Tag Archives: bailout

Free Market Revolution

Amid the ire directed towards our government, our biggest corporate entities and each other, there are calls from all sides for dramatic change in the policies and politics of America. From TEA party activists, to Occupiers, to the weary long-time unemployed, there is a sense of urgency that something must change, and must change fast. Free Market Revolution is a hard and honest look at the current culture of dependency, the malaise of a once motivated people, and the events that have culminated in our current fiscal crises and ever growing discontent with a system that repeatedly fails to promote growth and prosperity… and offers the only credible and moral ( yes, I said moral) solution to our country’s woes.

In Free Market Revolution, Yaron Brook and Don Watkins break down the often repeated talking points that our current financial crises was caused by greed and deregulation. They speak factually and bluntly about the actual numbers of regulations that were added during the last and current Administration, and their roles in creating a recipe for guaranteed disaster in the housing market, the resulting credit and lending crises that has been fueling the greatest recession since the 1930s, as well the slowest recovery in modern history. The undeniable blame for the current business-killing climate is laid at the feet of big government and collective calls for more regulation, where it belongs.

Dispelled, is the myth that America operates under a capitalist, free market system and explained are the reasons why proponents of a purely free market have been incapable of offering a defense of capitalism that appeals to America as a whole: A moral case for capitalism as an economic system that creates opportunity, wealth, and security for all, without ignoring what the left has so effectively defined as “basic need” and “rights”. Critics of Ayn Rand, without fail, point to her lack of empathy for the poor as a means of demonizing a free market system. Capitalists have been unable to argue the emotional talking points and the morality argument presented by the left, giving way to even more cries for social safety nets and spending by the government to pay for those “basic needs”. Until now.

Free Market Revolution makes clear what capitalists, successful businessmen, and proponents of Ayn Rand’s free market ideas have always known: That the only moral economic system is one that allows for success or failure based on individual effort and self-interest. Yaron Brook and Don Watkins put forth the simple idea that an economy unfettered by overbearing regulation will stimulate innovation and regulate itself via competition and common sense. They handily dismiss the idea that all entrepreneurs and successful business owners are out to gain by nefarious means, and grant the reader the idea that working for your own prosperity is not only fundamentally human, but also fundamentally moral. It is time for supporters of a free market economy to point out that the free market has not existed in America and could not have caused our current fiscal crises. It is time to stop allowing people like Madoff to be the public image of corporate success, and time to stop granting merit to the idea that selfishness automatically means benefiting at the cost of another.

Free Market Revolution is a tool for free market capitalists. One that offers a logical argument to the more and more public and political shouts against free markets and cheers the morality of an economic system that should not need defending, but extolling. You can order your copy here!

Yaron Brook (@YaronBrook) is Executive Director of the Ayn Rand Institute. He has written for the Wall Street Journal, USA Today, Investor’s Business Daily, and CNN.com, and appeared on The O’Reilly Factor, The Glenn Beck Show, On the Money, and Closing Bell, among others. A former finance professor at Santa Clara University, he is the co-writer with Don Watkins of a column on business and capitalism at Forbes.com

Don Watkins (@dwatkins3) is a fellow at the Ayn Rand Institute and the co-writer with Yaron Brook of a column on business and capitalism at Forbes.com. He appears regularly on radio and TV, and his op-eds have appeared in such venues as Investor’s Business Daily, The Christian Science Monitor, FoxNews.com, and Forbes.

Can Obama Pick ’em, Or What?

Can President Barack Hussein “kill list” Obama pick winners, or what? But it really does not matter to him since he is using taxpayer money to invest in companies. There is a myriad of topics about which to write about his picking prowess, so I will limit myself, in the interest of the typical liberal reader attention span, to only two topics: the “green or renewable” energy boondoggle, and the “auto industry bailout” boondoggle, particularly General Motors (GM).

