If this doesn’t scare you

There are a couple of planks in the Obama administration’s effort to “not waste a good crisis” and radically expand the scope and power of the Federal government. Part of that is increased spending and taxation, bringing more and more of the economic production of the country under the direct control of the central government. Another major part, and one that is less onerous to the average citizen, is a dramatic increase in the regulatory powers of the Federal government over the private sector. Set aside the idea that the Feds in an oversight function over the private sector is like a blind and deaf lifeguard who can’t swim. Set aside also the fact that the big collapses we have seen have included some already heavily regulated industries and a couple of companies that are creations of and were protected by the same government that wants MORE control (i.e. Fannie Mae and Freddie Mac). Just read the following synopsis of former tax cheat and current Secretary of the Treasury Geithner’s plan for “fixing” the private sector.

The Treasury has been rolling out its proposals piecemeal. It announced Wednesday a central plank of the U.S. effort: a call to give powers to the Treasury and Federal Deposit Insurance Corp. to seize any company whose collapse could put the broader economy at risk.

Read that again:

The Treasury has been rolling out its proposals piecemeal. It announced Wednesday a central plank of the U.S. effort: a call to give powers to the Treasury and Federal Deposit Insurance Corp. to seize any company whose collapse could put the broader economy at risk.

So if you are too successful and get really big, the government can seize you. Of course, the details are a bit sketchy…

It isn't clear which companies would be brought under this umbrella. Administration officials believe they could include banks' parent companies, insurance conglomerates and certain hedge funds, among others. They said it would depend on a company's size, leverage, reliance on short-term funding and role in the financial system.

So the plan is pretty vague in terms of what this all looks like. I can tell you what it looks like, it looks like another step toward socialism. Given this vague plan, what is to stop the gubmint from seizing companies on whatever pretense they like?

"Because we have learned from the current crisis that destabilizing dangers can come from financial institutions besides banks, our plan will give the government the tools to limit the risk-taking at firms that could set off cascading damage," Mr. Geithner told the Council on Foreign Relations on Wednesday, the same day the Treasury laid out how such a process might work.

Government officials believe the new authority might give policy makers a powerful club to demand strategic or management changes at companies.

We already have limits on risk. It is called the market. If you take a bad risk, you fail and someone else wins. That is capitalism. Business is predicated on taking calculated risks, and there has always been a trade-off for risk and return. Nothing good comes from this intervention, where the government can decide that company A is too big for its britches, steps in and seizes it. Never mind that the biggest skewing of the risk-reward system is the Federal government stepping in to prop up failed companies, thus rewarding and subsidizing failure. Let’s give them more power (and more of our money) to tinker around with the financial system and the private sector!

The proposal would allow the FDIC to sell the company's assets and renegotiate or reject existing contracts. This could give the government leverage to ban bonuses at struggling firms, but it could also raise questions among counterparties as to whether existing contracts might survive government seizure.

The FDIC would also be able to replace directors and senior executives and "none of these actions would be subject to the approval of the institution's creditors or other stakeholders," the Treasury said.

That throws a monkey wrench into the whole system. Businesses operate by being able to raise capital. They raise capital by borrowing from banks and by issuing debt (which is basically what a bond is). They also raise capital by issuing stock to shareholders who become the owners of the company. They do business by entering into contracts with suppliers, customers and employees. When you add into the equation that the government can arbitrarily grab a business and toss all of the contracts out of the window, that means that doing business with bigger businesses becomes extremely risky. If you are an executive, you will shy away from working at a company where your employment contract and bonus structure can be negated by an act of the government. If you are a supplier, you will negotiate higher prices to offset the risk that the government will come in and redo your contracts. If you are a customer and contract for goods or services with a business, you have to build in the uncertainty that your business arrangements can be done away with at the stroke of a pen, leaving you with no legal recourse. In essence, this makes private companies wards of the state because the relationship between debt holders (people who hold corporate bonds) and stakeholders (people who own the company through stock, the shareholders) is radically changed. No longer will they have the final say on the way companies are run, now that power lies in the hands of bureaucrats

I actually think that President Obama and Secretary Geithner are fully aware of this. For all of his flowery talk of how he believes in the private sector, I don’t believe it for a second because his policies don’t match his rhetoric. His walk doesn’t match his teleprompter talk. As it becomes harder and harder for the bigger companies to do business, eventually the case can be made to nationalize them. One of the hallmarks of communism is the state holding the means of production. In a post-industrial society, it is less important to hold factories and farms, and far more important to control information and capital. That is the path we are on, as finances, the auto industry, socialized health care, control of our children virtually from the moment of birth with the “Zero to Five” plan, universal preschool and universal college, all adds up to the Federal government holding all of the strings of the economy. Think about the real means of production today and then look at the moves proposed by the administration. It becomes really easy to see that the dreams of Marx, Lenin, Trotsky, Mao and Castro are seeing their fruition. Not in Cuba or China or Venezuela, but right here in America. As America goes, so the world goes. The Marxist radicals have always known this and they have their greatest opening in 100 years right now, right here.