Another step in the wrong direction.

In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock.

Converting those loans to common shares would turn the federal aid into available capital for a bank — and give the government a large ownership stake in return.

While the option appears to be a quick and easy way to avoid a confrontation with Congressional leaders wary of putting more money into the banks, some critics would consider it a back door to nationalization, since the government could become the largest shareholder in several banks.

Another writer, whom I read last week and can’t find the link to, noted that you don’t have to have full-blown government ownership of businesses to have what amounts to socialism; you just have to own the financial system that all those businesses get their financing from.  Like I said before, if you don’t want to call it "socialism", fair enough, but please don’t call it "capitalism".

Lost in the midst of the weekend news coverage of President Barack Obama hamming it up with his new best friend Venezuelan President Hugo Chavez is this little promise tucked into this weekend’s Presidential Radio/Internet Address:

“In the coming weeks, I will be announcing the elimination of dozens of government programs shown to be wasteful or ineffective,” he said. “In this effort, there will be no sacred cows and no pet projects. All across America, families are making hard choices, and it’s time their government did the same.”

For those of you keeping score at home, this is the same President Obama who pushed through a $787 billion pork-filled spending bill and a proposed $3.6 trillion budget. He also promised during the campaign to go through the budget line-by-line and eliminate waste. Yet such scrutiny seems to have been absent during these initial spending initiatives.

Anyone really think he’s going to follow through on this one?

I wouldn’t count on it.

While there have been recent scattered protests (dubbed "Tea Parties" after a rather famous one in Boston one 235 years ago) against huge government expansion, economic control, bailouts, borrowing and spending, the day of the individual tax deadline, April 15th, was a day of concerted protests.  The "Tax Day Tea Party" was an event held at over 500 locations all across the United States.

In case you’re still wondering what all the fuss was about, a budget deficit graph may help.  (Click on the image for the source.)

Yes, we’ve had budget deficits in the past.  These and the ones to come are in a class all by themselves.  Hence the outrage from all over the country.

From Michigan to South Carolina to California (where the state GOP chair got boos) to Ohio to Kentucky to Atlanta (the largest crowd in the nation, as far as I know, at over 15,000).  This was no localized phenomenon.  This was a national movement.

More below the fold…

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From President Obama’s speech today, regarding the economy:

Now we’ve got a lot of work to do. There is a parable at the end of the Sermon on the Mount that tells the story of two men.  The first built his house on a pile of sand, and it was soon destroyed when the storm hit.  But the second is known as the wise man, for when "…the rain descended, and the floods came, and the winds blew, and beat upon that house…it fell not:  for it was founded upon a rock." It was founded upon a rock.

We cannot rebuild this economy on the same pile of sand.  We must build our house upon a rock.  We must lay a new foundation for growth and prosperity – a foundation that will move us from an era of borrow and spend to one where we save and invest; where we consume less at home and send more exports abroad. 

(Hat tip: Erick Erickson)  So just as Christ is the rock to build our house on, Obama creates an analogy with his economic policies.  This is not a case of appealing to our religious beliefs or our consciences; many a President has done that.  Foreign, domestic and even economic policy, may be justified by a President because of our moral values. 

This, however, is different.  This is drawing a parallel between the sureness of what we build on Christ with the artificial sureness of what we build on government.  He’s not saying that these policies are right by appealing to religion.  He’s saying that they are a rock to hold firm to.  They are not.

(And what irony that he talks about moving away from borrow and spend right after setting world records in that field.)

Y’know, maybe all those folks have a Messiah complex about Barack Obama because he had one first.

Some Representatives who voted for the "AIG tax" privately expressed regret after the emotional vote.  It doesn’t look like it’s actually going to pass now.  Looks like we might have dodged that bullet.

Or not.

But now, in a little-noticed move, the House Financial Services Committee, led by chairman Barney Frank, has approved a measure that would, in some key ways, go beyond the most draconian features of the original AIG bill. The new legislation, the "Pay for Performance Act of 2009," would impose government controls on the pay of all employees — not just top executives — of companies that have received a capital investment from the U.S. government. It would, like the tax measure, be retroactive, changing the terms of compensation agreements already in place. And it would give Treasury Secretary Timothy Geithner extraordinary power to determine the pay of thousands of employees of American companies.

