Capitalism Is Code For Corporate Socialism

With all of the pro-capitalism/anti-socialism chatter from the Republicans, it peaked my interest to find out the history of government funded bailouts in our capitalist society.

Below is a list of tax payer funded bailouts since the 1970s. It focuses on government bailouts of U.S. corporations (and one city). It does not include U.S. government aid given to other nations. The costs of the bailouts are given in 2008 U.S. dollars. After you review this, please tell me does capitalism, without oversight and regulations, really work.

Penn Central Railroad — 1970
Cost $3.2 billion

In May 1970, Penn Central Railroad, then on the verge of bankruptcy, appealed to the Federal Reserve for aid on the grounds that it provided crucial national defense transportation services. The Nixon administration and the Federal Reserve supported providing financial assistance to Penn Central, but Congress refused to adopt the measure. Penn Central declared bankruptcy on June 21, 1970, which freed the corporation from its commercial paper obligations. To counteract the devastating ripple effects to the money market, the Federal Reserve Board told commercial banks it would provide the reserves needed to allow them to meet the credit needs of their customers.

Lockheed — 1971
Cost $1.4 billion
In August 1971, Congress passed the Emergency Loan Guarantee Act, which could provide funds to any major business enterprise in crisis. Lockheed was the first recipient. Its failure would have meant significant job loss in California, a loss to the GNP and an impact on national defense.

Franklin National Bank — 1974
Cost $7.8 billion
In the first five months of 1974 the bank lost $63.6 million. The Federal Reserve stepped in with a loan of $1.75 billion.

New York City — 1975
Cost $9.4 billion
During the 1970s, New York City became over-extended and entered a period of financial crisis. In 1975 President Ford signed the New York City Seasonal Financing Act, which released $2.3 billion in loans to the city.

Chrysler — 1980
Cost $4.0 billion
In 1979 Chrysler suffered a loss of $1.1 billion. That year the corporation requested aid from the government. In 1980 the Chrysler Loan Guarantee Act was passed, which provided $1.5 billion in loans to rescue Chrysler from insolvency. In addition, the government’s aid was to be matched by U.S. and foreign banks.

Continental Illinois National Bank and Trust Company — 1984 
Cost $9.5 billion
Then the nation’s eighth largest bank, Continental Illinois had suffered significant losses after purchasing $1 billion in energy loans from the failed Penn Square Bank of Oklahoma. The FDIC and Federal Reserve devised a plan to rescue the bank that included replacing the bank’s top executives.

Savings & Loan — 1989
Cost $293.3 billion
After the widespread failure of savings and loan institutions, President George H. W. Bush signed and Congress enacted the Financial Institutions Reform Recovery and Enforcement Act in 1989.

Airline Industry — 2001
Cost $18.6 billion
The terrorist attacks of September 11 crippled an already financially troubled industry. To bail out the airlines, President Bush signed into law the Air Transportation Safety and Stabilization Act, which compensated airlines for the mandatory grounding of aircraft after the attacks. The act released $5 billion in compensation and an additional $10 billion in loan guarantees or other federal credit instruments.

Bear Stearns — 2008
Cost $30 billion
JP Morgan Chase and the federal government bailed out Bear Stearns when the financial giant neared collapse. JP Morgan purchased Bear Stearns for $236 million; the Federal Reserve provided a $30 billion credit line to ensure the sale could move forward.

Fannie Mae / Freddie Mac — 2008
Cost $400 billion
On Sep. 7, 2008, Fannie and Freddie were essentially nationalized: placed under the conservatorship of the Federal Housing Finance Agency. Under the terms of the rescue, the Treasury has invested billions to cover the companies’ losses. Initially, Treasury Secretary Hank Paulson put a ceiling of $100 billion for investments in each company. In February, Tim Geithner raised it to $200 billion. The money was authorized by the Housing and Economic Recovery Act of 2008.

American International Group (A.I.G.) — 2008
Cost $180 billion
On four separate occasions, the government has offered aid to AIG to keep it from collapsing, rising from an initial $85 billion credit line from the Federal Reserve to a combined $180 billion effort between the Treasury ($70 billion) and Fed ($110 billion). ($40 billion of the Treasury’s commitment is also included in the TARP total.)

Auto Industry — 2008
Cost $25 billion
In late September 2008, Congress approved a more than $630 billion spending bill, which included a measure for $25 billion in loans to the auto industry. These low-interest loans are intended to aid the industry in its push to build more fuel-efficient, environmentally-friendly vehicles. The Detroit 3 — General Motors, Ford and Chrysler — will be the primary beneficiaries.