  • First, there is the green or renewable energy boondoggle. There are many paths we can take here. Can anyone say Solyndra? Or SunPower? Or Beacon Power? Or Ener1? Or Evergreen? Or SpectraWatt? Or Nevada Geothermal? Or Abound? Or …? Despite Media Matters‘ attempt to categorize them all as low risk loans, they ALL cost taxpayers quite a lot of money.But this statement, from Peter Schweizer in his book Throw Them All Out, pretty well says it all: More than 70 percent of DOE grants and loans under Obama went to Democrat donors and bundlers. For example:
    • Obama bundler George Kaiser was a major stakeholder in Solyndra through his Kaiser Family Foundation.
    • Steve Spinner, after bundling more than $500,000 for Obama in 2008, was named to the White House transition team and later served as “chief strategic operations officer” of the DOE loan program that funded Solyndra.
    • John Doerr has personally contributed more than $2 million to Democrats over the past 20 years. Doerr is a principle at Kleiner Perkins Caufield & Byers (KPCB). Of the 27 companies list in KPCB’s “green-tech” portfolio, 16 received some form of taxpayer support.
    • Steve Westly was a National Finance Committee member of Obama’s 2008 campaign and currently sits on the DOE’s Energy Advisory Board. Westly has bundled at least $700,000 in campaign donations for Obama, and personally given about $260,000 to Democrat campaigns and committees since 2007. Westly’s investment firm had a financial stake in four green energy companies that received more than half a billion dollars in federal funding in 2009.
  • Second, GM. In December, 2009 (under George W Bush), GM received $13.4 billion from the $700 billion Troubled Asset Relief (TARP) program. Then, in June, 2009, GM file for bankruptcy. The US Treasury Department (under Barack H. Obama) provided GM with $30.1 billion. Does the phrase “Throwing good money after bad” come to mind? Anyway, no matter how you slice it, GM received $43.5 billion, 69.2% of that from the Obama administration.So how is the GM investment, from a taxpayer perspective, doing? We know that, from an “auto worker unions supporting Obama” perspective, the investment has done/is doing quite well.Following its June, 2009, bankruptcy, GM stock was offered in November, 2010, at $33 per share. Today (July 19, 2012), GM is at $20.10. The analysis offered here is based on the July 2 price of $19.57, so everything offered here is still pretty much up to date. Just reduce our exposure by about 1%. But this source shows the price for the past year, so we taxpayers may be in for more of a bath than what is offered here predicts.

    We taxpayers own a 26.5% stake in GM. Based on the July 2 price, we are out a whopping $16.6 billion. We own 500 million shares of GM, and those shares are now worth $9.8 billion.

    But wait, as they shout on TV, there’s more! Obama let GM keep $45 billion (book value $18 billion) in past losses (usually eliminated along with debts in bankruptcy) to offset future profits. So when GM earned a $7.6 billion profit in 2011, it paid NO taxes. Include that $18 billion gift, and taxpayers’ true loss climbs to nearly $35 billion.

    The share price would have to rise to about $53 before we could break even!

    But wait, there’s even more. In late February, 2012, GM bought a 7% stake in PSA Peugeot Citroën, a French company. So what, you ask. Now the incredibly inept policies of French president avowed socialist François Hollande are becoming quite personal. PSA Peugeot Citroën has a greater than 50% chance of debt default, even as Hollande said PSA Peugeot Citroën must renegotiate a plan to lay off 8,000 workers and to close a plant. Hollande said that PSA Peugeot Citroën must lessen its social impact, even as he acknowledged that PSA Peugeot Citroën is currently losing €200 million per month.

    And we all know what a winning investment the Chevy Volt has been, making absolutely no money, and costing us taxpayers hundreds of thousands of dollars each. In fact, GM has announced that it will assemble 2013 Impalas and Malibus at the underutilized Hamtramck assembly plant.

    GM recently announced a 60 day money back guarantee policy for all new Chevy models, including the Chevy Volt which receives a $7,500 tax subsidy. This buy back policy establishes a possible tax fraud situation. Will it happen? Only time will tell.

We can all see the obvious, that the Obama corporate investment strategy is based not on highest (or any) taxpayer money return, but on crony capitalism and political payback. I just don’t think we can afford another four years of his investment strategy.

But that’s just my opinion.

