Irrational Bailout Entitlement Syndrome

by LukeAmerica2020
An unsettling discontent swells as I’m reminded of the closing words of Lincoln’s Gettysburg Address, “a government of the people, by the people, for the people, shall not perish from the earth”. His resolute celebration of liberty has come to symbolize the very definition of democracy itself. Yet, who among us today could muster the fatuous optimism to rally truthfully that this founding creed is practiced by our designated representatives in DC?

Shouldn’t government authority be derived from the consent of the governed? Shouldn’t our elected representatives … represent us?

Some issues that confront us as a nation transcend political parties. The ongoing fervor for bailouts is one such example. Just two months ago democrats and republicans, ordinary citizens, of sundry leanings deluged Congress with demands to vote against the $700 billion bailout plan.

During a Senate vote on October 1, Senator Dianne Feinstein (D-CA) took the podium to explain her position on the proposed bailout package. In her statement, she explained that she received 91,000 calls and emails, with 85,000 of them opposed to the measure. Even armed with the knowledge that 93% of her constituents were passionate enough to contact her office pleading for her to vote “nay”, she voted in favor of the bill, claiming that “there is a great deal of confusion out there” and these people “don’t understand” the situation.

YouTube Video: 91,000 calls; 85,000 Against the Bailout Bill

Our representatives ignored our demands claiming that we ordinary folks just didn’t grasp the complexity of the economics involved. And yet, this socialistic nationalization of banks, brokers, and money funds seems to have done little more than to fuel a frenzied demand for wanton bailouts and enormous loans by an ever-expanding queue of businesses that believe they are entitled to similar handouts from taxpayer funds.

They’re lining up before the government like ravenous swine at a new slop trough. We are in the midst of an onerous (perhaps crippling) irrational bailout entitlement syndrome. It started with the financial sector. Then, governors and mayors wanted in on the action. Now, it’s spreading to manufacturers. Will GE, Wal-Mart, or Target be next? What about pension funds?

Why is it that capitalism is triumphed when profits through risky ventures are pouring in, but socialism is demanded when those same risks collapse? Where does the bailout free-for-all end?

It’s as if they’re involved in some mind-boggling, temporal juggling act … tossing up tomorrow’s money today … a game that only seasoned Washington bureaucrats and inveterate con artists could appreciate. Are we living the American dream or suffering a socialist nightmare?

A few days ago (2008-11-25) Fox News’ Neil Cavuto described the ordeal, “First we were going to buy up bad mortgage paper, then Paulson decided that won’t work so TARP became CARP, investing in the banks themselves, but that didn’t work … soooooo … today Paulson decided to buy up banks bad assets.”

YouTube Video: Neil Cavuto re: Henry Paulson

Paulson’s fickled follies notwithstanding, what happens when these trillions of newly injected dollars explode a hyper-inflationary bubble? Are these morphing bailout “solutions” going to precipitate a greater challenge than the credit markets tightening back in September? Are we really fixing a problem? Have we forestalled a financial disaster or merely postponed it?

Of course we are confronted with grave economic challenges, but is obligating our grandchildren’s children to untold, perhaps immeasurable, debt and taxes the correct solution. Are our representatives exuberantly reacting to a problem rather than carefully and methodically solving it?

This irrational bailout entitlement syndrome is diametrically opposed to common sense financial accounting. Let’s consider some common sense alternatives … in a time of economic crisis.

 
Automotive Bailouts …
The Big-3 auto manufacturers swagger back to DC this week requesting their slices of the bailout pie. But, why aren’t BMW, Honda, Toyota, Porsche, Mercedes, and Subaru importuning in the bailout queue?

Without debating which is worse, feckless management decisions or exorbitant union benefits, let’s consider a common sense option. Instead of an outright bailout or an enormous loan, why not offer a government funded rebate on new car purchases? Let the amount range from $1500 to $3000 based on the fuel-economy of the vehicle … then the government should reward the manufacturer with the full rebate amount upon sale of the vehicle.

 
Cash Flow …
Now, instead of simply doling out freshly printed money from the Fed and Treasury’s bottomless pit of greenbacks, how about applying common sense principles to increasing the flow of EXISTING cash?

Capital gains are typically realized from the sale of stocks, bonds, precious metals, and property. When these profits are heavily taxed, there is strong motivation to hold onto assets. If we repealed the capital gains tax for a couple of years, we’d create a handsome incentive to liquidate assets, thereby freeing up cash. Let’s eliminate the capital gains tax for two years.

Small business makes up 99 percent of employers and employ more than half of workers in this country. If these small businesses (500 or less employees) had much lower tax rates for a couple of years, they could actively engage in expansion … buy more products, use more services, hire more employees, pay employees more. Let’s lower corporate taxes on small businesses for two years so that we can grow wealth.

The Sarbanes-Oxley Act was enacted in 2002 in response to a number of major corporate and accounting scandals (Enron, Tyco, WorldCom, etc.). This law which applies only to publicly held companies established an agency charged with overseeing, regulating, inspecting, and disciplining accounting firms in their roles as auditors. Although investor confidence was restored by this law, it creates an overly complex regulatory environment which has reduced America’s international competitive edge against foreign financial service providers and it undermines the venture-capital industry. Let’s suspend Sarbanes-Oxley for one year and rewrite the law in the meantime.

Mark-To-Market (MTM) is the act of recording the price or value of a security, portfolio, or account to reflect its current market value rather than its book value. In effect, this technical accounting requirement stifles “irrational exuberance” of market valuation that Alan Greenspan spoke of in December 1996. But, MTM breaks down in a market crisis as panic-selling tends to produce prices that are out of line with underlying asset values. Today, for a period of time, we could benefit from an enthusiastic bull market. Once the economy recovers, we could revisit this methodology. Let’s suspend MTM for six months.

 
Waxing Lincolnesque …
Two centuries, one score, and a dozen years ago our forefathers brought forth on this continent a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal. They built this nation with their own sweat and they defended it with their own blood.

Many thousands of these brave men and women sacrificed their lives for their steadfast belief that state authority must be derived from the consent of the governed. Washington, are you listening? We can apply some common sense accounting to our economic crisis. Stop the madness!!! Use common sense.