Subsidizing and price fixing us into the poorhouse

This article does a great job explaining how government through its burdensome regulations, tax laws, and cronyism does nothing but create massive market distortions that disrupt and drag down our economy.  The MYTH that the free market has failed is just that.  A MYTH.  We haven’t had a free market in a very long time because it has been pushed off the tracks by progressive Marxist/socialist policies.

This paragraph is a pretty good summary, but you are cheating yourself if you don’t read the whole thing.

Government is theft. It produces nothing and has nothing except that which it takes from the producers. It then turns around and grants what it has taken to favored constituencies in a massive reverse Robin Hood scheme. Subsidies are a subtle form of economic warfare between the haves (crony corporations) and have-nots (the people) and class warfare created between the people who are divided based on their economic status, minority status, etc. Price controls distort natural supply and demand, destroy profit margins, and create shortages. All is a masquerade for the benefit of a wicked political system.

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Posted on May 18, 2015 by Bob Livingston 

“The whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” — Henry Hazlitt, “Economics in One Lesson”

One of the greatest fallacies of recent generations is the argument that free market capitalism has failed and that said failure is responsible for America’s moribund economy, the ongoing destruction of the middle class and the growing level of income inequality in which the 1 percent get richer at everyone else’s expense.

The American system is much more fascist and oligarchic than capitalistic. Special incentives, tax breaks and subsidies are given to crony corporations and certain industries in order to buy votes and generate kickbacks for lawmakers. And central planners set prices and control production levels of foods and other commodities. These policies create malinvestment and shortages and cause increased costs for staples and other goods by acting as a sort of hidden tax. Much of this stems from the creation of the Federal Reserve — which is neither federal, nor holds reserves — and Great Depression-era legislation that was bad at the time but has since morphed into something much worse.

Government is theft. It produces nothing and has nothing except that which it takes from the producers. It then turns around and grants what it has taken to favored constituencies in a massive reverse Robin Hood scheme. Subsidies are a subtle form of economic warfare between the haves (crony corporations) and have-nots (the people) and class warfare created between the people who are divided based on their economic status, minority status, etc. Price controls distort natural supply and demand, destroy profit margins, and create shortages. All is a masquerade for the benefit of a wicked political system.

EPA Financial Adviser Helped Run MF Global Into the Ground

”Crony capitalism” is just another way of saying Marxism. That is exactly what we are seeing here, and throughout the Obama administration. Cronies and like-minded communist/Marxist/progressive travelers are appointed by Obama as czars, administrators, etc. throughout the administration, and yet people continue to marvel at the destruction of jobs, freedom, and liberty in our country.

Now this guy is double dipping on American destruction by having a part in setting policy in the EPA (the agency that will bear the singularly largest responsibility for destruction of our economy, jobs and our standard of living), AND running a company ripping off its investors and “losing” (a.k.a. stealing) over a billion dollars of their money.  Any bets on how an Eric Holder Injustice Department will pursue this one?  Since the parties in question are Obama buddies, even if wrongdoing is proven, want to bet they get off just like the New Black Panthers did?

Want to end the corruption in our government? Want to stop the job losses? Want to turn our economy around and stop the destruction and theft of everything you’ve worked your entire life for and like taken for granted?

Then we start by kicking the anti-American Marxist/communist/progressives out. By voting if possible, by force if necessary.

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Article hyperlink http://m.washingtontimes.com/news/2011/nov/8/executives-future-with-epa-uncertain/?utm_source=RSS_Feed&utm_medium=RSS%3Ehttp://m.washingtontimes.com/news/2011/nov/8/executives-future-with-epa-uncertain/?utm_source=RSS_Feed&utm_medium=RSS

MF Global Executive’s future with EPA uncertain

EPA Adviser oversees bankrupt firm

By Jim McElhatton – The Washington Times
November 8, 2011

As chairman of the Environmental Protection Agency’s financial advisory board, Bradley Abelow is charged with giving advice on investment and job creation to EPA Administrator Lisa Jackson.

