"Corporate Welfare Vs Market Discipline"

For all the thorny free-market issues raised, the big U.S. intervention in banks does have precedents — from wholesale wartime takeovers of entire industries to the seizing of hundreds of failed savings and loans in the 1980s. Most nationalizations have been temporary, but some endure, like Amtrak.

The government has taken stakes in banks, railways, steel mills, coal mines and foreclosed homes.

President Bush's announcement on Tuesday that the government would directly invest up to $250 billion in the nation's top financial institutions was the latest step in increasingly bold efforts here and abroad to prop up a financial system near collapse.

It was presented as a last-resort intervention. But already this year, the Federal Reserve had taken a $85 billion stake in failing insurer American International Group, which it later upped by $37.8 billion. And it provided a $29 billion loan to help JPMorgan Chase & Co. buy investment bank Bear Stearns. The government took over mortgage giants Fannie Mae and Freddie Mac, pledging up to $200 billion.

During World War I, the government nationalized railroads, telegraph lines and the Smith & Wesson Company. During World War II, it seized railroads, coal mines, Midwest trucking operators and many other companies and even, briefly, retailer Montgomery Ward.

Not all takeover efforts go through.

President Truman tried to nationalize the steel industry in 1952 to avert a strike he claimed would hurt Korean War efforts. But the Supreme Court stopped him, saying he failed to cite any legislative authority.

Others can last and last. One major friendly takeover remains today: the government-owned National Railroad Passenger Corporation, doing business as Amtrak since May 1971.

In 1984, Washington seized the failing Continental Illinois Bank and Trust. It continued to exist, with some 80 percent of its shares owned by the federal government, until 1994, when it was acquired by what is now Bank of America — among the first banks in which the Bush administration will take an ownership stake.

The Resolution Trust Corp. took over more than a thousand failed savings and loan institutions in the late 1980s and early 1990s, including an array of bad loans and foreclosed homes. It took six years and $125 billion in tax dollars to clean up that mess.

The RTC was modeled on the Reconstruction Finance Corp. which made loans and bought stock in distressed banks during the Great Depression.

Administration officials emphasize that the recent bank interventions are temporary and argue that they are in the national interest — even if seemingly at odds with hallowed private-enterprise principles.

"These measures are not intended to take over the free market, but to preserve it," Bush said on Tuesday.

"The federal government will not be running banks," said White House spokesman Tony Fratto.

Peter Morici, a business professor at the University of Maryland, said that may be a shortcoming — not an advantage. "Unless the government gets involved in the management of banks, we have no assurances that they won't get us into this mess again, that they're really going to start lending money to people who need it," Morici said.

The U.S. action follows similar steps by Britain, France and other European nations.

Some critics argued that scrapping free-market principles would only perpetuate inefficiency while striking at the citadels of capitalism.

"I can't agree with socialism. I mean this is just more government," said libertarian-leaning Rep. Ron Paul, R-Texas.

Wariness of a government interference with U.S. companies, especially banks, is deeply ingrained in the nation's culture and history.

Alexander Hamilton, the first treasury secretary, established the nation's first central bank — the Bank of the United States — in 1791 while Philadelphia was still the nation's capital. Hamilton intentionally kept the direct U.S. stake at 20 percent so the government could not exercise majority control.

On Capital and Capitalism

    Free market / limited government advocates no doubt are very concerned about the current Bush Administration plan to buy stakes in the major US banks, which amounts to a partial nationalization of US banking. As I see it, as long as this is a temporary expediency, as past nationalizations of various US industries, it is not objectionable. However because of the abolishing of the Glass-Seagal Act of 1933, (which kept banks out of the stock market) by the Clinton Administration in 1999, the present government buying into banks is also buying into Wall Street with all the current unregulated speculations that have caused the present economic crisis. The Bush Administration is spending billions of taxpayers dollars that amount to putting a band aid on the problem instead of solving the problem, as pointed out by Congressman Ron Paul in the above video. Corporate welfare only encourages further corporate greed and recklessness. Some things need to die or fail so something better can live and succeed. Fannie Mae, Freddie Mac, AIG and the derivative market just need to be allowed to fail and face market discipline for their bad business and investment schemes. As I see it, no corporation is "too big to fail".

tags: wall street bailout  bush  business  capitalism  politics  takebackamerica  the economy  the free market  corporate welfare  bank bailout  ron paul  

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