Ron Paul - TARP and GM

Summary

Congressman Paul opposed the GM loan, and other actions to assist the company through the TARP legislation. He has stated that he opposes all bailouts. He notes that debt cannot ever be truly dismissed, it is merely passed from one entity to the other. In this case, the debt is passed to the taxpayers. Congressman Paul also states that Congress bears some responsibility for the condition at GM as they have created a poor monetary policy and established too much regulation on the auto industry. He states that Congress lacks the constitutional authority to allocate money from the taxpayers to the auto industry.

The Bailout Surge

In November of 2008, Congressman Paul used his "Texas Talk" address to the possible bailout of GM and Chrysler.

The Bailout Surge

This week the bailout of the Big Three automakers was under heavy consideration in Congress’s lame duck session. I have always opposed government bailouts of private organizations. Back in 1979 Congress had hearings about bailing out Chrysler and I was on record pointing out that these types of policies are foolish and very damaging to the long term economic health of our country. They still are.

There was also renewed pressure this week to bailout homeowners and send another round of stimulus checks to “Main Street” to balance out all the handouts to big business. It seems that eventually the entire economy is going to be blanketed over with Federal Reserve notes. Most in Washington are completely oblivious as to why this model of money creation and spending is so dangerous.

We must remember that governments do not produce anything. Their only resources come from producers in the economy through such means as inflation and taxation. The government has an obligation to be good stewards of these resources. In bailing out failing companies, they are confiscating money from productive members of the economy and giving it to failing ones. By sustaining companies with obsolete or unsustainable business models, the government prevents their resources from being liquidated and made available to other companies that can put them to better, more productive use. An essential element of a healthy free market, is that both success and failure must be permitted to happen when they are earned. But instead with a bailout, the rewards are reversed – the proceeds from successful entities are given to failing ones. How this is supposed to be good for our economy is beyond me.

With each bailout we hear rhetoric that this is the mother of all bailouts. This will fix the problem once and for all, and that this is absolutely necessary to avert disaster. This sense of panic squeezes astonishing amounts of dollars out of reluctant but hopeful legislators, who hate the position they are being put in, but are relieved that it will be the last time. It is never the last time, and again and again we are faced with the same scenarios and the same fears. We are already in the bailout business for such a staggering amount that admitting it was wrong in the first place would be too embarrassing. So the commitment to this course of action is only irrationally escalated, in the hopes that somehow, someway eventually it will work and those in power won’t have to admit they were wrong.

It won’t work. It can’t work. We need to cut our losses and get back on course. There is too much at stake for too many people to continue down this road. The bailouts thus far to AIG, Bear Stearns, Fannie and Freddie, and TARP funds amount to around $1.5 trillion. Considering our GDP is $14 trillion, and our Federal budget is already $3 trillion, this additional amount will significantly eat into our future lifestyles. That amounts to an extra $5,000 that every person in the country needs to somehow produce just to keep up. It is obvious to most Americans that we need to reject corporate cronyism, and allow the natural regulations and incentives of the free market to pick the winners and losers in our economy, not the whims of bureaucrats and politicians.

Floor Speech in Opposition

On December 10, 2008 Congressman Paul spoke on the House floor concerning his opposition to the proposed loan to GM and Chrysler.

Mr. Speaker, I rise in opposition to this bill. It doesn't make a whole lot of sense. But I am concerned that we are narrowed down on a problem of the car industry, which is a significant problem, but we are dealing with $15 billion here. But if you look at the grand problem we have, it is much, much bigger, and it seems like we don't pay much attention to it.

The problems that we are facing today and the problems that we have been trying to solve in these last 6 months were predictable. It had been building for a good many years. We can date it back to 1971. We have had a financial bubble building, so there were many who predicted that the climax would be exactly as we are witnessing.

But we don't seem to want to go back and find out how financial bubbles form and why they burst. Instead, we just carry on doing the same old thing and never look back. We spend more money, we run up more debt, we print more money, and we think that is going to solve the problem that was created by spending too much money, running up debt, printing too much money. And here we are today, we are talking about tinkering on the edges without dealing with the big problem.

The Federal Reserve has literally created over $2 trillion here in the last several months, at least in obligations, and that is outside the realm of the Congress. We don't even audit the Federal Reserve. They create this money, and when the Fed Chairman comes before our committee and we ask, well, where did you dispose of this $2 trillion that you have created recently, he says well, it is not your business. That is not necessary. Under the law, he doesn't even have to tell us.

So this is how out of control our problem is. Sure, there is a lot of debt in the economy, and once a government or a corporation gets an excessive amount of debt, it is never paid for. So, yes, we can transfer the debt to others.

We are dealing with only finding victims. We cannot get rid of the debt, whether it is our national debt or whether it is corporate debt, but we have to put it on somebody else. We need to look at the cause of these bubbles, and it has to do with monetary policy and the Federal Reserve system.

Mr. Speaker, no one can deny that Congress bears much culpability for the current condition of the United States auto industry, and therefore Congress should act to help that industry. We should be repealing costly regulations we have imposed on domestic auto manufactures. Congress should also be considering legislation like H.R. 7273 and H.R. 7278, which reduces taxes on American consumers to make it easier for them to purchase American automobiles.