But Mr. Abelow’s day job overseeing MF Global Holdings Ltd. has placed him in the middle of a growing firestorm over billions of dollars in risky investments that have plunged the company into one of the largest bankruptcies in history.

The Oct. 31 bankruptcy was just the start of the bad news. Since then, MF Global’s chief executive, former New Jersey Gov. Jon Corzine, has resigned, reports have surfaced about nearly $600 million in missing customer cash and an FBI probe into the company has begun.

Mr. Abelow, who worked as chief of staff for Mr. Corzine while he was governor, oversees the day-to-day operations of the company, according to court filings.

Asked about the status of Mr. Abelow’s chairmanship of the board on which EPA relies for financial advice, in light of MF Global’s collapse, EPA officials declined to comment.

“Bradley Abelow was appointed chair of the Environmental Advisory Board on March 10, 2010,” EPA press secretary Betsaida Alcantara wrote in an email to The Washington Times. “Mr. Abelow is not paid for his position” as chairman of the financial advisory board.

Obama’s August Surprise: Buying Votes…again.

Here’s how Obama plans to buy as many votes as possible in November. He plans to “order” Fannie and Freddie to forgive debt? Isn’t there a bit more to the process than Obama just ordering it done? Sounds like a dictatorship to me…

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http://blogs.reuters.com/james-pethokoukis/2010/08/05/an-august-surprise-from-obama/

An August Surprise from Obama?

James Pethokoukis
Political Risk

Aug 5, 2010 00:26 EDT

2010 | Fannie Mae | fredd | GSEs | housing policy | Obamanomics

Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.

The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie. A few key points:

1) Republican leaders believe this is going to happen since GOPers and Democratic moderates in the Senate are unwilling to spend more taxpayer money on more stimulus. But such a housing plan would allow the White House to sidestep congressional objections and show voters it is doing something tangible about an economy that seems to be weakening.

2) Wall Street banks are alerting their clients privately to this possibility. Here is what some are cautiously saying publicly. This from Goldman Sachs:

GSE policies are one of a dwindling number of policy levers the administration has left to pull, so it is conceivable that changes could be made, though there is no sign that a policy change is imminent. The Treasury’s essentially unlimited ability to provide financial support to the GSEs creates an interesting situation over the next twelve months: the GSEs could potentially be used to provide additional support for the housing market and, to a lesser extent, the broader economy in 2H 2001.

And this from Mizuho Securities:

As policy makers ponder their next move the data suggests that they face not only a stalling recovery but a growing risk of deflation taking root in the economy. As a result, the Administration has turned back to industrial policies by approving the purchase of a sub-prime auto lender by GM as a means for pumping  up domestic sales, especially since the latest auto sales data indicates that consumers are still responsive to incentives. This precedent increases the risk that the government will use its control of Fannie and Freddie to increase consumer cash flow and juice the economy again.

Moreover, Morgan Stanley is pushing a mortgage relief plan directly to Congress. On August 3, a top Morgan Stanley economist recommended to the Senate Budget Committee that Fannie and Freddie ease their lending standards to allow millions of Americans to refinance their mortgages.

3) Keep in mind the political and economic context. The nascent recovery is already running out of steam. Wall Street economists just downgraded the government’s second-quarter GDP estimate of 2.4 percent to around 1.7 percent. And as even Treasury Secretary Timothy Geithner is warning, the unemployment rate may well begin to rise back toward the politically toxic 10 percent level given such sluggish growth. Many in the White House thought the unemployment rate would be dropping sharply by this point in the recovery.

But that is not happening. What is happening is that the president’s approval ratings are continuing to erode, as are Democratic election polls. Democrats are in real danger of losing the House and almost losing the Senate. The mortgage Hail Mary would be a last-gasp effort to prevent this from happening and to save the Obama agenda. The political calculation is that the number of grateful Americans would be greater than those offended that they — and their children and their grandchildren — would be paying for someone else’s mortgage woes.

