STAFF NEWS & ANALYSIS
U.S. Seeks Expanded Power to Seize Firms
By - March 25, 2009

The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy, according to an administration document. The government at present has the authority to seize only banks. Giving the Treasury secretary authority over a broader range of companies would mark a significant shift from the existing model of financial regulation, which relies on independent agencies that are shielded from the political process. The Treasury secretary, a member of the president's Cabinet, would exercise the new powers in consultation with the White House, the Federal Reserve and other regulators, according to the document. The administration plans to send legislation to Capitol Hill this week. Sources cautioned that the details, including the Treasury's role, are still in flux. Treasury Secretary Timothy F. Geithner is set to argue for the new powers at a hearing today on Capitol Hill about the furor over bonuses paid to executives at American International Group, which the government has propped up with about $180 billion in federal aid. Administration officials have said that the proposed authority would have allowed them to seize AIG last fall and wind down its operations at less cost to taxpayers. – MSNBC

Dominant Social Theme: Vast new powers are needed.

Free-Market Analysis: America, once the constitutional, free-market "exception," is hustling toward giving its federal government vast new powers over the private marketplace.

Yet in our opinion, the program (excerpts above) seems flawed in numerous ways. First of all, who decides who is too big to fail? According to the legislation being considered the executive branch would do so in concert with the privately owned and controlled US Federal Reserve. That is an astonishing notion – that a private cartel would help the government decide what firms needed to be nationalized.

Second, what are the parameters that are going to be used? Inevitably, judgment calls will be made, and this is obviously a slippery slope, as who is to say that the American federal government will always use this power judiciously.

Finally, is this sort of activity going to stop here? Apparently not. The free-for-all is just beginning. Here's another story making the rounds:

U.S. bill seeks to rescue faltering newspapers – With many U.S. newspapers struggling to survive, a Democratic senator on Tuesday introduced a bill to help them by allowing newspaper companies to restructure as nonprofits with a variety of tax breaks. "This may not be the optimal choice for some major newspapers or corporate media chains but it should be an option for many newspapers that are struggling to stay afloat," said Senator Benjamin Cardin. A Cardin spokesman said the bill had yet to attract any co-sponsors, but had sparked plenty of interest within the media, which has seen plunging revenues and many journalist layoffs. (Reuters).

The American congress has played around with the media before. There is an ongoing move afoot, in fact, to create a two-tier media system emphasizing the journalistic bona fides of newspapers and demoting "bloggers" and Internet writers to second-class journo-citizenship. This movement has lost steam, but still exists and no doubt if Congress starts giving out tax exemptions to newspapers, it will gather strength again.

But beyond tax exemptions, there are all sorts of other possibilities for newspapers if they start to derive favors for the American congress. One need look no further than AIG to see why the private sector is loathe to deal with the public one. AIG was promised all sorts of goodies – and likely its bosses were assured that the bonus pool would not be an issue – and lo and behold only a few months after the initial government bailout, the entire federal legislature seems to be baying for its collective head.

What makes newspaper owners think that, having taken federal largesse of any sort, they would be immune to a trumped-up backlash? Just wait until some of these big media firms gain tax-exempt status. They are timid enough. Imagine how much second-guessing would be going on regarding publishing hard hitting articles if the threat of losing a non-profit exemption loomed.

The Obama administration is said to admire Abraham Lincoln but its obvious pattern is the reign of Franklin Delano Roosevelt who tried something similar to what Obama is doing now. At one point, using the justification of the Depression, Roosevelt tried to impose full-on price and wage controls that would have proscribed exactly what Americans could earn in a given field.

The National Industrial Recovery Act of 1933 promulgated thousands of regulations as to what various industries could and could not do – legislation that was written with the enthusiastic help of some of the nation's biggest business interests. The Supreme Court unanimously declared NIRA unconstitutional – after which Roosevelt promptly tried to pack the court by adding two additional justices that would no doubt have moved the court in his direction. He failed. But his activist efforts to reshape the private market of the American economy continued on, turning a series of recessions into one increasingly deep depression.

After Thoughts

There is some difference yet between what Obama is trying to do and what Roosevelt attempted. But the difference is only one of method, not motive. Obama is a go-slow kind of fellow, at least compared to Roosevelt. But he has no problem with wage and price controls – he is actively seeking them. And Obama has no problem demonizing private markets – he actively speaks out against them. The difference, thus far, is that only 10 percent of America is out of work, according to the government's somewhat untrustworthy figures. During the Great Depression, some 25 percent of Americans went unemployed. But give it time.

One disturbing thing about Obama's approach to stimulating the economy is that his efforts will likely retard economic growth and create the kind of stagflation that Japan suffered from for several decades, and America in the 1970s. This sort of financial malaise will give the current American administration even more opportunities to launch new "change" that will increasingly socialize America from the top-down.

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