Newt Gingrich - TARP and GM
Summary
Congressman Gingrich opposed the proposed bailout of GM that failed and the use of TARP funds to provide a loan to GM. He was highly critical of the intervention of the federal government into the bankruptcy procedure and the skewing of the bankruptcy settlement to favor the labor unions over the legally entitled shareholders.
Crony Capitalism
In November of 2008, Congressman Gingrich issued an article for Human Events noting his opposition to a proposed bailout of GM and stating that Sarbanes-Oxely should apply to any bailout.
Crony Capitalism, Predatory Politicians, and the Detroit Three
by Newt Gingrich
11/18/2008There’s a term that’s commonly applied to the economic systems of some Asian and Latin American countries. It’s “crony capitalism.”
Crony capitalism is when government controls significant parts of the economy. Under this kind of bureaucratic micromanagement, politicians -- not the free market -- call the shots. And that means that the decisions that control the economy are of necessity political decisions, not economic ones.
Crony capitalism is bad for government. Economic power in the hands of politicians breeds corruption.
Crony capitalism is bad for democracy. Individuals and businesses outside favored industries have an unequal voice in self-government.
Crony capitalism is bad for business. Politicians wedded to the status quo stifle growth and innovation.
And there’s one more thing about crony capitalism: It’s come to America.
Predatory Politicians Practicing Crony Capitalism Created the Economic Crisis
It’s the nature of crony capitalism to expand -- for government to acquire more and more of the economy.
The agents of this expansion are elected officials. Call them “predatory politicians.”
Crony capitalism practiced by predatory politicians is at the root of the current financial meltdown.
In exchange for campaign cash and support for favored constituents, predatory politicians aided and abetted the government-backed Fannie Mae and Freddie Mac as they created and fed the subprime mortgage market.
Now Predatory Politicians Are About to Make It Worse
And to fix the mess they created, what have predatory politicians turned to? Why, more crony capitalism of course.
First, they designed Wall Street bailouts in which a former chairman of Goldman Sachs got a blank check to disburse hundreds of billions of dollars to his former colleagues on Wall Street.
Then they took over an insurance company at a hugely inflated cost.
Now predatory politicians want taxpayers to fund a bailout of three bloated, stagnant companies that have been losing money for years, one of which is currently hemorrhaging over $1 billion a month.
The Detroit Three: An Investment Only a Predatory Politician Would Propose
To reward the unions that helped produce its electoral victory, the newly empowered Democratic Congress is proposing that American taxpayers pony up $25 billion to bail out the Detroit Three automakers, Ford, GM and Chrysler.
Democrats are using the current financial crisis as their excuse to bailout the autos. But in fact, the Detroit three were unprofitable long before the current crisis hit.
According to one economist, GM and Ford made more money-losing investments in the 1980s than any other U.S. companies. And the Detroit money pit only got deeper in the ensuing two decades. Since 1998, GM has been losing an astonishing $1.5 billion a month.
That’s an investment only a predatory politician would propose.
Bringing Fannie and Freddie Style Accountability to the Auto Industry
One of the things that makes crony capitalism so profitable for politicians is that Washington exempts itself from the economic and financial rules it imposes on private industry.
For example, in 2003, federal regulators discovered that Fannie Mae and Freddie Mac had engaged in Enron-style accounting fraud. But while executives at private companies who engaged in similar fraud went to prison -- and Congress responded by imposing the draconian and business-killing Sarbanes-Oxley bill on private businesses -- Fannie and Freddie executives barely received a slap on the wrist.
One of the reasons was House Financial Services Committee Chairman Barney Frank (D-Mass.). Frank fought tenaciously against the regulation that would have held Fannie and Freddie executives accountable and might have averted the financial crisis.
Now Chairman Frank wants to bring his particular style of crony capitalism to the auto industry.
Any Detroit Bailout Government Board Should Be Subject To Sarbanes-Oxley
On “Face the Nation” this Sunday, Chairman Frank announced that not only would he push for a taxpayer bailout of the Detroit Three during the special session of Congress this week, but he would also create a government oversight board for the three companies -- in effect, a board of directors made up of predatory politicians.
I believe that it would be a mistake for the taxpayers to be forced to bail out Detroit. Companies at which union workers make $71 an hour in wages and benefits -- compared to just $47 an hour at Toyota’s U.S. plants -- are not going to be saved by a $25 billion government check.
But if Democrats do find the votes to bring crony capitalism to Detroit, Americans should at the very least insist that any government board of directors created for the auto industry be subject to the criminal penalties and lengthy prison sentences in Sarbanes-Oxley.
What’s fair for the rest of us is fair for predatory politicians.
A Chance For President-Elect Obama to Deliver Real Change
The solution to our economic problems, be they in Detroit or on Wall Street, isn’t more crony capitalism; it’s economic growth.
While politicians in Washington are constantly calling on taxpayers to put up more and more money to bail out flagging businesses, there are practical things that wouldn't cost the taxpayers a penny that we could do to make America a better place to create jobs.
One of these things is to repeal Sarbanes-Oxley. As my wife Callista and I outline in more detail in this video, Sarbanes-Oxley has had the unintended consequences of stifling innovation, killing new business start-ups and driving listings overseas.
President-elect Obama won an historic victory two weeks ago on the promise of delivering change to the American people. Bailing out the Detroit auto dinosaurs is not change. It is crony capitalism in service of a failed status quo.
President-elect Obama should stand up to congressional Democrats and say “no” -- “no” to saddling future generations of Americans with the bill for today’s crony capitalism.
That would be change we could believe in.
American Solutions Video
In December of 2008, Congressman Gingrich made a video with his wife for American Solutions. The video noted several letters from people who opposed the proposed bailout of the auto industry.
