Can you guess which one Geithner wants?

Last week, Treasury Secretary Tim Geithner began a push for expanded powers to seize non-bank assets. With AIG bailout money being spent recklessly on exciting travel getaways for conferences on synergy and exorbitant executive bonuses, Geithner framed the request as a way to increase government oversight. Taxpayers were on the hook for a lot of money and this was a way to responsibly fine-tune the bailout package and make a show of giving a big concession to fiscally conservative Republicans. Ah, bipartisanship…

Sadly, whether for Republicans or for Secretary Geithner, the loudest push-back on this claim came from liberal economist Paul Krugman. In the most recent Newsweek cover story (and seemingly every Sunday talk show this week) the two have traded barbs about what Krugman calls Geithner’s “trash for cash” program. Essentially, the Treasury is acting like a company that makes every wrong decision. In the name of helping these struggling industries, the US is investing heavily in falling stocks and worthless shells.

Now, Mr. Geithner is using the so-called successes of the first round of support to justify calls for a more aggressive program. Instead of just buying stock in a company to infuse capital, Treasury would now assume control of the company as a subsidiary of the Department. So instead of making poor investments and losing taxpayer money through the market, the government plans to add onto itself dying limbs in some sort of twisted symbiotic relationship. The current plan calls for the federal government (of which you and I are the sole financiers) to purposefully sink its own investments without the nuisance of company managers trying to be ‘successful.’

Krugman, winner of the 2008 Nobel Prize in Economics, refutes the claim that the first round of funding was a success. Generally speaking, the economy isn’t getting better; rather, it’s just getting worse at a slower rate. Without sufficient correlation between TARP, etc and this “improvement,” what justification does Treasury have for doing the same sort of work on a much more drastic scale? Of course, we as conservatives are left wondering what justification there is for any government intervention in this sinking ship. As I see it, Mr. Geithner has three serious options under consideration concerning AIG right now:

1. Something like the current use of TARP funds for AIG, only in an increased capacity – think more of the status quo, but with bigger numbers. As it stands, AIG sold about 80% of its stock to the government in exchange for cash to keep them alive long enough to sell off the assets needed to buy back their own stock. This is the main defense for taxpayers getting their money back, but it hinges on AIG actually selling those assets at a sufficient price and in a timely manner. If we are to believe that they can do that, then why is Treasury pursuing the new powers to do it for them?This is an affront to our liberty through the confiscation of our income to pay for their errors. On this sinking vessel, the government has swapped out the AIG executives as captain and put the American citizen in their place to go down with the ship. We’d now be on the hook for even more money, all the while hoping that some smaller companies will be as foolish as the government in purchasing AIG assets to bail us all out.
2. A plan analogous to the FDIC bank takeovers in the late ‘80s and early ‘90s. With banks, the company would get in over its head, realize it at one distinct moment and everyone would suddenly scatter, essentially leaving no existence of the actual company with accounts frozen and ATMs disabled. The FDIC acts as the company and transfers all of the customers over to competing banks (that still exist) and grandfather their contracts (“FDIC-insured”).Rather than just take your money and throw it around recklessly like before, the government here assumes risk on your part, acting the role of a giant insurance agent. There is normally enough money to cover a crisis of several banks going south at the same time (as in the mid to late ‘80s), but more funding might need to be drawn up for a cascading series of bank failures (as the FDIC predicts may happen). Your tax dollars are taken from you twice – once to pay for the purchase of AIG’s outlying assets (the company proper is simply taken from the private ownership) and again to be held in reserve in case the failing company… fails.
3. The GM plan as applied to an insurance giant. This is the plan that the Obama administration wants to roll out, should Secretary Geithner be so empowered. The federal government will take over the company as in #2, but without it failing first. Instead of taking over something that has ceased to exist, they will be kicking everyone out and remaking the company in their image. Of course, the day following Obama’s appointment of himself as CEO of GM saw stocks plummet, driven by auto worries, but that’s apparently of no consequence to the Treasury Department. Not only does Secretary Geithner want to forcibly takeover a private enterprise in a socialist maneuver, but he also wants the ability to set salary caps for specific sets of employees and pick his own executives with impunity. Of course, we’ve seen this one man Chairman of the Board routine before this week, but its audacity still smarts. This plan combines the worst of all other previous stimulus projects – using your income to pay idiots for screwing up, passing laws specifically to take money and property from private citizens against their will and putting us all in the precarious position of guarantor, hoping against hope for this cockamamie scheme to succeed. (This is where all that hope from the campaign comes in – zing!)

Thus far, the Secretary has found the House Finance Committee an unfriendly forum for his demands, making immediate success in this area unlikely. Another round of PR disasters like the bonus scandal; however, and who knows? Those bonuses, equaling a minute fraction of the bailout funds caused 85 House Republicans to freak out and vote for an outrageous targeted tax for the government to take that money away “because [the executives] are undeserving of it.” So anything could happen; we had just better hope it doesn’t.

I would love to address the GOP response here, talking about what Republicans should think about this and, more importantly, what they should do about it. However, opinion and speculation have been mixed. To be honest, Paul Krugman may be doing the Republicans’ job better than they seem to be willing to do (though his personal plan would be even worse). Sure, some have come out in disagreement, but most of the news-makers are still talking about GM. Romney respects Barack’s fortitude in a structured bankruptcy, while House Finance Committee member Thad McCotter is against a free-market bankruptcy for GM, because of the immediate impact his constituents (though he’s for letting other companies die outside state lines). Even Mitch McConnell has so far refused to condemn Geithner on this plan, giving him an A for effort.

In the end, I don’t know what to make of the response to a renewed stimulus. Should Geithner succeed in taking over AIG, it won’t be his last such endeavor, and yet opponents seem content to merely keep an eye on the proceedings, waiting for signs of imminent trouble. What should the GOP response be at this point? A move to block any such federal cash-grabs? Wait for Geithner to do something specific and raise hell? Myself aside, I hope someone has an idea, because I’m uncomfortable relying on men like Krugman to stop the collectivist movement.

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