2008 Daniel J. Mitchell discusses government bailouts on Federal News Radio

September 18, 2008 Daniel J. Mitchell discusses the AIG bailout on KTAR’s “Ankarlo Mornings”

September 17, 2008 Daniel J. Mitchell discusses the AIG bailout on WTTG FOX 5

September 17, 2008 Daniel J. Mitchell discusses the AIG bailout on FOX’s “America’s Election HQ”

September 10, 2008 Daniel J. Mitchell discusses a proposed bailout for the auto industry on Marketplace Radio.

October 24, 2008 Gerald P. O’Driscoll Jr. discusses the fallout of the bailout on FOX Business Network’s “Cavuto”

October 15, 2008 Daniel J. Mitchell discusses the bailout on Federal News Radio

October 14, 2008 Daniel J. Mitchell discusses the financial crisis on CNN’s “American Morning”

October 14, 2008 Daniel J. Mitchell discusses the banking crisis on BBC World

October 14, 2008 Gerald P. O’Driscoll Jr. discusses the banking crisis on WBAL Radio. (Baltimore, MD)

October 13, 2008 Daniel J. Mitchell discusses the financial crisis on the FOX Business Network

October 9, 2008 Jim Powell discusses the economy on FOX Business

October 9, 2008 Daniel J. Mitchell discusses the current treasury plan on Reuters TV.

October 9, 2008 Daniel J. Mitchell discusses the bailout on the WIBA’s “Upfront w/Vicki McKenna” (Madison, WI)

October 2, 2008 Daniel J. Mitchell discusses the bailout bill on WRVA’s “Morning Show” (West Virginia)

October 1, 2008 Daniel J. Mitchell discusses the bailout plan on CNBC’s “On the Money.”

October 1, 2008 Daniel J. Mitchell discusses the bailout plan on CNBC’s “Power Lunch”

October 1, 2008 William Poole discusses the bailout on KMOX’s “The Charlie Brennan Show” (St. Louis, MO)

October 1, 2008 Daniel J. Mitchell discusses the failed bailout on WTOP Radio (Washington, D.C.)

Congressman Booed at Tea Party Protest

I’ve read conflicting reports on how focused last week’s tea parties were on the anti-tax and spend message.  It does appear there were  confused folks who thought the protests were platforms for nationalism, war, and partisan anti-Obama rants.  But I’m not buying the completely dismissive tone taken by some pundits who viewed the events as simply being pro-GOP rallies fueled by Fox News.

A boisterous crowd in Greenville, SC saw right through Republican Congressman Gresham Barrett’s transparent attempt to curry their favor heading into his 2010 campaign for governor of the Palmetto State:

Frankly, I can’t believe the guy made it through the five minute speech given the level of heckling and booing. Regardless of what one thinks of the crowd’s behavior, they deserve credit for knowing that Congressman Barrett voted for the TARP bailout and thus had no business faking solidarity with them, let alone speaking at the event.

Week in Review: ‘Saving’ the World, Government Control and Drug Decriminalization

G-20 Summit Agrees to International Spending Plan

g-2The Washington Post reports, “Leaders from more than 20 major nations including the United States decided Thursday to make available an additional $1 trillion for the world economy through the International Monetary Fund and other institutions as part of a broad package of measures to overcome the global financial crisis.”

Cato scholars Richard W. Rahn, Daniel J. Ikenson and Ian Vásquez commented on the London-based meeting:

Rahn: “President Obama of the U.S. and Prime Minister Brown of the U.K. will be pressing for more so-called stimulus spending by other nations, despite the fact that the historical evidence shows that big increases in government spending are more likely to be damaging and slow down recovery than they are to promote vigorous economic expansion and job creation.”

Vásquez: “The push by some countries for massive increases in spending to address the global financial crisis smacks of political and bureaucratic opportunism. A prime example is Washington’s call to substantially increase the resources of the International Financial Institutions… There is no reason to think that massive increases of the IFIs’ funds will not worsen, rather than improve, their record or the accountability of the aid agencies and borrower governments.”

Ikenson: “Certainly it is crucial to avoid protectionist policies that clog the arteries of economic recovery and help nobody but politicians. But it is also important to keep things in perspective: the world is not on the brink of a global trade war, as some have suggested.”

Ikenson appeared on CNBC this week to push for a reduction of trade barriers in international markets.

With fears mounting over a global shift toward protectionism, Cato senior fellow Tom Palmer and the Atlas Economic Research Foundation are circulating a petition against restrictive trade measures.

Obama Administration Forces Out GM CEO

rick-wagonerPresident Obama took an unprecedented step toward greater control of a private corporation after forcing General Motors CEO  Rick Wagoner to leave the company. The New York Post reports “the administration threatened to withhold bailout money from the company if he didn’t.”

Writing for the Washington Post, trade analyst Dan Ikenson explained why the government is responsible for any GM failure from now on:

President Obama’s newly discovered prudence with taxpayer money and his tough-love approach to GM and Chrysler would both have more credibility if he hadn’t demanded Rick Wagoner’s resignation, as well. By imposing operational conditions normally reserved for boards of directors, the administration is now bound to the infamous “Pottery Barn” rule: you break it, you buy it. If things go further south, the government is now complicit.

Wagoner’s replacement, Fritz Henderson, said Tuesday that after receiving billions of taxpayer dollars, the company is considering bankruptcy as an option. Cato scholars recommended bankruptcy months ago:

Dan Ikenson, November 21, 2008: “Bailing out Detroit is unnecessary. After all, this is why we have the bankruptcy process. If companies in Chapter 11 can be salvaged, a bankruptcy judge will help them find the way. In the case of the Big Three, a bankruptcy process would almost certainly require them to dissolve their current union contracts. Revamping their labor structures is the single most important change that GM, Ford, and Chrysler could make — and yet it is the one change that many pro-bailout Democrats wish to ignore.”

Daniel J. Mitchell, November 13, 2008:  “Advocates oftentimes admit that bailouts are not good policy, but they invariably argue that short-term considerations should trump long-term sensible policy. Their biggest assertion is that a bailout is necessary to prevent bankruptcy, and that avoiding this result is critical to prevent catastrophe. But Chapter 11 protection may be precisely what is needed to put American auto companies back on the path to profitability. Bankruptcy laws specifically are designed to give companies an opportunity — under court supervision — to reduce costs and streamline operations.”

Dan Ikenson, December 5, 2008: “The best solution is to allow the bankruptcy process to work. It will be needed. There are going to be jobs lost, but there is really nothing policymakers can do about that without exacerbating problems elsewhere. The numbers won’t be as dire as the Big Three have been projecting.”

Cato Links

  • As the North Atlantic Treaty Organization celebrates its 60th birthday, there are signs of mounting trouble within the alliance and increasing reasons to doubt the organization’s relevance regarding the foreign policy challenges of the 21st century. In a new study, Cato scholar Ted Galen Carpenter argues that NATO’s time is up.
  • Should immigration agents target businesses knowingly hiring illegal immigrants? Cato scholar Jim Harper weighs in on a Fox News debate.
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