Please visit RWNO, my personal web site.

Student Loan Debt: Much Ado About Nothing

It is starting to get quite embarrassing for the Obama administration.  They’re trailing Romney in the polls, they’ve lost the edge with women, and his 2013 budget went down in flames in the Senate today with a final vote tally of 99-0. In the words of Sen. Minority Leader Mitch McConnell, “there’s no education in the second kick of a mule.”Not a single member of the president’s own party supports his budget and this pervasive campaign of self-martydrom should make everyone question Barry’s alleged political acumen.  His latest campaign to recapture the youth vote through anecdotes about his student loan debt will set the stage for another the next battle in the Hill that’s wholly irrelevant.

George Will aptly pointed out in his column that bipartisanship, the ideal that every American yearns to see with our political class, has created more problems that it has solved.

Since 2001, it has produced No Child Left Behind, a counterproductive federal intrusion into primary and secondary education; the McCain-Feingold speech rationing law (theBipartisan Campaign Reform Act); an unfunded prescription drug entitlement; troublemaking by Fannie Mae and Freddie Mac; government-directed capitalism from the Export-Import Bank; crony capitalism from energy subsidies; unseemly agriculture and transportation bills; continuous bailouts of an unreformed Postal Service; housing subsidies; subsidies for state and local governments; and many other bipartisan deeds, including most appropriations bills.

Now, with college debt becoming a salient issue, even though it’s minutae at the end of the day, Congress will haggle over the interest rate which is set to double by July 1.  Hence, the interest rate will increase from 3.4% to 6.8%.  It was cut in half only after the Democrats retook congress in the 2006 midterms and offered plan to subsidize the new rate by “disguising” the cost, as Will notes, as a $60 billion dollar program that now costs $6 billion a year would expire in five years.  Well, the grocery clerk is going to be sent to collect the bill.

In addition, the amount we’re about to fight over is a mere pittance compared to other areas of the federal budget that could be cut, reformed, or complexity dissolved.

The low 6.8 percent rate — private loans for students cost about 12 percent — was itself the result of a federal subsidy. And students have no collateral that can be repossessed in case they default, which 23 percent of those receiving the loans in question do. The maximum loan for third- and fourth-year students is $5,500 a year. The payment difference between 3.4 percent and 6.8 percent is less than $10 a month, so the “problem” involves less than 30 cents a day.

 Moreover, in a nation where the college-educated are grossly outnumbered, I agree with Will that if we are about to pump billions more into education subsidies; it should go to the underprivileged and minority students.  Although, I have my doubts about subsidies for anything.  Additionally, the overwhelmingly non-college educated taxpayers will be subsidizing a rate to keep their more fortunate citizens comfortable in college.  That just doesn’t make sense.   The unemployment rate for college graduates is below 5% and the average debt they leave with is around $25-30,000 dollars.  However, keeping in mind that the average college graduate earns $50,000 a year, it’s a highly manageable position.  Everyone is on a budget.  Nevertheless, we must keep vigilant on Republicans who could put up a soft defense, like George Bush, when this subsidy was first pitched to him five years ago.

MSM Carries Obama’s Water With UAW

 With his teleprompters present, on Tuesday, February 28, 2012, President Barack Hussein Obama attended a United Auto Workers (UAW) meeting in Washington DC. Obama’s speech, billed as a policy speech, was more like a campaign pep rally. Said Obama, “Some politicians even said we should ‘let Detroit go bankrupt!‘ You remember that?” But there is one little problem. While the November 18, 2008 New York Times op-ed was titled “Let Detroit Go Bankrupt,” Mitt Romney never said that. In fact, the Romney op-ed mentioned not a word about bankruptcy. Rather, it provided his thoughts on what the government bail-out should accomplish. Yet another example of Obama lying, playing to his audience, and the MSM covering for him.