4) And don’t think the White House is worried about financial market reaction. If they thought it would pass Congress, they would be submitting a $200 billion Stimulus  2.0  (3.0?, 4.0?) right now.

August is supposed to be a slow month for Washington politics. But maybe not this one.

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Obamanomics: Deficit Has TRIPLED, and Will Likely Increase by at Least $1 Trillion a Year

By the White House’s own estimates, the deficit over the next decade will increase by not just $1 Trillion, but by $1 Trillion EACH YEAR! That’s a conservative estimate, as most experts are beginning to feel that under Obama’s “leadership” our deficits will increase by nearly double that.  Russia and the Soviet Union already tried this and failed.  WHY ARE WE LETTING THIS COMU-SOCIALIST AND HIS DEMOCRAT MINIONS TRY IT AGAIN HERE IN AMERICA?

THEY MUST BE STOPPED AT ALL COST.

With this new admission of debt guilt, shouldn’t this pretty much drive the last nail in the coffin of Health Care Reform/Takeover?  Not to mention Cap-and-Tax.

Our economy and nation can’t hide behind fake figures and phony numbers for much longer.  Not with the staggering debt Obama is piling on to the next 10 generations.  It’s like Michael Moore trying to hide behind a blade of grass.  As the rate of decay of our economy increases at a blistering pace, pretty soon everything we own will be worthless, our currency will be worthless, and no one will earn enough money to buy even a loaf of bread.  Anyone remember pre-war Germany?  A wheelbarrow full of D-Marks wouldn’t buy a loaf of bread.  We will all be peasants.

The scene towards the end of “History of the World, part 1” is especially poignant here.  As the peasants are storming the castle, the king is told by his adviser that “the peasants are revolting!”  The king ignorantly and snobbishly replies “They certainly are!”  Dictator Obama and the liberal rats in Washington better wise up before they find themselves roasting on a spit.

http://www.ibtimes.com/articles/20090824/cumulative-deficit-estimate-for-next-decade-increasedtrillion-since-may.htm

Cumulative Deficit Estimate for Next Decade Increased $2 Trillion… Since May

By Trader Mark
Posted 24 August 2009 @ 07:45 am ET

I guess we’ll post this along the lines of “if you pass the stimulus plan, unemployment will only go to mid 8%” or “if you don’t give Goldman Sachs the TARP money, the world will end immediately” and other such incorrect mythologies. Long time readers know where I stand on government figures which are backwards looking; not to mention guestimates of the future… if the guess from government is correct THIS time around (chuckle here) the budget deficit for the next decade now will stand at $9 Trillion.

Last time government chimed in with an estimate? Way back… 3 whole months ago; when they said the deficit would be $7.1 Trillion. Missed it by *that* much. That’s ok, government estimates are made to be broken. Usually I try to give them more than 3 months to be wrong by a factor of 27% but I think within government circles that accuracy (+/- 25%) is considered “dead on”, and reason for promotion.

$9 Trillion over a decade is just under $1 Trillion a year. Consider until this year (partly by phony accounting for wars and financial rescues that were not counted in the budget by the former administration) the largest annual budget deficit we ever had was under $500 Billion. [Jul 28, 2008: US Budget Deficit to Half a Trillion] This year we have an excellent chance of $1.6 Trillion. Heck we just put up a $180B month [Aug 12, 2009: July Budget Deficit $180.7B]. With the economy only slowly recovering in 2010 (and subject to a double dip with higher inflation), and the main drivers of tax revenue (employment, real estate, consumption) not expected to be recovering much next year I think we have an excellent chance for another $1.5ish Trillion year in ’10. Especially after Obama and the Dems number fall this winter as the “Main Street” economy is not quite so awesome as the “Wall Street” economy and plans for Stimulus 8.0 are drawn up. Plus the next housing program give away; the next cars program; and helping the states out with their budget shortfalls in 2010. Oh yes, increased food stamps, another 13 week extension of long term unemployment, increased welfare for those who still fall out of unemployment, and I am sure a few other things I am forgetting. (cursory green shoots inserted here)