Troubled Asset Relief Program — 2008
Cost $700 billion
In October 2008, Congress passed the Emergency Economic Stabilization Act, which authorized the Treasury Department to spend $700 billion to combat the financial crisis. Treasury has been doling out the money via an alphabet soup of different programs.

Citigroup — 2008 
Cost $280 billion
Citigroup received a $25 billion investment through the TARPin October and another $20 billion in November. (That $45 billion is also included in the TARP total.) Additional aid has come in the form of government guarantees to limit losses from a $301 billion pool of toxic assets. In addition to the Treasury’s $5 billion commitment, the FDIC has committed $10 billion and the Federal Reserve up to about $220 billion.

Bank of America–2009
Cost $142.2 billion
Bank of America has received $45 billion through the TARP, which includes $10 billion originally meant for Merrill Lynch. (That $45 billion is also included in the TARP total.) In addition, the government has made guarantees to limit losses from a $118 billion pool of troubled assets. In addition to the Treasury’s $7.5 billion commitment, the FDIC has committed $2.5 billion and the Federal Reserve up to $87.2 billion.

Advertisements

3 responses to “Capitalism Is Code For Corporate Socialism

  1. After you review this, please tell me does capitalism, without oversight and regulations, really work.

    One of the first things to know about capitalism is that there is no guarantee that specific people or corporations will continually make money. Rather, the idea is that as better and better uses of resources occurs, resources that are both scare and have alternative uses, those uses will be rewarded.

    Two bread makers demand wheat; one is wasteful and makes horrible bread. The other is careful and skilled. We know where the capital will flow.

    The next thing I would need to understand is this:

    By regulation, do you mean enforcement of laws that already exist or do you mean more and more oversight?

    I hope you enjoy Seattle. I’m from Minnesota, the son of a union worker and a bank teller. Their lives and sacrifices made it possible for me to move to Seattle some 18 years ago. I fell in love with the city and region but I have since moved to the other coast and now call Carolina home.

  2. Hi Pino–Thanks for response!
    Capitalism to me should mean a country that promotes competition in order advance our society and encourage new innovations. That also means if a company loses in this competition, it fails and does not get bailed out in order to prevent it to fail. Our government has created the “Too Big To Fail” corporate society meaning there isn’t any risk involved. When there isn’t any risk it promotes greed and corruption. Hence the many bailouts we as tax payers have funded.

    On the regulation issue, we must remember that a corporation’s main goal is to make profits. They work for their shareholders who are their primary and only interest. For example, the BP oil spill. The reasons for this spill were lax regulations. The purpose of regulations is to make sure corporations operate in an ethical way to protect people from reckless behavior in the name of increasing the bottome line. Another recent example, Wall Street. Regulators not watching Wall Street whose only purpose was to increase bottome line. Again, regulations not in place, removed, to protect people.

    I hope you like the Carolinas. Had family that lived in Saluda & Columbia, SC for a while.

    Thanks for response. It is nice to meet you!! (absolutely love a good political debate)

    • Hi Pino–Thanks for response!

      No problem!

      Capitalism to me should mean a country that promotes competition in order advance our society and encourage new innovations.

      Competition – I agree
      New Innovation – I agree
      Advance Society – Not sure what’cha mean.

      if a company loses in this competition, it fails and does not get bailed out in order to prevent it to fail. Our government has created the “Too Big To Fail” corporate society meaning there isn’t any risk involved.

      Sing it sitah! I am with you all the way!

      For example, the BP oil spill. The reasons for this spill were lax regulations.

      Umm…not sure. I think the regulations were robust, the humans just didn’t follow ’em. It’s like setting a speed limit of 65. Someone going 75 gets in a wreck. Do we need to change the speed limit to 55?

      The purpose of regulations is to make sure corporations operate in an ethical way to protect people from reckless behavior in the name of increasing the bottome line.

      There is a simple method that would make us all happy.

      Require BP to pay for all damage in the event of a spill. Writ it into the contract when the lease is signed. Then, BP would have to go obtain “Spill Insurance”. And they wouldn’t be able to get that insurance unless they met what the insurance industry felt was safe rules.

      Another recent example, Wall Street. Regulators not watching Wall Street whose only purpose was to increase bottome line.

      This one’s tougher. I’m not sure if the bust was due to banks selling bad loans to other institutions back by the government [Fannie and Freddie] or if it was due to banks lying about the risk as they bundled the loans.

      Thanks for response. It is nice to meet you!! (absolutely love a good political debate)

      Nice to meet you as well.

      And yeah, debating is much fun!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s