Treasury Seeks Power To Seize Failing Companies

Despite the repeated failings of Treasury Secretary Tim Geithner to produce a coherent policy for months on how to deal with the credit markets and the Obama Administration's inability to find qualified people to even nominate for the Treasury Department to assist Geithner in his duties, the Treasury Department is now demanding the authority to seize companies that are failing?

The Obama administration is renewing calls for Congress to provide new authority to take over financial institutions in distress, expanding its existing powers to include insurance companies and other less-regulated market players.

“The United States government does not have the legal means today to manage the orderly restructuring of a large, complex non-bank financial institution that poses a threat to the stability of our financial system,” the Treasury secretary, Timothy F. Geithner said in a statement prepared for delivery before the House Financial Services Committee.

The proposal could help deflect some criticism of the government’s handling of A.I.G., which is not a bank but an insurance company, including allowing the company to pay big bonuses to executives after receiving government financing as part of the bailout of financial institutions.

Had the Treasury Department had the expanded authority last fall, administration officials have said, the government could have seized A.I.G. and more efficiently wound down its operations in a less-costly manner. At the hearing, Ben S. Bernanke, the chairman of the Fed, said that he had wanted to sue A.I.G. to prevent the bonus payments but was talked out of it by lawyers who warned that if the lawsuit failed, the government might have to pay double or triple damages in addition to the bonus.

Wait a second? You mean to tell everyone that AIG should have been shut down, not fed hundreds of billions, including billions as a conduit to avoid the TARP limitations? If AIG should have been shut down, why did it getting the bailout in the first place (although the AIG lobbyists and those politicians receiving lobbyist dollars goes a long way to explaining that)? Why not demand that it liquidate its assets via bankruptcy? Why isn't the new CEO, which the government demanded, not taking the necessary steps to liquidate the company and instead operating AIG as though it will eventually recover?

Why is the government demanding that AIG come under government control for the liquidation process when bankruptcy courts handle such liquidations on a regular basis? The size may be large, but this isn't the first large entity to face bankruptcy before.

There is absolutely no reason for Congress to extend this power to Treasury when there are already mechanisms in place to provide for the orderly liquidation of companies that are failing. This is a ticking fiscal time bomb and the Obama Administration is demanding it obtain the power to decide which companies live or die, even though there are repeated examples of how the government has failed to adequately figure out what these companies are worth.

Does everyone have such a short memory to forget that the government sought to push Wachovia into Citigroup's open arms despite Wells Fargo valuing Wachovia billions more than the government did? Does anyone remember that days after the feds tried that maneuver, Citigroup revealed that it was in serious financial trouble and required a bailout of its own?

Does anyone remember that the government forced the marriage of Washington Mutual to JP Morgan Chase for a bargain basement $1.9 billion and that WaMu is now suing the feds because they believe that had the government allowed WaMu to properly and orderly liquidate its assets, the value would be billions higher?

Yet, we're told that this is absolutely necessary?

I think not.

It's only absolutely necessary if one wants to further eviscerate the financial markets and further dependency on the government for all aspects of capital creation.

UPDATE:
Hot Air has much more on this naked power grab and move towards nationalization of industries. The key graf:

However, people do not deposit cash in hedge funds or insurance companies. They invest in them, and assume certain risks when they do. The Obama administration wants to socialize the risk by placing the government as a guarantor of sorts for the investors, but that will make people less likely to invest rather than more likely. Part of the lure of investing comes from the potential reward of greater growth of funds than what can be found in bank accounts and bonds. Limiting risk means limiting gains, and we can expect investors to shield themselves further than they may have in the past under those circumstances, while government spends more money in regulatory activity and the economy sags from lack of capital investment.

Ameripundit, Stop the ACLU, Sister Toldjah, and AJ Strata also weigh in.

Also, where exactly in the US Constitution does Congress or the Administration have the right to seize companies, even ones that show signs of being at risk of defaulting or going bankrupt? One can claim that Congressional power under Article 1, Sec. 18, Clause 18 (the catchall provision that Congress relies upon to regulate interstate commerce) might apply, but the Treasury Department is part of the Executive Branch. Somehow, if Congress and the Administration want this to happen, they'll find a way to pass it regardless of whether it should pass Constitutional muster. After all, they're all too happy to find that the Constitution is a living and breathing document that means whatever it is they want it to say.

Then again, the real toxic assets that ought to be treated as such are the very members of Congress that spewed this mess in the first place with their ill-advised policies.

UPDATE:
Meanwhile, another Nobel Prize winning economist, Joseph Stiglitz has slammed Obama's toxic bailout plan.

"The Geithner plan is very badly flawed," Stiglitz told Reuters in an interview during a Credit Suisse Asian Investment Conference in Hong Kong.

U.S. Treasury Secretary Timothy Geithner's plan to wipe up to US$1 trillion in bad debt off banks' balance sheets, unveiled on Monday, offered "perverse incentives," Stiglitz said.

The U.S. government is basically using the taxpayer to guarantee against downside risk on the value of these assets, while giving the upside, or potential profits, to private investors, he said.

"Quite frankly, this amounts to robbery of the American people. I don't think it's going to work because I think there'll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer."

The other Nobel Prize winning economist to come out against the plan so far? Paul Krugman.

UPDATE:
James Pethokoukis provides several reasons why the left isn't jumping on board the Obama bailout plan. Many are angry at who Obama has chosen to include in the bailouts, including hedge funds and private entities, while others think that the plan doesn't go nearly far enough, that the mess will be repeated down the road, and would rather that the industries and businesses be nationalized altogether. Of course, other economists point out that if the latest plan doesn't work, nationalization may be forthcoming in any event.