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    Cesspool of Crony Capitalism

    12/14/2010

    

    A Predictable and Stable Legal Order

    A government with moral and legal authority promulgates written rules and universally, impartially and uniformly enforces the rules, which provides a predictable and stable legal order on which to base economic and personal decisions.  The law prevails, not the proclamation or arbitrary decision of a ruler, government bureaucrat, the enforcer (e.g., policeman) or judge.

     

    Cesspool of Crony Capitalism

    In the bailout of General Motors (GM), investors throughout the world witnessed the federal government arbitrarily wiped out secured bond holders and bestowed stock to the United Auto Workers (UAW). Recently, General Motors had an initial public offering (IPO) of the GM stock.  Gary Jason in the American Thinker reports on what the IPO revealed:

    First is the news that the "new" GM walked away from the crony bankruptcy proceedings with a huge tax break -- one worth up to $45 billion. 

    Normally, a company coming out of bankruptcy is not allowed to offset past losses against future profits.  The Obama Administration made an exception with the bailouts.

    Thus, the new GM will save about $45.4 billion in taxes on future earnings, which may allow it to escape taxes for the next twenty years.  This "tax-loss carry-forward" is a huge plum, an asset most of GM's rivals don't have, and one that no doubt led to its artificially high IPO stock price.

    The UAW sold about 30% of their Obama-gifted stock in the IPO and received $3.4 billion.  If they sell their remaining shares at $36 a share the UAW will have enough money to fully pay all of their promised pension and health care benefits.  Bluntly, this has the stench of Chicago-gangster politics.  GM was bankrupt.  The UAW was destined to be destroyed.  The Federal Government forced the American people to bailout GM, wiped out secured bond holders and gave stock to UAW.  It pays to have political cronies in power.

    Tragically, this Chicago stench is rancid.  Jason explains:

     In fact, the Obama administration screwed the taxpayer just as thoroughly as it pampered the UAW.  The taxpayer put $49.5 billion into GM in the bankruptcy, not to mention all the funds shoveled at the company prior to that.  The Treasury recouped only a wretched $13.7 billion in the IPO, mainly because the Obama administration -- in yet another unprecedented gift to the union -- announced publicly that it would not sell any more stock for the next six months.  This enables the UAW to dump its shares whenever it wants at a much higher price than it could get if the Treasury were also selling.  The taxpayers will almost certainly get a lower payout, and they will never recoup their forced investment in these dinosaurs -- all to enable the UAW to walk away made whole.

    This is despicable and wrecking the American economy.  Because of this episode and the power politics of the Obama Administration investors in America and throughout the world are afraid to invest. In America alone, approximately $3 trillion dollars is being hoarded by the public - small businesses, big businesses and banks because they don’t trust the government to provide a stable and predictable legal order. 

    A stable and predictable legal order is the essence of America and what made America exceptional and prosperous.  America protected people’s investments better than another country in history.  Every American and foreigner is treated equally in a court of law.  In the 19th Century, the poor flocked to America where aristocrats and royalty could not arbitrarily take their property.  In the 20th Century, investors throughout the world invested their money in America.  Recently, a powerful example is China’s investment in America treasury bonds.  Why?  Their investment is best protected in America. Everyone is equal before an independent judiciary.  

    This crony Chicago-politics must halt.  For America to remain exceptional and prosperous, the government must universally, impartially and uniformly enforce the rules.  Essential, government must provide a predictable and stable legal order on which to base economic and personal decisions.  

    If the federal government continues to play crony politics with big banks, unions, insurance companies and other entities our decline is inevitable.  Investors will seek other countries for protection and America will be another former prosperous country.