United Liberty

In the State of the Union Address President Obama again attacked banks and proposed a special tax on those businesses because of the big bonuses they are giving out:

To recover the rest, I have proposed a fee on the biggest banks. I know Wall Street isn’t keen on this idea, but if these firms can afford to hand out big bonuses again, they can afford a modest fee to pay back the taxpayers who rescued them in their time of need.

Attacking banks for giving out big bonuses is simply ridiculous, and here’s five reasons why:

1) Unless you have ownership in the company, it shouldn’t matter to you
Let’s say that a company like Home Depot decides to pay out big bonuses to their managers. The only people who should be upset are the stock owners. These owners could have received some of this money as dividends but instead it was used to pay big bonuses to the managers. This should be the same concept related to the banks: their bonuses really have nothing to do with you, unless of course you are owner of the company stock.

2) But the taxpayers own part of the banks!
Yes it is true that we “bailed out” the banks. Here’s the problem: Americans should be upset at the government for being irresponsible with their money. If the manager of your investments put a high percentage of your cash into a company that was likely going to fail sometime soon, wouldn’t you be upset? That’s what our government did: bailed out failing companies. If anything your anger should be directed at our government for even MAKING us owners of these failing institutions.

My list of examples of the unintended consequences of government intervention in the marketplace gets longer and longer. This time, I’m going to point out the latest irony: Investment banking’s profitable last quarter.

This would be wonderful news if it were genuine, but looking a little deeper reveals the truth. First, in one of Barron’s feature articles by Andrew Bary, we learn about a little-discussed fact: Goldman Sachs has only been able to issue low-cost debt due to the backing of the FDIC through a program called the TLGP, or Temporary Liquidity Guarantee Program.

This week has featured a lot of discussion on AIG. There is widespread outrage over the payments of bonuses to employees. There is finger-pointing and flip-flopping regarding who knew what and when in regards to the bonuses. We have the House and the Senate proposing and passing legislation to address the bonus issue. AIG CEO Edward Liddy testified before the House Financial Services subcommittee on Capital Markets. Obama and team have been making statements which appear, at times, to be inconsistent… I’m pretty much spent on the issue, but will offer my thoughts.

I can’t claim to be the origin of the Fed Credit Bubble idea, because it occurred to me as I read a fantastic piece by one of my favorite analysts, Doug Noland of Prudent Bear.

We’ve just come out of a huge bubble that consisted of inflated real estate investment and speculative finance credit. The bubble burst and the market began to correct itself, menacing to take a lot of nations’ economies with it.

Quotes from Andrew Malcolm’s take on this video:

Here’s how silly Ron Paul is: He set a budget for his campaign and lived within it. Flew commercial.In fact, he ended with no deficit, which is how he thinks the federal government should operate. In point of fact, Paul ended his campaign with a surplus. Can you imagine anything so silly in this day and age?

Paul warned all during his campaign about a looming economic disaster if government just kept growing and growing and printing more money like Republicans and Democrats wanted.

Though it’s not really surprising, Washington has announced that the initial AIG bailout will be almost twice what it was originally.