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Those In Charge Of Our Economy Don't Know What They Are Doing

Those In Charge Of Our Economy Don't Know What They Are Doing

By Ed Koch - December 9, 2008

I have no doubt that Congress will bail out the automobile industry. The same fears of economic collapse that caused Congress to pass the $700 billion bailout bill now known as TARP (Troubled Asset Relief Program), after the House of Representatives first rejected it by a vote of 228 to 205, will now produce rescue legislation for Detroit.

As we now know, six weeks after the President signed the TARP bill into law, Secretary of the Treasury Hank Paulson told the nation that he had essentially sold the Congress and the nation a bill of goods when he said that the U.S. Treasury would be spending the bailout money to buy the toxic assets of lending institutions in order to get them to lend money once again. Instead, the Treasury would take equity positions in the largest of the U.S. lending institutions which under the Treasury's definition included the largest insurance company in the world, AIG, which ultimately received $306 billion dollars from the bailout fund.

Congress only authorized Paulson to spend half of the $700 billion bailout fund and to come back to Congress for permission to spend the balance. However, with all of the publicly announced Treasury actions, including the recent bailout deals made with Citibank, it seems to me the Treasury Secretary may have invaded the second pot of bailout funds. Secretary Paulson is apparently not subject to FOIL requests, so attempts by the media to ascertain the amounts and conditions of loans made have been rejected. According to a recent press statement, the Secretary still has $15 billion uncommitted, and he said he wanted to leave the balance of $350 billion for the incoming Obama administration to disperse.

I have lost total faith in the Secretary of the Treasury, his boss, President Bush, and the Congress, on their capacity to handle the economic crisis we are in. Interestingly, Congress -- that is the House of Representatives -- and the public opposed and then supported bailout legislation, because we were warned by Paulson and the country's foremost economic experts that if the Congress did not pass it, the country would be headed for a crisis not seen since the Great Depression. And here we are having passed the bailout still staring the Great Depression in the face.

It was madness to pass the bailout: proving the point that decisions made out of panic rarely, if ever, result in responsible outcomes. It has also been established, at least to my satisfaction, that the so-called experts don't know what they are doing and they are the same experts who were in charge when we got into this mess. Interestingly, according to the New York Times of November 26th, "In the last year, the government has assumed about $7.8 trillion in direct and indirect financial obligations. That is equal to about half the size of the nation's entire economy and far eclipses the $700 billion that Congress authorized for the Treasury's financial rescue plan."

We are apparently going to repeat the same error we committed when we authorized the first bailout of financial institutions. This time, we will be bailing out the three automobile companies - GM, Ford and Chrysler. The people to whom we are requested to give the additional billions - they first asked for $25 billion and are now asking for $34 billion -- are the same people who ran these companies into the ground. I have absolutely no confidence in their ability to turn things around. All should remember Chrysler is a private company, whose owners thought they bought the company cheap from Daimler, and now want the taxpayers to bail them out. Instead of bailing the automobile companies out, let them go into bankruptcy and either work their way out in Chapter 11 or be sold off in bankruptcy.

There is no shortage of solutions proposed for our financial troubles. One is to let the judges in bankruptcy redesign the terms of the mortgages before them - which currently they are not permitted to do -- allowing for lesser interest and longer total terms, and in the meanwhile, enact whatever laws are constitutional that would bar foreclosures from proceeding for at least a year so as to give the government the time needed to work out whatever other remedies are needed.

With respect to the car industry, someone has suggested we give any taxpayer who buys a totally American-made car - allegedly the Big 3 make cars that are deemed to be more American than those manufactured by Toyota in the U.S. which imports more parts -- a $5,000 or more tax credit on their tax return in the upcoming year, 2009. If this proposal sounds whacky - I wish I had thought of it - it is less improvident than the proposals of the so-called experts.

Ed Koch is the former Mayor of New York City.

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