Now the good thing by layering on debt to inflate asset values AND stoke “prosperity” [Jun 5, 2009: 1 in 6 Dollars of Income Now Via Government; Highest Since 1929] [Jul 30, 2009: Cash for Clunkers a Bit Hit, Government Asks “What Can we Buy You Next?”] , is you might punish your currency month after month, but it should drive incremental tax revenue gains from stocks and (gosh) even real estate as more (ahem) “wealth” is created. Not in real terms, but in nominal… and most Americans only live in a nominal world. So if the currency drops 15% and your government is able to stoke some combination of your 401k, and house up 15% – you really gained nothing but you’ll feel great because most people only look at their 401k and housing values, without understanding the currency. Now if you happen to be one of those American souls who simply is trying to get by in a harsh world, and you don’t happen to own stocks or real estate? Well, you’re job then is to pay for your life with 15% more of a devalued currency – making everything 15% more expensive in real terms. But really, it’s not about you – we have a financial and political elite to take care of and only by coming together as one can we do it. Reverse Robin Hood style. Remember, inflation is GREEEEEEAT! (as long as your are not in the bottom half) [Aug 18, 2009: Bloomberg Opinion – Deflation Theory is Lemon We’ve Been Sold]

Even more funny is that the nominal increase in tax revenue (created by government shuffling money from the future to now to create “GDP growth”) might put a dent in near term deficits … by pathetically adding to long term deficits. Remember – in a nominal world there is no cost benefit analysis; only benefit benefit analysis. We get our goodies today, and the costs get stuffed “somewhere else” for “someone else” to deal with. Listen to the masses with the siren call of “free government money, I want mine!” not realizing they are taking from themselves… with interest. That’s called living in a nominal world. And not being real.

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(Don’t miss this last paragraph.  This sums up why our money and economy will be worthless in the very near future if we don’t STOP THIS INSANE SPENDING AND ALL OF THESE SENSELESS BAILOUTS.  Obama and the democrats are killing our country.  We MUST stop them, any way we can.)

America is (but not for long) still under 100% debt to GDP. We are on a clear path to surpass Japanese debt to GDP (a staggering 200% debt to GDP) within the decade. US Debt Clock (as of Aug 09) read $11.7T; GDP is say $13.5T. Throw the next decade’s (conservative) $9T on top and you are at a juicy $21T debt circa 2019 aka 150% of GDP. I think that’s conservative – we are overachievers and will “beat” that. Since the government figures just were raised $1.9T in 3 months you can see how quickly we could jump from $21T in 2019 to (some higher number). Once we pass 200% debt to GDP, it will all be uncharted territory for a modern developed country. Our annual growth rate of debt is now trouncing Japan, so it’s the story of the tortoise and the hare. Although in this case you don’t really want to be the hare. I also conveniently left out the $40T in unfunded liabilities (i.e. IOUs) sitting in Medicare. I’ve also left out the healthcare “reform” – considering the original estimates of Medicare were off by a factor of 10x within the first year of it’s implementation… well, you can do the math. And just for kicks let’s throw in the $1 Trillion pension disaster that is looming (currently being hidden by… accounting tricks) [Mar 4, 2009: Bloomberg – Hidden Pension Fiasco May Foment Another $1 Trillion Bailout] That’s just sort of icing on the cake at this point.

Did I mention how the debt will increase even more quickly if government debt interest rates permanently jump up as the world sees the increasing risk of investing in America?

Stanford University economics professor John Taylor, an influential economist, told Reuters Television Friday the U.S. budget deficit poses a greater risk to the financial system than the collapse in commercial real estate prices.”If that gets out of control, if interest rates start to rise because people are reluctant to buy all that debt, then that can slow the economy down. So, that’s the more systemic concern I have,” Taylor said.