(Emphasis mine.)  The bill passed in the Financial Services Committee on a nearly-party-line vote.  I’ll let you guess which party was for it and which against. 

The government is doing what government does best; increase its power.  When there is that much money flowing around DC, it is bound to become the tool used to that end.  Tax cuts and smaller government would reduce that ability, if not that propensity.  Our founding father knew this very well, which is why we started out with a more decentralized form of republic.  Over time, the federal government has indeed become powerful enough to buy into the public sector and start running the show, deciding who can work for your company and, if this passes, for how much.

Remind me again how these very fears were, and are still, labeled "paranoia"?

…when the President of the United States can do this:

The Obama administration asked Rick Wagoner, the chairman and CEO of General Motors, to step down and he agreed, a White House official said.

On Monday, President Barack Obama is to unveil his plans for the auto industry, including a response to a request for additional funds by GM and Chrysler. The plan is based on recommendations from the Presidential Task Force on the Auto Industry, headed by the Treasury Department.

The White House confirmed Wagoner was leaving at the government’s behest after The Associated Press reported his immediate departure, without giving a reason.

General Motors issued a vague statement Sunday night that did not officially confirm Wagoner’s departure.
"We are anticipating an announcement soon from the Administration regarding the restructuring of the U.S. auto industry. We continue to work closely with members of the Task Force and it would not be appropriate for us to speculate on the content of any announcement," the company said.

The surprise announcement about the classically iconic American corporation is perhaps the most vivid sign yet of the tectonic change in the relationship between business and government in this era of subsidies and bailouts.

Don’t want to call it "socialism"?  Fine, but don’t call it "capitalism", either. 

I will note that this descent into "whatever-it-is-ism" was entered in mutually.  GM begged for money, the government gave it to them, and then government started pulling the strings.  Both sides contributed to this, but just because it was consensual doesn’t mean it was the right thing to do. 

This is path taken by most anyone who takes money from the government, whether they be churches, schools, welfare recipients or major automakers.  When you surrender your self-sufficiency, you lose much more in the bargain than originally thought. 

Could companies be bailed out by the government without leaving capitalist, free market principles?  Possibly.  But is this move by the President in line with those principles?  Not really.  An underperforming CEO would be removed by any responsible leader…of the Soviet Union.  We should not be putting our President in the position of being able to do that, and he shouldn’t be accepting that position.

Don’t want to call it "socialism"?  Fine.  What do you want to call it?

Reports the Washington Post:

In his prime-time news conference Tuesday, Obama pushed back against bipartisan criticism of his plan, which is included in his budget blueprint, by saying that "there’s very little evidence that this has a significant impact on charitable giving."

No, actually there is evidence.  (Hat tip: Betsy’s Page.)

But a report from the Center on Budget and Policy Priorities said total charitable contributions would decline by about 1.3 percent, while the Center on Philanthropy at Indiana University calculated that overall giving would drop by 2.1 percent. The highest-income households would decrease their giving by 4.8 percent, or $3.87 billion, the latter group found.

"Charities and the public need to understand that in the current economic environment, which is creating difficulty for some nonprofits and their constituents already, this public policy change is likely to have an additional negative effect," said Patrick M. Rooney, the philanthropy center’s interim executive director.

When you penalize something, you get less of it.  It’s a truism that Democrats like Obama have yet to figure out, but churches and soup kitchens are well aware of it.

The classic example is taxing yachts to soak the rich.  During the first Bush administration, a tax on yachts over $100,000 was instituted to try to increase the already huge percentage of the federal treasury that came from the rich.  The result was that middle-class ship builders lost their jobs because the sales of yachts sank by 70%, significantly faster than the overall boat market.  So President Bush came to their rescue and rescinded the tax. 

