Auto czar to banks: Lose it all on Chrysler
posted at 12:18 pm on April 17, 2009 by Ed Morrissey
If anyone doubted that the bailouts have turned into nothing more than a big Ponzi scheme, this Washington Post report on the administration’s attempt to strong-arm debt forgiveness for Chrysler should confirm it. Auto czar Steven Rattner — under investigation for pay-for-play with the New York state pension fund — tried to force banks holding Chrysler paper to simply write it off and allow the automaker off the hook. Rattner demanded this after pointing out that most of them had already received TARP funding from Treasury:
At a meeting with executives from four of the nation’s largest banks earlier this month, the chief of the government’s auto task force, Steven Rattner, delivered a message that shocked some in the room.
To save Chrysler, he told them, the four banks and several other financial firms would have to surrender their claims to most of the $7 billion the automaker owed them. And what would the banks get in return for this sacrifice? Nothing.
“People’s jaws just dropped,” said a person familiar with the discussions.
The banks — J.P. Morgan Chase, Citigroup, Morgan Stanley and Goldman Sachs — have all since balked at the government’s proposal. This week, they are drafting a counteroffer.
But those four banks are themselves recipients of billions of dollars in government largesse. Collectively, they have received $90 billion from the rescue program for the country’s banks. Now, their critics say, the firms have an obligation to cooperate as the government seeks to save Chrysler.
Let’s try to break down the reasoning on this. George Bush, Barack Obama, Henry Paulson, and Tim Geithner have all insisted that the TARP funding was necessary to get banks back into the black so that they could prevent a catastrophic collapse in the world’s financial systems. How, exactly, does forcing the same banks to take billions in losses help them stay solvent? The fact that Treasury felt it necessary to inject that much liquidity into these banks should behoove them to insist on sound financial decisions, which doesn’t include eliminating several billions of dollars in bonds.
When people talk about the creeping nationalization of banks and financial companies, this is exactly what they mean. The debt relationship between Chrysler and JP Morgan Chase should remain between those two entities. The government shouldn’t be picking winners and losers in this arrangement. Instead, because they gave the banks a huge payoff, they expect the banks to do the same with Chrysler, who will then be expected to dance to the DC piper as well.
It’s a Ponzi scheme, except it really only has one winner: the political class in DC. They get to make decisions on who gets the money and when, who gets the profit or not, and how businesses will operate. That is not a private sector; it’s corporatism.