Newt Gingrich: Bankruptcy, Not Bailout

newt.org ^ | 3/18/2009 | Newt Gingrich

[Tolik]

"Outrage" is the word on everyone’s lips to describe the fat bonuses being paid with taxpayer funds to the failed executives at AIG -- and it is an outrage.

It’s an outrage that the American people are being asked to pay for the bad behavior of people who should have known better, be they reckless traders on Wall Street or reckless borrowers on Main Street.

But the cure for our outrage is not merely, as President Obama is demanding, that AIG be prevented from paying its executives.  The $165 million in planned bonuses -- as manifestly undeserved as it is -- is chicken feed compared to the $170 billion in taxpayer funds AIG has received so far.

Nor is it acceptable to ask Americans to keep throwing their tax dollars at failed companies and their leaders.

The answer is an old fashioned one:  AIG should choose between receivership or bankruptcy.  It should not be allowed to choose more bailouts from the taxpayer.

Restore the Rule of Law:  Allow Failing Corporations to go Bankrupt

Under U.S. law, Chapter 11 bankruptcy allows a company to reorganize.  Chapter 7 allows a company to dissolve itself.

The choices for AIG, as both an insurance and non-insurance company, are more complicated, but ultimately boil down to the same options.  And for other companies either receiving or looking to receive a bailout from the taxpayers, the option should instead be bankruptcy.

Bankruptcy would send a needed message to U.S. investors:  Don’t assume the government will bail you out when you do something stupid.

And most importantly, bankruptcy would replace the rule of politicians over U.S. financial institutions with the rule of law.

Geithner Didn’t Inherit the Policy of Throwing Billions at Failing Companies -- He Helped Create It

Because when it comes to Washington’s handling of the financial crisis, so far we’ve had the rule of politicians, not the rule of law.

Most prominent among the politicians in question is Treasury Secretary Timothy Geithner.

As Americans’ level of outraged has risen, so has the level of finger pointing by Geithner and others for the mess we’re in.

But Treasury Secretary Geithner is disingenuous at best and untruthful at worst when he says that he “inherited the worst fiscal situation in American history.”

The truth is that Secretary Geithner didn’t inherit the policy of throwing billions of taxpayer dollars at failing companies -- he helped create it.

Even before he was Treasury Secretary -- when he was still head of the New York Federal Reserve -- Geithner was so deeply involved in the government’s bail out of Bear Stearns, its take over of Fannie Mae and Freddie Mac, and its bailout of AIG that this was the Washington Post’s headline from September 19, 2008:

“In the Crucible of Crisis, Paulson, Bernanke and Geithner Forge a Committee of Three”

The first meeting of the first bailout -- of Bear Sterns -- was held in Geithner’s office.  And the first meeting of what has become a $170 billion bailout of AIG was held -- where else? In Geithner’s New York Fed office.

Why Not Bankruptcy for AIG?  Because Wall Street Wouldn’t Have Done As Well

From the outset, Geithner was central to the developing policy of having the taxpayers bail out ailing financial institutions like AIG rather then allow them to go bankrupt. And for months now, we’ve been told that these bailouts were necessary to avoid a wider, cataclysmic, financial meltdown.

But now it’s clear that other, less noble, considerations were at play.

As the Wall Street Journal editorialized yesterday, the real outrage over the AIG bailout isn’t executive bonuses, it’s that billions in taxpayer funds intended for AIG have been passed through to benefit foreign banks and Wall Street behemoths like Goldman Sachs.

And as former AIG CEO Hank Greenburg testified last October, these financial institutions wouldn’t have faired as well if AIG had filed for bankruptcy protection rather than do what it did, which was to negotiate a bailout with Timothy Geithner’s New York Federal Reserve.  

Here’s how Greenburg put it:

“Although AIG stockholders could have fared better if the company had filed for bankruptcy protection, other stakeholders -- like AIG’s Wall Street counterparties in swaps and other transactions -- would have fared worse.”

For the Cost of Bailing Out AIG, Every American Household Could Have Free Electricity For a Year

So now everyone is outraged, and rightly so.  But the lavish executive bonuses being paid with taxpayer funds are just the beginning of the story.

So far, the American taxpayers are on the hook for $170 billion to AIG -- that’s an astounding $1,224 per taxpayer.

What else could we have done with all this money?

$170 billion would pay for more than doubling the Navy’s fleet of aircraft carriers.

$170 billion would pay for a four-year education at a public university for more then two million Americans.

$170 billion would cover the electricity bill of every household in America for an entire year.

When You Reward Failure, All You Get is More Failure

What Washington should learn from all this outrage is to return to the common sense that should have guided it all along:  When you reward failure, all you get it more failure.

A company that needs a $170 billion taxpayer bailout is a failed company.  The executives that led that company are failed executives.  But instead of having to face the consequences of their failure responsibly through bankruptcy or receivership, AIG and its Wall Street “counterparties” are being rewarded for their recklessness -- with our money.

Thanks to the Bush-Obama-Geithner policy of bailing out failing companies, we now have the worst of all possible scenarios: A taxpayer subsidized, government supervised private company; an unsustainable public/private hybrid that is too public to make its own decisions and too private to be responsible to the taxpayers that are keeping it alive.