Via Bloomberg

• The U.S. government’s long-term budget outlook is darker than expected, with projected deficits over the next 10 years totaling $2 trillion more than had been forecast, according to an Obama administration official.
• A White House budget review set for release Aug. 25 will show cumulative deficits over the next decade amounting to $9 trillion, up from $7.1 trillion that the administration predicted in May, the official said on condition of anonymity because the figures haven’t been made public.

Really a trillion here, a trillion there – what does it matter. All I know is many Americans were gleeful per my review of national news this weekend they got new cars. (granted many now have a new layer of debt) Others are gleeful they can get their first house via money trees grown in D.C.. (and when many default on their close to no money down mortgages in 3 years – it will be ok, no skin in the game after all) Citigroup and Bank of America bondholders are happy that they never had to take a hit despite the biggest crisis in 80 years. Goldman Sachs is happy they got fulfilled dollar for dollar on AIG counterparty risk. AIG is just happy to be in existence and seeing its stock surge 20% a day, subsidized by US taxpayer. And we’re all happy these actions plus more are making the stock market inflate. It’s really all about happiness after all. Can we put a price on that?[Mar 31, 2009: Financial Rescue Pledges Now $12.8 Trillion] Hey! That was supposed to be a rhetorical question!

[May 29, 2009: In 1 year, US Taxpayer on the Hook for $55,000 More per Household] Stop it! There is no price too high to bear for happiness of our people and concurrent transfer of wealth from the middle to our financial oligarchs. Get with the program!

For another source to fact check the Administration:

• The nonpartisan Congressional Budget Office has estimated deficits between 2010 and 2019 will total $9.14 trillion.

Considering the CBO thought we’d be $1.1 T in hock for 2009 in (one third of the way into the fiscal 2009 year) December 2008 – they only understated the reality by 45% …Now we want them to guestimate how bad things will be not 1 year but 10 years out, so let’s take it all with multiple grains of salt. If they are only off in the decade by the same amount they were off in this 1 year it is really +/- $5 Trillion over 10 years. And since no one really knows how it will turn out, the best course of action is to continue policies as is and buy happiness (not to mention higher equity prices). “Someone else” (benefit benefit) analysis will worry about these things in 2019.

[May 23, 2008: David Walker on CNBC this Morning]

[Mar 26, 2008: Annual Spring Entitlement Warning Falls on Deaf Ears]

[Nov 23, 2008: David Walker in Fortune Magazine]

[Jun 12, 2009: NYT – America’s Sea of Red Ink was Years in the Making]

[Aug 5, 2009: Federal Tax Revenue Plummeting]

Obama’s Leap to Socialism

For those of you too jaded to believe, you will be going down with the rest of us if Obama and the socialist/communists/Democrats and RINO Republicans aren’t stopped.

Obama’s leap to socialism
By Dick Morris
Posted: 04/21/09 05:21 PM [ET]

President Obama showed his hand this week when The New York Times wrote that he is considering converting the stock the government owns in our country’s banks from preferred stock, which it now holds, to common stock.

This seemingly insignificant change is momentous. It means that the federal government will control all of the major banks and financial institutions in the nation. It means socialism.

The Times dutifully dressed up the Obama plan as a way to avoid asking Congress for more money for failing banks. But the implications of the proposal are obvious to anyone who cares to look.

When the Troubled Asset Relief Program (TARP) intervention was first outlined by the Bush administration, it did not call for any transfer of stock, of any sort, to the government. The Democrats demanded, as a price for their support, that the taxpayers “get something back” for the money they were lending to the banks. House Republicans, wise to what was going on, rejected the administration’s proposal and sought, instead, to provide insurance to banks, rather than outright cash. Their plan would, of course, not involve any transfer of stock. But Sen. John McCain (R-Ariz.) undercut his own party’s conservatives and went along with the Democratic plan, ensuring its passage.