Taxes are not behavior-neutral.  They will affect the actions of those who are affected by them.  Democrats only seem to understand this when they do things like raise taxes on gas to try to reduce consumption, but they conveniently forget it when they trumpet how much they’re trying to help the little guy.  Problem is, their actions often hurt the little guy in the end, and the rich just do without one more yacht in their marina. 

…for stretched definitions of "temporary".

President Barack Obama’s budget would generate deficits averaging almost $1 trillion a year over the next decade, according to the latest congressional estimates, significantly worse than predicted by the White House just last month.

The Congressional Budget Office figures, obtained by The Associated Press Friday, predict Obama’s budget will produce $9.3 trillion worth of red ink over 2010-2019. That’s $2.3 trillion worse than the White House predicted in its budget.

Worst of all, CBO says the deficit under Obama’s policies would never go below 4 percent of the size of the economy, figures that economists agree are unsustainable. By the end of the decade, the deficit would exceed 5 percent of gross domestic product, a dangerously high level.

Yeah, this is all just until we get back on our feet again.  Just something to tide us over, while we ride out the recession.

Or while we deepen it.

From Chuch Asay (click for a larger version):

You get less of what you tax/punish. 

Gilda Radner’s character from old Saturday Night Live shows, Emily Litella, was a hard-of-hearing commentator on the show’s Weekend Update segment.  She would, for example, go on and on with her outrage that the Supreme Court was considering a "deaf" penalty case, or with her support of "Youth in Asia".  When Chevy Chase nudged her and let her know that it was instead a "death" penalty case or "euthanasia", realizing she’d misheard the subject, she meekly turned back to the camera and gave her trademark line, "Never mind."

Apparently, Miss Litella went on to become our first woman President.

Confronting misgivings, even in his own party, President Barack Obama mounted a stout defense of his blueprint to overhaul the economy Thursday, declaring the national crisis is "not as bad as we think" and his plans will speed recovery.

Challenged to provide encouragement as the nation’s "confidence builder in chief," Obama said Americans shouldn’t be whipsawed by bursts of either bad or good news and he was "highly optimistic" about the long term.

The president’s proposals for major health care, energy and education changes in the midst of economic hard times faced skepticism from both Democrats and Republicans on Capitol Hill, as senators questioned his budget outlook and the deficits it envisions in the middle of the next decade.

(Emphasis on the "Never mind" added.)  This is why many of us are skeptical of the hand of government trying to direct the economy.  We wind up with "cures", such as these massive spending debt packages, that could be worse than the disease.  Just ask a Democrat in the know.

Sen. Kent Conrad, the chairman of the Budget Committee called the track of future deficits "unsustainable" and singled out Obama’s proposal for adding $634 billion in health care spending over the next 10 years.

"Some of us have a real pause about the notion of putting substantially more money into the health care system when we’ve already got a bloated system," said Conrad, D-N.D.

"Unsustainable"?  I thought Obama was supposed to be the responsible, sustainable lifestyle kind of President. 

Now, frankly, I don’t know for sure if even this new analysis of the economy is correct, and there’s no doubt we’ve in the middle of a significant downturn right now.  The point is, rushing through a "fix", and especially a "fix" we’ll be decades paying for, should never, ever be done.  But cries from Washington Democrats, liberal bloggers and pundits that this had to be done now and be done big (with some still saying that it should be much bigger than it is) are irresponsible. 

The size of the "stimulus" is one thing.  The rush to do something, anything, is the worst kind of "government is the solution" thinking.

David Brooks is shocked — SHOCKED — that Barack Obama tuned out to be liberal! 

You wouldn’t know it some days, but there are moderates in this country — moderate conservatives, moderate liberals, just plain moderates. We sympathize with a lot of the things that President Obama is trying to do. We like his investments in education and energy innovation. We support health care reform that expands coverage while reducing costs.

But the Obama budget is more than just the sum of its parts. There is, entailed in it, a promiscuous unwillingness to set priorities and accept trade-offs. There is evidence of a party swept up in its own revolutionary fervor — caught up in the self-flattering belief that history has called upon it to solve all problems at once.