While speaking at the UAW meeting, Obama made no mention of Delphi employees, how his bail-out deal caused thousands of non-union autoworkers to be thrown “under the bus.” Obama, when criticized that his bailout was a union payoff, said that all workers sacrificed to save the auto industry. He said, “Retirees saw a reduction in the health-care benefits they had earned. Many of you saw hours reduced, or pay and wages scaled back.” But upon further inspection, we see that the bail-out sacrifices were not distributed equally. Rather, they were redistributed politically. Consider these specific points:

  • Non-union pensioners who worked for Delphi, a GM auto-parts company, lost all of their health and life insurance benefits.
  • In the rush to nationalize the auto industry and avoid contested court termination proceedings, the White House auto team schemed with union officials to preserve UAW members’ pension funds.
  • Dealers and suppliers faced closures based on political connections and lobbying clout.
  • Bondholders were demonized personally by Obama as greedy and stingy, and while trying to protect their property and contractual rights, got cheated, got less than they invested.

Meanwhile, Timothy Geithner served simultaneously as co-chair of the Auto Task Force, board member of the Pension Benefit Guaranty Corporation (PBCG, the federal agency overseeing pension payments to bankrupt companies) and treasury secretary. Let’s see… Geithner was on Obama’s Auto Task Force that saved union jobs, the PBCG that saved UAW pensions, and Geithner’s Treasury Department and General Motors (GM) closely coordinated their public relations strategy and collaborated on making fraudulent claims about GM repaying all of its government loans. Can anyone say “conflict of interest?”

But the larger question is, “Where is the MSM?” Why were not any of these facts, especially the plight of the non-union Delphi employees, reported? Why did the MSM not call Obama on his lying, or at least mention that Romney’s op-ed said nothing about letting Detroit go bankrupt? They portrayed Obama’s bail-out as a success story, never mentioning any of the people and companies who were hurt.

But that’s just my opinion.

SAAB: Symptom Of A Bailout Culture

SAAB Automobile AB announced today that, for the sixth month in a row, they can’t meet payroll.

The backstory for this American audience: Saab first announced difficulties paying its employees in April. The employees (better-known in socialist speak as “workers”) ceased working, and have been collecting government unemployment benefits equal to their full salaries ever since.

Saab’s financial difficulties began in the late 1988, when the company reported a loss for the year. The company failed to turn a profit in 1989. In 1990, 51% of Saab’s car division was sold to General Motors..

GM’s mismanagement of Saab paralleled GM’s mismanagement of itself: Saab made a substantial profit only one year of the 1990s- in 1995, with excellent European sales of a newly-redesigned Saab 900 launched the previous year. Despite mediocre sales, GM decided to acquire the remaining Saab shares in 2000.

From 2000 to current, Saab has only made a profit in one year: 2001.

Saab’s underperformance worsened in recent years, trending with the rest of the world’s economic downturn.

In 2009, Saab appealed to Swedish courts to be separated from General Motors ownership. Among the issues cited: GM had, for years, been reporting Saab-brand sales as GM-brand sales. This effort failed, but Saab was eventually sold to Spyker Automotive in 2010. Among the condition of the sale were loan guarantees from the Swedish government to Saab. The Swedish government stated that Saab was too important to Sweden’s economy to fail.

The Swedish government itself is partly to blame for Saab’s financial troubles: under Swedish law, once an employer hires an employee, the employer must continually employ that person until the employee resigns, commits misconduct, or the company declares bankruptcy. Layoffs for ‘just cause’ due to insolvency require government approval and mandatory negotiation with the employees’ union representation. In other words, layoffs are illegal in Sweden unless approved by the employees’ union and the government.

Another government issue for Saab: The burden of payroll taxes imposed on employers. Saab reportedly owes employees $5.5 million in salary for the month of November, and owes the Swedish government approximately $10-15 million- two to three times its payroll– in payroll taxes and ‘social fees’ to the Swedish government for the same period.

So let’s review: Saab has been a money-loss for more than two decades, but because it’s “too big to fail”, it’s been propped up with government loan guarantees and subsidies. Government regulations and government taxes and fees- used to fund the Swedish government’s social programs- have been crushing the profitability of this company. And collusion between the Swedish government and labor unions have prevented Saab from taking reasonable steps to manage expenses.

Sound familiar, anyone?