But to avoid the issue of a potential for government control of the banks, everybody agreed that the stock the feds would take back in return for their money would be preferred stock, not common stock. “Preferred” means that these stockholders get the first crack at dividends, but only common stockholders can actually vote on company management or policy. Now, by changing this fundamental element of the TARP plan, Obama will give Washington a voting majority among the common stockholders of these banks and other financial institutions. The almost 500 companies receiving TARP money will be, in effect, run by Washington.

(DON’T MISS THIS!)And whoever controls the banks controls the credit and, therefore, the economy. That’s called socialism.

Obama is dressing up the idea of the switch to common stock by noting that the conversion would provide the banks with capital they could use without a further taxpayer appropriation. While this is true, it flies in the face of the fact that an increasing number of big banks and brokerage houses are clamoring to give back the TARP money. Goldman-Sachs, for example, wants to buy back its freedom, as do many banks. Even AIG is selling off assets to dig its way out from under federal control. The reason, of course, is that company executives do not like the restrictions on executive pay and compensation that come with TARP money. It is for this reason that Chrysler Motors refused TARP funds.

With bank profits up and financial institutions trying to give back their money, there is no need for the conversion of the government stock from preferred to common — except to advance the political socialist agenda of this administration.

Meanwhile, to keep its leverage over the economy intact, the Obama administration is refusing to let banks and other companies give back the TARP money until they pass a financial “stress test.” Nominally, the government justifies this procedure by saying that it does not want companies to become fully private prematurely and then need more help later on. But don’t believe it. They want to keep the TARP money in the banks so they can have a reason and rationale to control them.

The Times story did not influence the dialogue of the day. People were much more concerned with the death of 21 horses at a polo match. Much as we will miss these noble animals, we will miss our economic freedom more.

Morris, a former adviser to Sen. Trent Lott (R-Miss.) and President Bill Clinton, is the author of Outrage. To get all of Dick Morris’s and Eileen McGann’s columns for free by e-mail or to order a signed copy of their best-selling book, Fleeced, go to dickmorris.com.
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Gingrich Calls on Obama to End Bailouts

Let unprofitable, poorly run business fail. Period. The businesses that rise up to replace them will be leaner, better run, and more profitable for shareholders than the business they replace. That is the way of capitalism. The Obama administration with the aid of liberal representatives and senators, and sadly a few RINO Republicans, are destroying our constitution and the rule of law that our country has been based on since its founding.

by Newt Gingrich (more by this author)
Posted 03/18/2009 ET
Updated 03/18/2009 ET

“Outrage” is the word on everyone’s lips to describe the fat bonuses being paid with taxpayer funds to the failed executives at AIG — and it is an outrage.

It’s an outrage that the American people are being asked to pay for the bad behavior of people who should have known better, be they reckless traders on Wall Street or reckless borrowers on Main Street.

But the cure for our outrage is not merely, as President Obama is demanding, that AIG be prevented from paying its executives. The $165 million in planned bonuses — as manifestly undeserved as it is — is chicken feed compared to the $170 billion in taxpayer funds AIG has received so far.

Nor is it acceptable to ask Americans to keep throwing their tax dollars at failed companies and their leaders.

The answer is an old fashioned one: AIG should choose between receivership or bankruptcy. It should not be allowed to choose more bailouts from the taxpayer.

Restore the Rule of Law: Allow Failing Corporations to go Bankrupt

Under U.S. law, Chapter 11 bankruptcy allows a company to reorganize. Chapter 7 allows a company to dissolve itself.

The choices for AIG, as both an insurance and non-insurance company, are more complicated, but ultimately boil down to the same options. And for other companies either receiving or looking to receive a bailout from the taxpayers, the option should instead be bankruptcy.

Bankruptcy would send a needed message to U.S. investors: Don’t assume the government will bail you out when you do something stupid.

And most importantly, bankruptcy would replace the rule of politicians over U.S. financial institutions with the rule of law.

