With both President Bush and President-elect Obama pressing the new Congress to appropriate the remaining $350 billion in authorized bailout funds, the Congress has a historic opportunity to demonstrate its preference for the free enterprise system over socialism. Congress should give Obama these funds, weapons in the war against the depression, but ought to attach an amendment prohibiting the federal government from using the leverage the funds give it -- and any equity it may acquire in these companies as a result of these funds -- to influence corporate lending, hiring, management or other practices.
The federal fire department has come to the rescue of these burning companies in the midst of their economic conflagration. The question now is whether the firefighters will go home. Or will they stay on to live in the house they have just saved from the flames, even evicting the homeowners? Will the feds now say, in effect, "We saved you, now we own you"?
The crucial difference between the approach favored by House Republicans and former Speaker Newt Gingrich (R-Ga.) and the bailout that was passed in October of last year was that the Republicans contemplated using insurance and loans, not outright grants, to shore up endangered companies. One key reason for their resistance to giving away grants was the realization that the Democrats would demand that the "taxpayers get something back" for all the capital they were giving banks. Inevitably, they realized, federal aid would come with a demand for government-owned stock in the companies receiving the assistance.
Now that the feds have become stockholders in our major banks and insurance companies, the question is: What will they do with this power?
Hanging in the balance will be whether the United States continues to follow free-market economics or chooses to emulate the no-growth, government-dominated economies that prevail in Western Europe.
Will we cash in our capitalist system for a socialist democracy?
It is easy to see how socialism could start. Federal regulators might demand, with some justice, that banks limit their compensation and bonus packages to senior executives, just as they have already made manifest their displeasure at AIG's party-loving, frat-jock ways. From there, the feds could go to imposing affirmative action goals on hiring and promotion, government guidance on lending decisions, proscriptions on redlining and the like.