Obama Hears a Giant Sucking Sound
His legacy is spent before he gets his hands on it.
His friends advise Barack Obama to launch a “New” New Deal. Maybe that’s because the old New Deal is sinking fast.
Mr. Obama’s one deeply false note during the campaign was his harping on “deregulation” as if that were the source of current troubles. His real problem is the crack-up of the world FDR built.
Fannie Mae was a New Deal creation, subsidizing the securitization of mortgage debt. FDR’s successors piled on the subsidies for housing debt and incentives directed at low-income borrowers. Kaboom.
Then there’s the UAW, born in 1935. For decades the UAW steadily traded away domestic auto market-share to imports and transplants to keep its aging membership toiling away toward their golden pensions and collecting wages and benefits twice those of their competitors. It worked for a while . . .
Mr. Obama must be looking around and beginning to suspect he will be pouring his political capital, along with considerable taxpayer capital, down bottomless holes for the next four years. He won’t be building a legacy as the new FDR, but cleaning up after the last one.
Fannie and its twin, Freddie Mac, have already come back for a second helping of taxpayer money as their once-profitable business model devolves into a politically directed subsidy machine for propping up home prices and delaying foreclosures. Their next meltdown, in government hands, is all but written in the cards.
AIG, an otherwise healthy insurance company that went bust betting on housing debt, has already consumed taxpayer loans and capital injections nearly as big as AIG’s $200 billion market cap when it was one of the world’s most admired firms. AIG still has a valuable insurance business, but ignoramuses in Congress and the press are busy destroying it. The company sells many of its products through busy independent agents. It uses lush “seminars” to encourage them to sit still for pitches about why AIG should still be trusted despite AIG’s purgatory in the headlines. But these seminars only produce more outraged grandstanding from the political commentariat.
It will take years for the government to get AIG off its hands, and there likely won’t be much value left for taxpayers when it finally does.
But the really giant sucking sound is the auto sector, getting ready to gobble up whatever hopes Mr. Obama might have had for an ambitious, forward-looking presidency.
He and Nancy Pelosi naturally insist that any “bailout” must hit multiple bogies. They want UAW jobs to be preserved. They want the shibboleth of energy independence advanced. They want “green” cars to please the Tom Friedmans of the world. They want to tell taxpayers they’re getting more for their money than just a bailout of Detroit.
All this makes sense to a politician, but not to any practical person, who knows that multiple bogies are bound to be conflicting bogies. You could just barely envision a bailout that wouldn’t necessarily be a disastrous waste of money, one that would help Detroit create a competitive cost structure in pursuit of building products that are competitive in the marketplace. But this is just the opposite of what Mr. Obama and his Democrats have in mind.
Prepare to witness, then, the awesome capacity of an unreformed Detroit to consume taxpayer billions with nothing to show for it.
That Mr. Obama had been sent by history to assuage the insecurities of the middle class with a “New” New Deal was always a tad detached from reality anyway. The reason is those giant legacies of existing New Dealism known as Social Security and Medicare, about which he was careful to say nothing intelligible during the campaign. These programs worked for a while too, but now their expected revenues are (in present value) about $99.2 trillion short of the expected outlays required to assure present and future workers their promised comfort in retirement.
Then again, Mr. Obama did say something in his campaign about tax rebates for all these payroll taxpayers. He also said something about government matching contributions to incentivize today’s low- and middle-income workers to save for their own retirement.
Voilà, personal accounts funded by payroll-tax givebacks — strangely similar to the solution our current president promoted to help workers escape the impending insolvency of the government retirement programs. Mr. Obama envisioned himself extending FDR’s work. He may end up finishing George Bush’s.