Geithner Didn’t Inherit the Policy of Throwing Billions at Failing Companies — He Helped Create It

Because when it comes to Washington’s handling of the financial crisis, so far we’ve had the rule of politicians, not the rule of law.

Most prominent among the politicians in question is Treasury Secretary Timothy Geithner.

As Americans’ level of outraged has risen, so has the level of finger pointing by Geithner and others for the mess we’re in.

But Treasury Secretary Geithner is disingenuous at best and untruthful at worst when he says that he “inherited the worst fiscal situation in American history.”

The truth is that Secretary Geithner didn’t inherit the policy of throwing billions of taxpayer dollars at failing companies — he helped create it.

Even before he was Treasury Secretary — when he was still head of the New York Federal Reserve — Geithner was so deeply involved in the government’s bail out of Bear Stearns, its take over of Fannie Mae and Freddie Mac, and its bailout of AIG that this was the Washington Post’s headline from September 19, 2008:

“In the Crucible of Crisis, Paulson, Bernanke and Geithner Forge a Committee of Three”

The first meeting of the first bailout — of Bear Sterns — was held in Geithner’s office. And the first meeting of what has become a $170 billion bailout of AIG was held — where else? In Geithner’s New York Fed office.

Why Not Bankruptcy for AIG? Because Wall Street Wouldn’t Have Done As Well

From the outset, Geithner was central to the developing policy of having the taxpayers bail out ailing financial institutions like AIG rather then allow them to go bankrupt. And for months now, we’ve been told that these bailouts were necessary to avoid a wider, cataclysmic, financial meltdown.

But now it’s clear that other, less noble, considerations were at play.

As the Wall Street Journal editorialized yesterday, the real outrage over the AIG bailout isn’t executive bonuses, it’s that billions in taxpayer funds intended for AIG have been passed through to benefit foreign banks and Wall Street behemoths like Goldman Sachs.

And as former AIG CEO Hank Greenburg testified last October, these financial institutions wouldn’t have faired as well if AIG had filed for bankruptcy protection rather than do what it did, which was to negotiate a bailout with Timothy Geithner’s New York Federal Reserve.

Here’s how Greenburg put it:

“Although AIG stockholders could have fared better if the company had filed for bankruptcy protection, other stakeholders — like AIG’s Wall Street counterparties in swaps and other transactions — would have fared worse.”

For the Cost of Bailing Out AIG, Every American Household Could Have Free Electricity For a Year

So now everyone is outraged, and rightly so. But the lavish executive bonuses being paid with taxpayer funds are just the beginning of the story.

So far, the American taxpayers are on the hook for $170 billion to AIG — that’s an astounding $1,224 per taxpayer.

What else could we have done with all this money?

$170 billion would pay for more than doubling the Navy’s fleet of aircraft carriers.

$170 billion would pay for a four-year education at a public university for more then two million Americans.

$170 billion would cover the electricity bill of every household in America for an entire year.

When You Reward Failure, All You Get is More Failure

What Washington should learn from all this outrage is to return to the common sense that should have guided it all along: When you reward failure, all you get it more failure.

A company that needs a $170 billion taxpayer bailout is a failed company. The executives that led that company are failed executives. But instead of having to face the consequences of their failure responsibly through bankruptcy or receivership, AIG and its Wall Street “counterparties” are being rewarded for their recklessness — with our money.

Thanks to the Bush-Obama-Geithner policy of bailing out failing companies, we now have the worst of all possible scenarios: A taxpayer subsidized, government supervised private company; an unsustainable public/private hybrid that is too public to make its own decisions and too private to be responsible to the taxpayers that are keeping it alive.

Outrages like the fat cat bonuses currently dominating the headlines will only continue as long as the rule of politicians supplants the rule of law on Wall Street.

Congress should rethink this entire process. The dangers of a domino-like financial meltdown are real. But so, too, is the danger that the outrage of the American people will reach the point that we no longer trust the dire warnings — or the righteous indignation — coming from Washington.