Appointed Nevada Senator Dean Heller (R) has a problem because what you hear isn’t necessarily what you get. Senator Heller would have us believe his Image, without asking too many tricky questions, because there’s the Senator Heller who likes to play ‘moderate populist’ and then there’s the Senator Heller who has voted consistently on behalf of the American Bankers Association and the U.S. Chamber of Commerce, et. al. Here’s betting Heller version 2012 will include the following homey touches:
(1) I’m a good old common fella’ who doesn’t like those icky bailouts for the Big Boys.
Really? Senator Heller will repeatedly remind us ad nauseum that he voted against the TARP program and against the bridge loans for the automobile industry restructuring. He will lump them together as “bailouts” because this term gets a nice negative reaction among the focus groupies.
First, let’s remember what was happening in our financial markets in September and October of 2008. It can be summed up in one word: Crash. However much I may be dismayed about the financialist transition in the investment sector, it is still true that the function of our financial markets is to channel funds from areas of surplus to areas of scarcity. This can’t happen when the financial markets are frozen.
The financial markets were frozen because no one on The Street could trust the values of their own assets. What was “toxic?” What was actually of any value? What value? If they couldn’t trust the valuations of their own assets, then they certainly weren’t going to trust the valuations of assets owned by other firms. And, if the valuations weren’t to be trusted, then the obvious thing is to ask for more collateral. How much collateral? Who knew?
What started with the collapse of two hedge firms associated with Bear Stearns began to cascade through the system. Merrill Lynch teetered and was bought out; Lehman Brothers collapsed. Then:
“On Thursday (Sept 18), at 11am the Federal Reserve noticed a tremendous draw-down of money market accounts in the U.S., to the tune of $550 billion was being drawn out in the matter of an hour or two. The Treasury opened up its window to help and pumped a $105 billion in the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account so there wouldn’t be further panic out there.
If they had not done that, their estimation is that by 2pm that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed. It would have been the end of our economic system and our political system as we know it.” [Zero Hedge] (emphasis in original)
Faced with this alarming prospect, the Bush Administration sought the passage of the Emergency Economic Stabilization Act (2008). Two-thirds of the House Republicans opposed the measure, including Rep. Heller, and it was defeated. [NYT] Immediately after the House vote the Dow Jones Industrial Average tanked by 400 points in ten minutes. Things got worse:
“By the end of the day $1.2 trillion had been lost on U.S. exchanges and regulators were rushing to try to sell off Wachovia, the biggest bank yet to fail. That finally got the attention of GOP backbenchers, and a few days later a revised TARP bill (stuffed with some extra goodies as bribes) was passed. Markets relaxed and everyone breathed a little easier.” [MJ]
Let’s revise that statement a bit. The situation finally got the attention of most of the GOP back benchers — but not all. Then Representative Heller continued to vote against the bill.
At that point in time, former Representative Dean Heller (R-NV2) adopted what was to be a prime talking point for the Tea Party — opposition to Bailouts! By the time the second vote came to the House floor and “everyone breathed a little easier,” Representative Heller had already locked into a Tea Party position. How would we be breathing if Representative Heller’s position had prevailed? One negative vote cost investors $1.2 TRILLION on one day — what might have happened had the Tea Party position continued?
Fortunately, we didn’t have to experience the consequences because the Tea Party partisans didn’t prevent the Bush Administration from doing something to calm down the financial market — no thanks to Representative Dean Heller.
Some politicians may be acting now as if the TARP bill was another Third Rail of American Politics, Senator Heller included, but had the bill not passed eventually would they have been equally willing to absorb the criticism that the bill’s failure produced ever more losses measured in trillions of dollars?
(2) I’m a good old Tea Party partisan and I opposed the automobile industry bailout.
By March 30, 2009 General Motors and Chrysler were in serious trouble. General Motors employs approximately 209,000 workers, Chrysler another 59,000. With the economy already in recession the prospect that these two major U.S. automobile manufacturers would head into bankruptcy was unpleasant in the extreme. The companies had already offered restructuring plans, but neither plan was sufficient to restore investor confidence. The Obama Administration offered Bridge Loans, one to General Motors to provide working capital for 60 days, during which GM had to come up with a better proposal. Chrysler and Fiat were given 30 days to devise a plan to salvage the U.S. automaker. [RCP] Did this work?
By June 1, 2010 General Motors reported its first quarterly profit in three years. “Consequently, the U.S. Treasury is well on its way to recovering most of the $81 billion that the government invested in the auto sector to prevent its collapse. (That includes money for other auto-related entities, such as the finance companies. Chrysler itself got around $8 billion from the Obama administration and $4 billion from the Bush administration.)” [WaPo] There was still some carping.