So programs are piled on top of each other and we wind up with a gargantuan $3.6 trillion budget. We end up with deficits that, when considered realistically, are $1 trillion a year and stretch as far as the eye can see. We end up with an agenda that is unexceptional in its parts but that, when taken as a whole, represents a social-engineering experiment that is entirely new.

And the real kicker:

Those of us who consider ourselves moderates — moderate-conservative, in my case — are forced to confront the reality that Barack Obama is not who we thought he was. His words are responsible; his character is inspiring. But his actions betray a transformational liberalism that should put every centrist on notice. As Clive Crook, an Obama admirer, wrote in The Financial Times, the Obama budget “contains no trace of compromise. It makes no gesture, however small, however costless to its larger agenda, of a bipartisan approach to the great questions it addresses. It is a liberal’s dream of a new New Deal.”

Emphasis mine.  Well, actually, emphasis of this was made by Republicans long before election day.  One only had to look at his record, such as it was, to know this.  And yet these "Brooks Moderates" were so caught up in the words and the history of it all that they apparently turned off those parts of their brains responsible for critical thinking.

Looks like the editorial board of the Chicago Tribune did the same thing.

Whoa!

The Obama administration and Democratic leaders of the House and Senate are blowing the lid off of spending restraint. But they’re finally meeting some resistance within their own party.

Sen. Evan Bayh (D-Ind.), in an essay published Wednesday in The Wall Street Journal, ripped a spending bill passed by the House last week as "a sprawling $410 billion compilation of nine spending measures that lacks the slightest hint of austerity from the federal government or the recipients of its largesse."

He said he will vote against it, and he urged President Barack Obama to veto it if it passes the Senate. We second that motion.

(Hat tip: Don Surber)  The Tribune endorsed Obama, and now they’re thinking they can pull back the reigns.  They sound like they’re saying, "Obama’s a big spender?  Who knew?"

I will heartily agree that Republicans spent very irresponsibly during their tenure with control of the Legislative and Executive branches.  But Democrats, true to their ever-constant form (a form that moderates like Brooks should have look to history, even recent history, to confirm), have outspent Republicans by a huge, huge margin.  "Tax and spend" wasn’t a catchphrase made up by Ronald Reagan; it’s a description of their MO.

The Democrats who "rediscovered" fiscal responsibility during the Dubya years have shown that outrage to be mere window dressing than principle.  There are indeed Republicans who had the same problem during the Clinton years and while Democrats held Congress.  But there is simply no real equivalence here. 

While it is still true that Republicans will overspend less than Democrats, it pains me to have to put it that way.  Nonetheless, if you value fiscal responsibility, convincing Republicans to slow down on spending seems to me to have a far better chance of success than convincing Democrats of that.  Mr. Brooks, please take note.

One of the most fascinating books I have read over the last few months is The Forgotten Man: A New History of the Great Depression. Actually, in reading the book I was amazed at how much President Barack Obama’s economic policies are like that of FDR. Needless to say, that was not comforting.

Recently I had the opportunity to talk with Amity Shlaes, author of the book. Click here to read more about our conversation and what she had to say about the current economic crisis.

Frugality.  Thriftiness.  These terms are being redefined by the NY Times as "dead weight". 

As recession-wary Americans adapt to a new frugality, Japan offers a peek at how thrift can take lasting hold of a consumer society, to disastrous effect.

The economic malaise that plagued Japan from the 1990s until the early 2000s brought stunted wages and depressed stock prices, turning free-spending consumers into misers and making them dead weight on Japan’s economy.

Today, years after the recovery, even well-off Japanese households use old bath water to do laundry, a popular way to save on utility bills. Sales of whiskey, the favorite drink among moneyed Tokyoites in the booming ’80s, have fallen to a fifth of their peak. And the nation is losing interest in cars; sales have fallen by half since 1990.

Never mind those government types that encouraged banks to give loans to those who couldn’t afford them.  Never mind the investors who spend too much money on too much risk.  No, you, dear person living within your means, you are the reason we’re in this mess. 

