Wednesday, January 21, 2009

Bank "Owned By" America, Citigroup, GM, and My Brother: Who Deserves Bailout Money?

Yesterday's news was that the Bank "Owned By" America, otherwise known as Bank of America, might need as much as 85 billion dollars in additional capital. Today's news was that we might be forced to "nationalize" both Citigroup and Bank of America (as if we have not already effectively done so). Meanwhile, GM officials said they might be out of cash by March 31 (despite bailout money already given GM). See how central planning works, or doesn't work? The central planners never are able to take into account all of the factors involved in trying to manage all details of an economy. Thus, Bank of America was "used" by central planners to oritinally bail out Countrywide Mortgage (with Eederal help). Then the Fed induced Merrill Lynch to be bought by Bank of America. Now it turns out that Bank of America itself needs to be bailed out. So the central planners created this enormous monster to "solve" the problems of Countrywide and Merrill Lynch, only to realize that they have "solved" nothing!!! Meanwhile, the Feds had arranged a merger of Wachovia with Citigroup. Wasn't that a triuph of central planning!!! Citigroup, of course, has essentially failed, and a merger of the failing Wachovia with the giant, failing Citigroup made no sense at all (except that the Feds were providing taxpayer "sweeteners" to the deal). This absurd result of central planning was prevented by Wells Fargo, which stepped in and purchased most of Wachovia in a private transaction (which Wells Fargo may now regret, since it is having its own troubles--although less than Citigroup or, probably, Bank of America. See where central planning gets you? The answer to the inevitable failures to be able to centrally plan correctly is always "more central planning". "We will do better the next time, now that we have more information and experience," is always the mantra of central planners. But the fact remains that theoretically central planning cannot work (because there is never engough information, and because the inevitable failures are not self-correcting and therefore total disasters). Further, experience shows that central planning fails. You might remember the Soviet Union, and those "five year plans". Still, the leftists never quit. Their arrogant faith in central planning is a religion, unaffected by theoretical impossibilities or practical experience. The leftist mantra always is Obama's recent statement: "Only government can get us out of this" (whether recession or poverty or whatever). The idea that Obama is so good he can do what the leaders of the Soviet Union could not do is absurd. Despite the imiage, he is not really the Messiah. And it is only God who has enough information and perfect judgment to make central planning work, and I have some doubt about God being able to do it. Yet the illusion that mere men can direct all human affairs into the right channels is so persistent that it indicates a fundamental flaw in the human race. From Barack "World" Obama to Bill O'Reilly to Larry Kudlow, we seem to be unable to avoid the arrogant idea that we can centrally plan all human affairs better than free people in a free market can do so. This has never been true, and never will be true. But my brother, who is co-owner of a struggling trucking company employing 200 people (at least before getting in trouble), is a convert to the central planning phiosophy that government can figure out how to bail everyone out. See the entry earlier this week. He figures that he deserves to be bailed out more than Bank of America, Citigroup, or GM. Unlike the executives of those firms, he has never taken a salary of much more than $150,00, even as basically co-CEO of the firm. He has taken drastic action in tihs recession to return to profitability, and has almost put his company into position to be profitable. But he is threatened by banks (the ones being bailed out with billions of taxpayer money, including my brother's own taxpayer money) who are demanding my brother pay them (even though my brother's compnay is stuck with "toxic assets" just like the banks in trouble, which make it hard for him to handle his now useless excess fixed costs, even though he is operationally profitable with the equipment he is actually using). Now my brother only needs one million dollars, or two million at the most, to pull through. He surely would be willing to give the government an equity stake in his business to provide the capital (even if it is in the form of some sort of preferred stock, or even in addition to the preferred stock as is happening with the banks). I previously ran the numbers in this blog as to the 25 billion dollar bailout proposed for the automakers. 25,0000 companies like that of my brother could be "bailed out" with that much money. That would save/create 5 MILLION jobs. Now if you take the $350 billion dollars already used for banks and GM, plus the 123 billion dollars used for AIG, you could probably bail out every samll company in America, and save/create 20 to 50 million jobs. Why should the government choose to bail out Bank of America and GM, and not my brother? that is what my brother wants to know. You know what? Central planners have no answer for my borther, other than the tyrant's answer that "that is our choice in what we regard as the best interest of the country". In other words, central planners choose the winners and losers, and the biggest "winners" are always the central planners themselves. This is the very opposite of freedom. It is tyrany. Why should my brother have to watch the employees/executives of Bank of American get bailed out, while the employees/exectutives (much more deserving and less extravagantly compensated) of his own company are allowed to go down the tubes? If enough people like my brother realize the enormous injustice of what is going on, are they open to demagogues and revolution? Of course the are. This is how you end up with the French Revolution--not to mentioin Stalin and Hitler and the flaws that brought their systems crashing down (yes, Hitler is an example of central planning, and one of the flaws of central planning is that central planning is rule by men and not really by law). When central planners choose who wins and who loses, the losers always have a legitimate gripe. Okay. Why not just go all the way to bailing out every business (like that of my brother), every homeowner, and every other person in trouble? Well, that is full fledged Communism or socialism. We are full cricle. It does not work and pretty much gruantees a grim, subsistent existence for everyone but the central planners themselves, and their special favorites. Nope. My brother is right He dserves to be bailed out at least as much as Bank of America, and the money would probably be better spent bailing out small businesses like his. My brother also recognizes that there is no good way for this to end. Eventually central planning fails. But my brother has this unanswerable question: "As long as I am forced to watch Bank "Owned By" America, Citigroup, GM, and AIG be bailed out, why should I not get bailed out." There remains no answer that Obama, Paulson or President Bush can give my brother (other than the one I give above about how they, as the central planners, are picking the winners and losers that they feel are best for the country, despite the compelling arguments that the money would be better spent bailing out companies like that of my brother). The country has almost inadvertetnly lurched far to the left, into the arrogant fantasy world of central planning where you cannot answer questions like the one posed by my brother. That is why I am not optimistic for the future. This new central planning will fail, as all central planning has failed in the past. The question is how much pain the ultimate failure will cause, and what willl replace it. will we get Stalin, Hitler, or Putin? Or will antoehr Reagan go beyond Reagan and lead us conservatives back to the promised land? I worry about it, but can do nothing about it. The central planners are in control, and the people of this country put them there. As Pogo said: "We have met the enemy, and he is us." I do admit to a secret pleasure in having newly minted Larry Kudlow as a representative of the enemy, however, instead of dwelling on how the majority of this country got led down the primrose path to the false god of central planning. I'm sorry. No one deserves to be regarded as the face of the enmey more than Larry Kudlow. The sanctimonious hypocrite (a "journalist" type, but all of Wall Street seem to have turned into "journalist" types totally deserves to be on the poster showing the face of the enemy.

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