“Meanwhile, conservatives such as Sen. Charles Grassley, the ranking Republican on the Finance Committee, maintain that GM has paid back the government with government money. That’s true, but only technically. We provided GM with a cash reserve — to protect taxpayers’ investment in the case of a prolonged auto recession — that has now proved unneeded. The fact remains that the nation’s largest automaker has outperformed our expectations — increasing the amount of money that the government is likely to recover.” [WaPo] (emphasis added)
By 2011 the automobile manufacturing sector was no longer plagued by the problems at Chrysler and GM.
In May 2011, Chrysler repaid its outstanding loans to the U.S. Treasury – a full six years before their scheduled maturity. Chrysler was able to achieve this milestone by accessing the debt markets and raising capital on more favorable terms than the U.S. government loans – another sign of its emerging strength as a private company. With that repayment, Chrysler had returned $10.6 billion to the U.S. government, which represents not only a full recovery of the $8.5 billion committed by the Obama Administration, but also about 50 percent of the $4 billion provided by the Bush Administration. [Auto Report pdf]
Since GM and Chrysler emerged from bankruptcy in June 2009, they have announced investments totaling over $8 billion in their U.S. facilities, creating or saving nearly 20,000 jobs. Chrysler recently confirmed its intention to invest an additional $843 million into its transmission facilities in Kokomo, Indiana, bringing the total investment into the Kokomo community to $1.1 billion, and retaining nearly 2,250 jobs. GM recently announced that it will invest an additional $2 billion in U.S. factories in the coming months, creating or preserving more than 4,000 jobs at seventeen facilities in eight states. It is expected that GM will hire back the last of its laid-off workers later this year. [Auto Report pdf](emphasis added)
What of those voices advocating that the major auto manufacturers Go Bankrupt? Let the Free Market Prevail? Notice the underlining above — Chrysler and GM did go into bankruptcy — the working capital loans enabled the corporations to restructure and retain production capacity. No one bailed out the creditors who lost about $65 billion during the GM bankruptcy. [WaPo]
What happened to those Chicken Little Cries of a “government takeover” of the auto industry? What happened to those voices bemoaning the introduction of “Government Motors?” They are as quiet now as those who screamed “creeping socialism,” when Congress voted to extend emergency loans to Lockheed in 1971, saving the aircraft and weapons system manufacturer from collapse. [WashMon]
Those who advocated ‘letting them drown in their own juices,’ appear to have forgotten that the House Republicans had their own form of bailout at the time.
“We propose that the government provide insurance, funded by the participants with a modest FDIC-like fee, which would cover up to 50% of the losses of new investment in the case of default, helping to unlock immediate private investment (not unlike debtor in possession financing). Such insurance would expire on March 31, 2009. This proposal ensures that taxpayers are protected and provides a powerful incentive for the Big Three to quickly implement their restructuring plans.”
Somehow the difference between a “government financed working capital loan” and a “government provided insurance” plan doesn’t seem to loom as large as it did in 2009. All in all, the quick efficiency of setting up bridge loans appears far less complicated than the process of constructing an entire new FDIC-like program for insuring capitalization, and the fact that the two corporations emerged from bankruptcy relatively intact may prove the point. As it’s said in Macbeth: “If it were done when ’tis done, then ’twere well. It were done quickly.”
It may be fashionable among the Tea Party crowd to express displeasure at the federal government’s assistance for troubled corporations, but that would be to forget the positive results of government financial assistance to Lockheed in 1971, to Conrail in 1976, to Chrysler in 1980, and to General Motors and Chrysler in 2009. Senator Heller’s narrative may be fashionable among the Tea Party partisans — but that doesn’t make it a factually based rational assessment.
(3) I’m a supporter of Free Enterprise and the American Way.
Senator Heller has been playing this record for a considerable portion of his career in Washington, D.C. There’s no reason to believe he won’t make it a continuing motif for 2012.
We can expect to hear more about the exceptionally hare-brained notion of a Balanced Budget Amendment (another lyric from the Tea Party anthem), and repealing the Dodd-Frank Act’s burdensome regulations (a lyric from the American Bankers Association theme song.)
Senator Heller’s generalities will glitter when he tells his audiences something to the effect that onerous regulations are preventing capitalists from investing in America. At this point in the stump speech it will be time to ingest a grain of salt.
Senator Heller has signed on to S. 712, a bill to repeal the financial reforms enacted in the Dodd-Frank Act. S. 712 is a financialist’s dream and a capitalists’ nightmare. Gone would be any restraints on bankers to avoid the machinations that produced the need for the TARP program in the first place; gone would be any restraints or oversight of the derivatives market; and gone would be any orderly liquidation authority to unwind failing banks — too big or otherwise. We’ve covered this territory before, and more can be found here and here.
Even a cursory look at Senator Heller’s voting record during his tenure in Washington will yield the obvious: He may be the Tea Party Darling, but he is also a consistent and cooperative friend of major banking and financial interests — an almost perfect Wall Street Warrior.
Desert Beacon 