Outrages like the fat cat bonuses currently dominating the headlines will only continue as long as the rule of politicians supplants the rule of law on Wall Street.

Congress should rethink this entire process.  The dangers of a domino-like financial meltdown are real.  But so, too, is the danger that the outrage of the American people will reach the point that we no longer trust the dire warnings -- or the righteous indignation -- coming from Washington.

 

[Tolik]

Newt Gingrich:

What Washington should learn from all this outrage is to return to the common sense that should have guided it all along:  When you reward failure, all you get it more failure.

A company that needs a $170 billion taxpayer bailout is a failed company.  The executives that led that company are failed executives.  But instead of having to face the consequences of their failure responsibly through bankruptcy or receivership, AIG and its Wall Street “counterparties” are being rewarded for their recklessness -- with our money.

Thanks to the Bush-Obama-Geithner policy of bailing out failing companies, we now have the worst of all possible scenarios: A taxpayer subsidized, government supervised private company; an unsustainable public/private hybrid that is too public to make its own decisions and too private to be responsible to the taxpayers that are keeping it alive.

Outrages like the fat cat bonuses currently dominating the headlines will only continue as long as the rule of politicians supplants the rule of law on Wall Street.

Congress should rethink this entire process.  The dangers of a domino-like financial meltdown are real.  But so, too, is the danger that the outrage of the American people will reach the point that we no longer trust the dire warnings -- or the righteous indignation -- coming from Washington.

Nailed It!

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[Captain Kirk]

Newt lost ALL credibility on this issue when he supported Bush’s bailout in October. We must never forget that he was on the WRONG side on that issue.

[frogjerk]

Wasn’t Gingrich for the initial $700 billion bailout, albeit reluctantly?

[Lorianne]

Oh no, we MUST bail them out ... OR ELSE !!!

I, for one, am sick and tired of being threatened with this ‘or else’.

Cut all of the bailoutees loose and let the ‘or else’ happen.

Bring it on.

[brownsfan]

I don’t trust Newt. Even when he makes sense, I’m always wondering what is his agenda?

Newt... go away.

[GWMcClintock]

“I don’t trust Newt. Even when he makes sense, I’m always wondering what is his agenda?

Newt... go away.”

I second that!

[EyeGuy]

Let.
The.
Free.
Market.
Work.

[Swing_Thought]

So true, but people can repent. He didn’t go that far but this is a good start.

Newt sounding like a free-marketer is good news. He likes to jump in front of a parade and this suggests there’s a parade forming.

[Hawk1976]

We also need strict seperation of different types of banking activities. Commercial banking and Investment banking are two different activities and a company performing one activity should be barred by law from doing the other. Companies that are now “too big too fail” did this.

These Corporations are essentially fascists. The demand that any profit be privatized while any loss is taken by the taxpayer.

[Cboldt]

... these financial institutions wouldn't have faired as well if AIG had filed for bankruptcy

Another victim of the spellchecker. The word he meant to use is "fared."

Newt's belatedly on the right track with this. I don't trust him after he and his "support" in the GOP caved in under the government "shutdown" of the late '90's. Newt's a member of the "big federal government can be a force for social advancement" camp.

[gOOsefmalOOsef]

All research (preliminary since I am at work) indicates Newt was strongly against the original bailout.

http://newt.org/tabid/102/articleType/ArticleView/articleId/3729/Default.aspx

Please let me know if I am wrong

[Spok]

Obama and his cronies know the economy will self correct in spite, not because, of his spending. What he sees is an opportunity to massively socialize the economy with government ownership, and pay off special interests that have supported him with pork and so-called bailouts. Change you can be afraid of.

[Captain Kirk]

You are wrong. He wimped out unlike Ron Paul and more than one hundred other Republicans who stood firm. Here is the site though I can provide others.

Don't let Gingrich get away with this hypocrisy! Instead, reserve your praise for the heroes who didn't wimp out like he did.

[Captain Kirk]

It is good news that he likes to jump in front on the parade as a “free marketer” (despite his support for the bailout) but this doesn’t mean we shoudl follow him.

[Kackikat]

Amen, because Newt Gingrich is not who he seems to be and we don’t need him. Why did he resign as Speaker of the House?????

[Mamzelle]

reL Newt sounding like a free-marketer is good news. He likes to jump in front of a parade and this suggests there’s a parade forming)))

Frankly, we're so without leaders that I welcome Newt. What a sorry state of affairs. I'm quite disappointed in Steele, and I was willing to give him the benefit of a doubt.

[Borderline]

I nicknamed my kid ‘Newt’ when he was born 8 years ago. I am ashamed of Newt now.

Outrage over AIG honoring contractual obligations? Who the ell is Newt to castigate AIG over that?

AIG is already a zombie. If they were not to pay the contractual bonuses then they needed to declare bankruptcy. Being indignant over the bonus contract is disingenuous at best. I don’t know where Newt is headed with this, but it is not honest, based on integrity or constitutional.

I am outraged at Gingrich for this behavior.

[gOOsefmalOOsef]

Thanks Captain! I am sorry to see that he wimped out on it.