Watching certain self-appointed spokesmen for free markets like Jack Welch howl with outrage about government involvement in business has a certain comical element to it. So does the spectacle of Michael Moore and Rush Limbaugh trading places as bellyacher-in-chief.
Welch himself acknowledges the capitalist system ran off the rails in 2008. Then we discovered the rails had very flimsy guardrails. What did he think was going to happen?
What is more distressing is the manner in which the Obama administration is following the dubious legislative tactics of its predecessor to ram laws through Congress-laws that have few details or plans-and to allocate huge sums of money for vague ideas to be fleshed out later. And of course, Congress never reads these ill-conceived laws anyway.
The similarity in what is becoming the new style was neatly captured by economist Ed Yardeni in a letter to clients yesterday.
There is no debating that the government is grabbing more power from the private sector. Under both George W. Bush and Barack H. Obama, the bully pulpit has become the bullying pulpit.
It started on October 13, 2008, when Treasury Secretary Hank Paulson forced nine of the largest banks in the country to take $125 billion of TARP funds even though most of them didn't need or want the money. Documents recently released by the Treasury show that the offer was made on a take it, or take it basis. The bankers were not offered the option of leaving it. Godfather Paulson was making an offer they could not refuse. A one-page memo of talking points prepared by Paulson's staff for the meeting stated, "If a capital infusion is not appealing, you should be aware that your regulator will require it in any circumstance." It also stated, "We don't believe it is tenable to opt out because doing so would leave you vulnerable and exposed." In December, Paulson then bullied BofA CEO Ken Lewis to go through with his bank's acquisition of Merrill Lynch.
The bullying has continued during the Obama administration. Senior secured lenders to GM and Chrysler have been told to move to the back of the assembly line, while the United Auto Workers union has been put ahead of them. On April 30, the president beat up Chrysler's bondholders by publicly declaring: "While many stakeholders made sacrifices and worked constructively, I have to tell you that some did not." Obama said that a group of financial firms and hedge funds had made unacceptable demands in exchange for making concessions, such as twice the rate of return on their investments compared to other debt holders. "I don't stand with them. I stand with Chrysler's employees, families, and communities," Obama said. "I don't stand with those who held out while everyone else was making sacrifices." I have a question: Why should the secured lenders be forced to give up their rights to have their ownership of the debt paid before anyone else gets paid? That's basic bankruptcy law. As a lawyer, the president should respect the rule of law.
By the way, Yardeni can do a great impersonation of Paulson doing Marlon Brando in The Godfather. The latter two have almost identical voices.
This naked appeal to fear started with the Patriot Act in 2001 when Congress and the public were told they would be inviting a terrorist attack if the law weren't passed in a few days.
Paulson told Congress he HAD to have $700 billion to purchase toxic assets from the major banks. Two weeks later, he decided not to buy those assets but instead followed U.K. Prime Minister Gordon Brown and injected capital directly into the banks.
Obama followed a similar line of persuasion with his stimulus as his vice president told the public that the economy was about to "totally, completely absolutely tank." Thanks, Joe.
Now legislation addressing intractable issues like health care and energy is being managed by the same playbook. But it took 50 years to get into the mess we're in, and it's going to take more time than a few weeks to extricate ourselves.
At some point, the public and even Congress will start asking for some details. But so far in this millennium, no one has. And Obama might want to think about where Bush's impressive string of legislative victories ultimately got that administration. The president might also want to think about how the Bush administration's willingness to let Republican Congressmen spend wildly affected his predecessor's legacy.