Unfortunately, instead of repealing regulations and cutting taxes, Congress is nationalizing the automakers by giving them access to $14 billion of taxpayer funds in return for giving the federal government control over the management of these firms. Mr. Speaker, the federal government has neither the competence nor the constitutional authority to tell private companies, such as automakers, how to run their businesses. Yet, the bailout proposal forces automobile manufacturers to submit their business plans for the approval of a federal ``car czar.'' This czar will not only have the authority to approve the automakers' restructuring plan, but will also monitor implementation of the plans. The czar will also be able to stop transactions that are ``inconsistent with the companies' long-term viability.'' Of course, the czar has the sole authority to determine what transactions are ``inconsistent with the companies' long-term viability.''

I would have thought that failed experiments with central planning and government control of business that wrought so much harm in the last century would have taught my colleagues the folly of making businesses obey politicians and bureaucrats instead of heeding the wishes of consumers, employees, and stockholders.

The alternative proposal is less costly to the taxpayer; therefore I will vote for it if offered as a motion to recommit. However, I am troubled that the proposal endorses the notion that the federal government should play both a financial and managerial role in restoring the American automobile industry. Mr. Speaker, it is a shame that we are not given a chance to vote for a true free-market approach; instead we are asked to choose between two types of government interference with the market.

Providing this $14 billion in loan guarantees will contribute to the already fragile economy by increasing the federal debt and thus creating either increased inflation or increased taxes. Mr. Speaker, I ask my colleagues to consider how many businesses will not be started, jobs will not be created, and consumer desires will remain unfulfilled because the resources to start those business and create those jobs were taken from the private sector for the auto bailout. I urge my colleagues to reject this unconstitutional bill that will further the growth of government and damage the American economy. Instead, Congress should help the American auto industry, and all American business, by cutting taxes and regulations

Update on GM Bailout

In December of 2008, Congressman Paul issued a web address to discuss the progress of the GM bailout. He notes that while the bill has passed the House, it will have difficulty in the Senate. Congressman Paul then discusses the nationalization of numerous industries in the past six months.

Nationalization of Industry

In December of 2008, Congressman Paul spoke on the House floor about the nationalization of industries through the bailout process.

GM, Amtrak, and TARP

In June of 2009, Congressman Paul used his "Texas Talk" address to the GM bailout.

GM, Amtrak and an Increasingly Fascist America

Last week, General Motors finally declared bankruptcy. Many in government thought $20 billion in taxpayer dollars would save the company, but as predicted, it only postponed the inevitable. The government will dump another $30 billion into GM and take a 60 percent controlling interest for it. Public officials are now involving themselves in tactical business decisions such as where GM’s headquarters should move and what kind of cars it will build.

The promise that this is temporary and will eventually be profitable is supposed to ease the American people into accepting this arrangement, but it is of little comfort to those who remember similar promises when the American taxpayers bought Amtrak. After three years, government was supposed to be out of the passenger rail business. 40 years and billions of dollars later, the government is still operating Amtrak at a loss, despite the fact that they have created a monopoly by making it illegal to compete with Amtrak. Imagine what they can now do to what is left of the great American auto industry!

In a truly free market, GM would get your money one way and one way only – by selling you a car you want, at a price you are willing to pay. Instead, the government is giving public money to a private company in spite of the market signals it has been sending. Throwing money at GM does not stop it from being an engine of wealth destruction; on the contrary, it simply gives it more wealth to destroy.

Had it been allowed to fail naturally, the profitable pieces of GM would have been bought up and put to good use by now. The laid off employees would likely have found new jobs and all that capital would be in private hands, reinvested in companies that produce products demanded by consumers. Instead, we are all poorer now.

Political pressure, rather than the rule of law, is deciding how to divide up the remains of GM. The bondholders had billions in retirement savings invested in the company, and though they were entitled to nearly three times as much as the United Auto Workers, the bondholders were left with just a 10 percent stake compared to the union’s 17.5 percent stake. For their 60 percent stake, taxpayers have a future of constant bailouts to look forward to.

Comingling public control of private business is known as fascism. While today’s politicians may feel emboldened with all their new power, history will only repeat itself as all this collapses on itself. It is the height of hubris for bureaucrats and politicians to attempt to control the market and the freewill of the American people. In the end, the market always wins out. Maybe one day future generations will wise up and allow free markets to function and thrive without the albatross of government around its neck. For now, it looks like those in charge have not learned the lessons of the past, and have doomed us to repeat those mistakes once again.

Voting Record

Auto Industry Financing and Restructuring Act

As the last vote in the 2008 session, the House passed the Auto Industry Financing and Restructuring Act. Although the legislation was not brought up for a vote in the Senate, it provided the blueprint for how Presidents Bush and Obama would later deal with GM. Ron Paul voted against the legislation to assist GM.

Sponsored and Cosponsored Legislation

This representative has not been identified as sponsoring or cosponsoring significant legislation related to this title.

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