Obama's Hypocrisy

This will be my first criticism of President Obama. I first saw it in The Economist in an article “An Offer You Can’t Refuse” . Then I saw George Will sight the same article in The Washington Post. George Will takes it to a level I am not going to touch because I believe it raises a Democrat/Republican hypocrisy that I just don’t want to get into. I just want to discuss Obama’s policy hypocrisy.

The purpose of the bank bailout is to start the flow of credit once again by cleaning up the current mess. This country’s economy is based on credit which is essential to investment and economic development. Business owners rely on credit to increase internal investment acting to increase production, labor and numerous other methods to develop their business. Consumers rely on credit to borrow the money they need to purchase various expensive goods (i.e. houses, cars, education etc.). Consumer credit and business credit are essential to one another. Without this flow of credit, economic and consumer growth is stunted. The Obama administration has spent billions of dollars in order to clean up the largest banks in America, hoping to free up capital for lending. The Federal Reserve has also dropped interest rates to a record low to promote borrowing. Borrowing and lending money is the primary goal of the administration to get the economy moving.

The auto industry bailout by the Obama administration seems to be counterproductive for promoting industry investment. Chrysler’s secured creditors will be receiving 28 cents to the dollar for a claim totaling $7 billion. These secured creditors supplied cheaper funds to Chrysler for more secure claims if the company were to experience difficulties. The United Auto Workers union will receive 43 cents on the dollar with claims totaling $11 billion. The union members will receive a greater return even though contractually, the secured creditors were to have a stronger guarantee.

I feel George Will is correct by saying this is corruption. Unions can usually be tied to Democrats and I think there is something a little fishy about Obama’s decision. George Will’s article mainly discusses Obama over-reaching his power and abandoning the Constitution. (The hypocrisy of George Will’s criticism at this point in time while remaining relatively silent during Republican years is mind blowing and I can’t even begin to write about that whole issue!). Personally I think this issue is more significant for its ideological hypocrisy. Confidence in the system is a major component for this economic recovery. If lenders cannot have confidence in contractual obligations, they will be less likely to lend. When the Government favors one group over another (common) by braking contractual obligations (uncommon), confidence in our system is damaged. It is important to remember that lenders are not necessarily rich fat-cat individuals but actually commonly an investor representing everyday people and families trying to get involved in the investment markets. The administration’s decision to break and misconstrue Chrysler’s obligations has directly impacted the confidence and pocketbooks of Chrysler’s secured lenders, but more importantly he has indirectly hurt the confidence of lenders everywhere.

Disclaimer: I feel like I need to add a disclaimer here. I by no means am an economist. I do not pretend to understand every aspect of the bailouts, neither bank nor auto. But I do have confidence in Barack Obama. These articles point out that he is not going to be perfect and that shady actions are going to take place, I just hope he doesn’t do so many questionable things without full explanation to the people.