United Airlines, to stave off bankruptcy, wants $1.8 billion
dollars in federal loan guarantees. With the exception of Southwest
Airlines, all major airlines now lose money, with United -- one of the
highest-cost airlines -- incurring losses of nearly a million dollars per
day. Even before September 11, the airlines struggled with over-capacity and
a slowing economy. What gives United the gall to ask for taxpayer
Well, take Brazil.
Amid corporate accounting scandals, a declining stock market and
a sluggish domestic economy, President George W. Bush supported an
International Monetary Fund "emergency bailout" to Brazil. (The IMF consists
of 184 nations. The United States controls 17 percent of the Fund.) The IMF
also provided $1.5 billion in "short-term loans" to Uruguay. Just as the
Clinton administration helped out major banks when they provided $20 billion
to Mexico, Bush's gesture bails out Wall Street. Brazil owes Citigroup,
FleetBoston, J.P. Morgan Chase, Bank of America and Wachovia over $20
Experts properly chastise most investors who lost money when the
most recent "economic bubble" broke. They tell us to diversify, maintain a
long-term investment strategy, watch the fundamentals of the companies in
which you invest or hire professional managers to do so. So why didn't the
banks that lent money to countries like Brazil follow their own advice? And
if they failed to exercise prudence in lending money, why should taxpayers
bail them out?
Short-term, these banks face writing off bad loans. Their
profits would decline, forcing them to change the way they do business,
downsize, merge, tighten up their lending criteria, or even go bankrupt. In
any case, in the long run, this weeds out poor performers, forcing survivors
to improve their business practices.
This Brazilian bailout, according to The Wall Street Journal,
represents yet another Bush switch. "The agreement," said the newspaper,
"represents a significant shift by the Bush administration, which had
previously advocated a tough-love approach toward debtor nations and refused
to back further aid to Argentina after it defaulted on its loans and
scrapped its IMF-endorsed economic plan late last year."
When Secretary of the Treasury Paul O'Neill toured parts of
Africa with rock star and AIDS activist Bono, O'Neill criticized foreign
aid. "In too many cases," said O'Neill, "potential entrepreneurs and
investors in Africa are deterred by arbitrary laws, corrupt bureaucracies
and government favoritism." Why invest under those conditions? O'Neill said
entrepreneurs "have no chance for success without governments that fairly
enforce laws and contracts, respect human rights and property, and fight
corruption. Governments must remove barriers to trade
. . . and open their economies to investment."
During the presidential campaign, the president properly noted
that economic growth goes hand-in-hand with low taxes. His secretary of the
treasury, in Africa, argued for low regulation, limited government spending,
rule of law, privatization and free trade.
What happened to Brazil? After all, Brazil, in recent years,
made tremendous progress in privatization, including the construction of
private toll roads. But Brazil grapples with an uncertain judiciary,
government corruption, a recent energy crisis and huge public debt.
According to an article by Lawrence Goodman and Charles Kimball
(managing directors at Globalecon LLC and Trans-National Research Corp.,
respectively -- both international investor research groups) headlined
"Brazil Must Help Itself," Brazil faces several key problems: inconsistent
currency management, weak accounting and reserve management, and poor debt
"The U.S. Treasury and the IMF," said Goodman and Kimball, "run
a big risk by disbursing more relief funds to Brazil without securing
substantial policy shifts. This would simply serve to prop up asset prices
and help investors, speculators and citizens of Brazil exit at favorable
rates. Before others can help Brazil, Brazil must help itself."
Of the Brazilian crisis, Time magazine said, "Corruption is key.
South America did need the discipline and budget austerity of U.S.-backed
reforms, which freed the region from crippling hyperinflation and ushered in
hundreds of billions of dollars in foreign investment. But they couldn't
whip the plague of corrupt elites, absentee judicial systems and addiction
to foreign capital that made Latin American capitalism as ripe for abuse and
collapse as an Enron office suite."
So to the growing pile of Bush administration economic
inconsistencies or flip-flops, add foreign aid "emergency bailouts." This
means our limited-government/compassionate-conservative approved steel
tariffs, lumber tariffs, taxpayer money for faith-based initiatives,
taxpayer money for embryonic stem cell research, the most expensive domestic
farm bill ever, taxpayer money for programs to "promote marriage," a
campaign finance reform bill, the extension of unemployment compensation
benefits despite evidence showing that longer benefits sap workers'
initiative, and taxpayer money for "emergency bailouts."
Expect more. As one financial analyst recently put it, "The
worry underneath it all is that Mexico might be susceptible -- and that's
right on our doorstep." Remember that line? A billion here, a billion there,
pretty soon it adds up to real money.