Call it a Scandal
In June of 2009, Congressman Gingrich wrote an article for Human Events noting the facets of the GM bankruptcy that would constitute a scandal had they happened without the government's involvement. However, since the government was the one performing the questionable actions, they are overlooked. He compares the labor unions support for Democrats with their generous settlement from the bankruptcy.
Once, We Would Have Called It a Scandal
by Newt Gingrich
06/10/2009There was a time when we would have called it a scandal.
In 1921, oil tycoon Harry Sinclair gave several prize head of cattle and around $269,000 to President Harding’s Secretary of the Interior, Albert Fall.
In return, Sinclair got the exclusive rights to drill in an oil field in Wyoming. Sinclair’s no-bid contract became the Teapot Dome scandal, the most notorious example of political corruption in America prior to Watergate.
Between 2000 and 2008, the United Auto Workers (UAW) union gave $23,675,562 to the Democratic Party and its candidates.
In 2008 alone, the UAW gave $4,161,567 to the Democratic Party, including Barack Obama.
In return, the UAW received 55 percent of Chrysler and 17.5 percent of GM, plus billions of dollars.
But nobody’s calling this a scandal. It’s time we start.
2000-2008 UAW Giving: $23.7 million to Democrats. $193,540 to Republicans
The almost $24,000,000 the UAW has given to Democrats since 2000 compares with the $193,540 the union has given to Republicans.
In the 2008 presidential election, President Obama was by far the biggest recipient of UAW contributions, raking in $27,340 compared to the $10,600 given to Hillary Clinton, the No. 2 recipient of UAW money.
And so it was no surprise to the cynical Washington political class when the payback began with the Chrysler bankruptcy.
In a rigged proceeding in which the federal government disregarded bankruptcy law in favor of the political outcome it desired, the Chrysler bankruptcy laid the predicate for the much larger General Motors bankruptcy to come. Against law and precedent, the unions were moved to the front of the line when it came to who would benefit from the bankruptcy.
The Obama Treasury Department strong-armed Chrysler’s creditors into a deal in which the UAW was given 55 percent ownership of the company while Chrysler’s secured creditors – investors who would have received priority in a non-political bankruptcy proceeding – were left with just 29 cents on the dollar.
On Monday, the Supreme Court Delayed the Completion of the Chrysler Bankruptcy
Some of these secured creditors, led by a group of Indiana retirement funds, are fighting back. They’ve charged in court that the Chrysler bankruptcy violated the bankruptcy laws and violated their rights as senior lenders.
On Monday, the Supreme Court put a hold on the Chrysler bankruptcy to hear their case.
We don’t yet know which way the high court will rule, or if it will rule at all. But we do know what’s at stake. Indiana State Treasurer Richard Mourdock put it well:
“The issue of secured creditors’ rights is bigger than Chrysler. It’s an essential foundation of our capital markets. And fundamentally, this is about the law.”
“Never Has an American Union Done So Well At the Expense of Shareholders and Creditors”
But the Chrysler bankruptcy was just prelude to the Obama-Administration-brokered General Motors bankruptcy deal announced last week.
The GM deal is yet another example of rank, taxpayer-financed political favoritism.
Once again, the big losers are GM’s bondholders, who include substitute teachers in Florida and retired tool and dye supervisors in Michigan. They hold $27 billion in GM debt but are receiving a 10 percent stake in the new company.
In contrast, the UAW, which is owed about $20 billion from GM, is walking away with 17.5 percent of the company and a cool $9 billion in cash.
According to one analysis, while the bondholders will be lucky if they recover 15 cents on the dollar, the UAW can expect to recover up to 60 to 70 cents on the dollar – four to five times what the bondholders will receive.
As Barron’s Magazine wrote, “Never has an American union done so well at the expense of shareholders and creditors”.
“At a Time When Some American Workers are Facing Stiff Pay Cuts, UAW Workers Gave Up Their Customary Paid Holiday on Easter Monday”
Of course, the Obama Administration has assured us that the United Auto Workers has made “substantial concessions” as part of the bankruptcies that have literally saved the union from extinction.
But as no less than the Washington Post put it, the “union concessions were ‘painful’ only by the peculiar standards of Big Three labor relations: At a time when some American workers are facing stiff pay cuts, UAW workers gave up their customary paid holiday on Easter Monday and their right to overtime pay after less than 40 hours per week. They still get health benefits that are far better than those received by many American families upon whose tax money GM jobs now depend.”
Union members also preserved their right to have six unexcused absences from work before they can even be considered to be fired.
Can you feel the pain?
The Unions Have Been Rewarded With Ongoing Subsidization by the Taxpayers
It is a sign of the degree to which raw politics has dominated its handling of Chrysler and General Motors that the Obama Administration has a 31-year-old who has not yet graduated from law school determining the fate of two multi-billion dollar companies.
For their political support of the Democratic Party, the auto unions have been rewarded, not just with ownership stakes in two giant companies, but with ongoing protection and subsidization by the U.S. taxpayers.
The President has said repeatedly that he wants to get out of the auto business as soon as possible. But does anyone seriously believe that he would accept an arrangement in which GM becomes profitable at the expense of the union and its gold-plated benefits?
Having spent $50 billion to “save” GM and the UAW, does anyone really believe that the Obama Administration will now allow economics and not politics to dictate its future decisions?
In the GM and Chrysler bankruptcies, the Obama Administration has trampled on the rule of law.
It is using the taxpayers’ money to pay back a political group for its political contributions.
There was a time when we would have called that a scandal.
Sponsored and Cosponsored Legislation
This representative has not been identified as sponsoring or cosponsoring significant legislation related to this title.