Obama’s Federal Spending Freeze, Cut in Corp. Taxes and Inevitable Bailouts

Will Obama shoot down his own financial and health reforms by underfunding the agencies responsible for writing and implementing the new regulations required by the health care reform and financial reform legislation if the federal budget is held to today’s levels as seemingly required by Obama’s call for a five-year federal spending freeze? Definitely worth following.

Claims that Obama will need to raise one billion dollars to fund his 2012 Presidential campaign when coupled with assertions that the majority of his 2008 campaign financing came not from individuals but by corporations, sometimes in the form of many small donations ‘disguised’ to look like donations from individuals (which LSW can not confirm was the case) could be one reason Obama has called for a cut in the U.S. corporate income tax rate. The effect on governing exerted by the need for large corporate campaign donations in whatever form bears watching.

NPR talked to Neil Barofsky, the special inspector general of the Troubled Asset Relief Program who dropped several hair raising comments on the poor unwitting NPR reporter, to wit:

Asked if more bailouts are inevitable, Barofsky said:

“Well, it’s not just me saying it. It was really information that was provided to us by Secretary Geithner in an interview that we did with him in December with respect to a recent audit. And the problem is that the notion of too big to fail – these large financial institutions that were just too big to allow them to go under – since the 2008 bailouts, they’ve only gotten bigger and bigger, more concentrated, larger in size. And what’s really discouraging is that if you look at how the market treats them, it treats them as if they’re going to get a government bailout, which destroys market discipline and really puts us in a very dangerous place.”

He says that rating agencies and investors assume that the Federal government will bail out failing financial institutions.

“Recently, just this past month, S&P, one of the largest of the rating agencies, did something remarkable. They said that they’re intending to change their rating methodology to make it a permanent assumption that the government will bailout (technical difficulties) the largest institutions, give those banks higher ratings. Which means they’re going to be able to borrow money more cheaply. They’re going to be able to access credit and capital and debt more easily.”

Asked if the Dodd-Frank Act does not provide the tools to break apart failing companies so that we won’t get to the point where companies are failing, as the Treasury dept. asserts, Barofsky said:

” I think there’s two real important points on this. One is, while they may have the tools, they haven’t given us a structure and suggested how they’re going to use those tools. And it’s going to require a lot of regulatory will and a lot of political will to use them in a way to rein in these banks.

But second – and this is equally as important. It really doesn’t matter unless they can convince the market that they’re going to be able to rein these banks in and let one fail. Because even if they have all the tools in the world, if the market believes the government will bailout these institutions, then all of the disastrous consequences that flow – the banks getting bigger, they’re not being disciplined, investors – all the dangers that you put out, investors putting money in without doing their homework because of the assumption that the bailout will continue, and the banks will continue to get bigger and bigger.

Seems that no one is minding the store, or that the foxes are guarding the hen house. Sometimes one feels that one should withdraw every penny and head for the hills. Or vote in people who will take charge of the situation, penalize the thieves, do away with toxic financial institutions, and work to remove the role of money from the U.S. political system.

Dream on? Head for the hills.

Leave a Reply




You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>