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Archive for April 24th, 2010

Any company that steals money from taxpayers is despicable, but General Motors is especially reprehensible for dishonesty. Taking money from the left pockets of taxpayers and putting it in our right pockets is not a repayment, as explained by Shikha Dalmia in a column for Forbes.com. Her most important observation, after churning through the numbers, is that “GM is using government money to pay back government money to get more government money.” Even politicians would be reluctant to tell the kind of bold-faced lie that GM’s CEO is peddling to the nation. The only appropriate response from every moral person is to boycott this sleazy and corrupt company. Fortunately, some members of Congress are aware of GM’s scam, as reported by Foxnews.com:

A top Senate Republican on Thursday accused the Obama administration of misleading taxpayers about General Motors’ loan repayment, saying the struggling auto giant was only able to repay its bailout money by dipping into a separate pot of bailout money. Sen. Chuck Grassley’s charge was backed up by the inspector general for the bailout — also known as the Trouble Asset Relief Program, or TARP. Watchdog Neil Barofsky told Fox News, as well as the Senate Finance Committee, that General Motors used bailout money to pay back the federal government. …Vice President Biden on Wednesday called the GM repayment a “huge accomplishment.” But Barofsky told Fox News that while it’s “somewhat good news,” there’s a big catch. “I think the one thing that a lot of people overlook with this is where they got the money to pay back the loan. And it isn’t from earnings. … It’s actually from another pool of TARP money that they’ve already received,” he said Wednesday. “I don’t think we should exaggerate it too much. Remember that the source of this money is just other TARP money.”

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I get a lot of email asking me about Greece, especially since I don’t give the issue much attention on the blog. I am paying close attention to what’s happening, especially since Greece is a canary in the coal mine. But I generally try to avoid being repetitious, and anything I say now would replicate what I said in my initial blog post in February. Simply stated, if you subsidize bad behavior, you get more bad behavrior. But now that a bailout request is official, I suppose some additional commentary is appropriate. The editorial page of today’s Wall Street Journal has some solid analysis on how rewarding Greece will exacerbate rather than solve Europe’s fiscal problems:

…a bailout would, of course, end nothing. What it would do instead is open a wide new world of moral hazard—for Greece, for the countries providing aid, and for the future of the entire euro-zone. The Greek government has played the victim for all it’s worth over the past several months, insisting that the same credit markets that finance its extravagant spending were charging too much in interest. But on Thursday, following another upward revision to its budget deficit, bond yields soared and forced Mr. Papandreou’s capitulation. … a bailout comes with baleful consequences for the entire euro-zone. Further austerity demanded as a quid pro quo might take some domestic political heat off Mr. Papandreou, but the IMF’s policy history does not bode well for future economic growth. The EU countries expected to shell out €30 billion for Greece have their own debt challenges. If Greece is bailed out, the markets will rightly conclude that a line has been crossed, and that Portugal and even Spain will be rescued too. Even the Germans don’t have that much money. …Mr. Schäuble is so worried about Berlin’s finances that he opposes tax cuts for Germans, but he nonetheless wants to bail out a spendthrift Greece. …Greece represents only 2% of euro-zone GDP. While European banks would take losses on any Greek debt restructuring, those losses would not by themselves be catastrophic. But that wouldn’t be true if the sovereign debt panic spreads to Portugal and Spain. Far better for the EU to draw the line now, force Greece and its creditors to take their pain, and demonstrate to markets that there won’t be a rolling series of bailouts. To adapt Mr. Schäuble’s Lehman analogy, better to stop the moral hazard at Bear Stearns, lest Spain become Lehman Brothers.

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