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Obama's America: Too Fat to Fail
The age of the induced industrial coma.
Studebaker, Nash-Kelvinator, Packard, Hudson, Stutz, Pierce-Arrow, Stanley, Checker and American Motors were once household names of the U.S. auto industry. Unlike General Motors in our time, they were not too big to fail. Despite mergers and rescue efforts by their owners, each was shut down. Their legacy lives on as classic cars, restored with erotic affection by collectors.
GM's end is different. In the spirit of the new age, General Motors, like Citigroup and AIG, will be kept alive in an industrial coma. One has to ask: Is this where the entire country is headed? Since January, it looks like it is.
After GM's bondholders last weekend refused to answer the bell for another round with Uncle Sam, the White House put out a statement: "As a result, the President has deemed GM's plan viable and will be making available about $30 billion of additional federal assistance to support GM's restructuring plan."
Read that sentence again, slowly. It holds what look like the keywords of the American future: the president, deems, viable, making available, federal assistance, support, restructuring plan.
In May 1970, Penn Central Railroad, then on the verge of bankruptcy, appealed to the Federal Reserve for aid on the grounds that it provided crucial national defense transportation services. The Nixon administration and the Federal Reserve supported providing financial assistance to Penn Central, but Congress refused to adopt the measure. Penn Central declared bankruptcy on June 21, 1970, which freed the corporation from its commercial paper obligations. To counteract the devastating ripple effects to the money market, the Federal Reserve Board told commercial banks it would provide the reserves needed to allow them to meet the credit needs of their customers.
In 1971, the government provided $676.3 million in loan guarantees. In 1976, the federal government consolidated the still struggling Penn Central with five other railroad companies that were also failing to form Consolidated Rail, or Conrail. The government spent $19.7 billion, including roughly $7.7 billion for the initial investment, to keep Conrail operating. By 1981, Conrail began to earn a profit. The government sold Conrail in 1987 for $3.1 billion. In addition to the sale price, the Treasury received a $579 million dividend from Conrail.
In August 1971, Congress passed the Emergency Loan Guarantee Act, which could provide funds to any major business enterprise in crisis. Lockheed was the first recipient. Its failure would have meant significant job loss in California, a loss to the GNP and an impact on national defense.
By 1977, Lockheed had paid off its loans, and its dependency on the federal loan guarantees came to an end. The government earned about $112.22 million in loan fees.
In the first five months of 1974 the bank lost $63.6 million. The Federal Reserve stepped in with a loan of $1.75 billion.
As the story behind Franklin National's failure unfolded, evidence emerged of corruption and shady business practices among the bank's executives -- several were eventually convicted. With the need for further intervention apparent, the FDIC stepped in as receiver that same year and sold Franklin National's104 branches and other assets to European American Bank. By 1981 the FDIC had sold Franklin assets worth about $5.1 billion. The agency was still owed another $185.3 million in interest.
In 1979 Chrysler suffered a loss of $1.1 billion. That year the corporation requested aid from the government. In 1980 the Chrysler Loan Guarantee Act was passed, which provided $1.5 billion in loans to rescue Chrysler from insolvency. In addition, the government's aid was to be matched by U.S. and foreign banks.
Until 1986, the government continued using loan guarantees and direct loans to support the fiscally-troubled city. All the loans, loan premiums and fees have since been repaid.
Then the nation's eighth largest bank, Continental Illinois had suffered significant losses after purchasing $1 billion in energy loans from the failed Penn Square Bank of Oklahoma. The FDIC and Federal Reserve devised a plan to rescue the bank that included replacing the bank's top executives.
It took the FDIC seven years to completely divest itself of Continental Illinois -- the bailout plan had given the government 80 percent ownership over the bank -- through the gradual sale of its share holdings. By 1991, Continental Illinois had been returned to the private sector, but the FDIC had suffered a $1.8 billion loss. Three years later BankAmerica Corp. acquired the bank.
After the widespread failure of savings and loan institutions, President George H. W. Bush signed and Congress enacted the Financial Institutions Reform Recovery and Enforcement Act in 1989.
The Financial Institutions Reform Recovery and Enforcement Act authorized $293.8 billion dollars to finance the folding of numerous failed S&Ls. The final tab for the bailout was roughly $220.32 billion. Of that total, taxpayers were responsible for about $178.56 billion; the private sector covered the rest.
The S&L bailouts did not include government ownership stakes in those banks, and government management of their day to day operations.
This is more like Amtrak, which sucks taxpayer monies and contributes nothing to American industrial leadership.
Barack Obama tells GM exactly what to do. Barack Obama tells Chrysler exactly what to do. He fires executives, closes dealerships, handpicks management, makes decisions on product lines.
He will do this with the healthcare industry unless he is stopped.
He is a marxist who believes government should do these things. And he is.