I’m sorry, but this reasoning is utterly upside down.  Instead of trash-talking responsible living, perhaps a recession is what we need to pare back some of the overspending we’ve been doing, personally and federally. 

(In fact, some economists say that we would normally have mini-recessions now and then that would serve to do these corrections little by little if the federal government didn’t manipulate monetary policy to keep them away.  Now, after other poor government decisions have come to a head, they’re all hitting at once.)

One of these excesses is arguably federal pensions.  The world is finding out (again) that a one-size-fits-all social security program means when we fail, we all fail since all our eggs are forced to be in fewer baskets (sometimes just one).  Japan is seeing this.

Japan’s aging population is not helping consumption. Businesses had hoped that baby boomers — the generation that reaped the benefits of Japan’s postwar breakneck economic growth — would splurge their lifetime savings upon retirement, which began en masse in 2007. But that has not happened at the scale that companies had hoped.

Economists blame this slow spending on widespread distrust of Japan’s pension system, which is buckling under the weight of one of the world’s most rapidly aging societies. That could serve as a warning for the United States, where workers’ 401(k)’s have been ravaged by declining stocks, pensions are disappearing, and the long-term solvency of the Social Security system is in question.

Other countries, like France and Germany, have had to come to terms with this in the past, and now it’s our turn. 

Spending our way out of overspending is not the answer.  Letting the market roll, with its ups and down, would hurt far, far less than the climbs and crashes we’re having to get used to.

And it’s blowing away the rage that Democrats would have had if Bush had done this.

The economic stimulus signed by President Barack Obama will spread billions of dollars across the country to spruce up aging roads and bridges. But there’s not a dime specifically dedicated to fixing leftover damage from Hurricane Katrina.

And there’s no outrage about it.

Democrats who routinely criticized President George W. Bush for not sending more money to the Gulf Coast appear to be giving Obama the benefit of the doubt in his first major spending initiative. Even the Gulf’s fiercest advocates say they’re happy with the stimulus package, and their states have enough money for now to address their needs.

What a difference an administration makes.

It’s a significant change in tone from the Bush years, when any perceived slight of Katrina victims was met with charges that the Republican president who bungled the initial response to the disaster continued to callously ignore the Gulf’s needs years later.

Just last summer, Democrats accused Bush of putting Iraq before New Orleans when he sought to block Gulf Coast reconstruction money from a $162 billion war spending bill. Bush was pilloried for not mentioning the disaster in back-to-back State of the Union addresses.

Bush couldn’t miss mentioning Katrina let alone sending more money there.  But Obama doesn’t spend a dime in a 3/4 of a trillion dollar spending spree and cue the crickets.

What, does Obama hate black people?  That’s preposterous now, and it was preposterous then.

The Wall Street Journal takes a look at President Obama’s proposed mortgage rescue plan and finds that it could create far more problems than it solves:

President Obama yesterday announced his plan to prevent home foreclosures, saying he wanted to be “very clear about what this plan will not do: It will not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans . . . And it will not reward folks who bought homes they knew from the beginning they would never be able to afford.”

We really do wish he were right. In fact, the details released yesterday suggest the President’s plan will do all of the above. The plan will help some struggling homeowners. But by investing in failure, the Administration will also prolong the housing downturn and make financing a home purchase more difficult for future borrowers. Meanwhile, the plan isn’t likely to slow the continuing decline in housing prices.

The President’s plan is predicated on the false belief that everyone deserves to own a home. The fact is that not everyone can afford to own a home. The efforts of Fannie Mae and Freddie Mac to make it easier for people to buy homes they could not afford are at the heart of the current financial crisis. Unfortunately, the President’s plan does nothing to address this fundamental issue and instead just prolongs the crisis and leaving taxpayers on the hook.

As CNBC’s Rick Santelli correctly points out in this clip, this is an example of government rewarding bad behavior. Unfortunately it’s the 92% of honest, hardworking Americans he refers to that will pay the price.