What if I told you that right now the federal government is considering making the largest loan guarantee in its history to a private company - a loan that dwarfs the size of the Chrysler bailout in its scope - and yet almost nobody has ever heard a word about this plan?
It sounds incredible, but unfortunately it is true. And in my mind, it is a prime example of what is wrong with the way that Congress spends your money.
Back in 1979, when Congress was considering extending loan guarantees to bail out Chrysler Corporation, there were vigorous debates about the propriety of such a large-scale government intervention into the marketplace. The size of the loan guarantees - $1.5 billion - was unprecedented at the time. It wasn’t until the federal government stepped in to help the airline industry after the terrorist attacks of September 11, 2001 that there was such a large-scale government bailout.
But today, in a world where dead-of-night earmarking can move billions of dollars in Federal spending, a $2.3 billion loan to a struggling railroad can pass Congress without a moment’s scrutiny or debate.
While the Chrysler bailout was a bad idea - the government shouldn’t be in the business of picking winners and losers in the economy - at least there was a plausible excuse at the time for doing it. Chrysler employed over 100,000 people in 1979, and lawmakers worried that its financial collapse would have unacceptable consequences for the American economy.
Nothing so grand is at stake here. The federal government, through the Federal Railroad Administration, is seriously considering loaning $2.3 billion to a struggling railroad called the Dakota Minnesota & Eastern (DM&E) to expand its service into the Wyoming coalfields.
What makes the DM&E expansion so special, and worthy of such a huge loan? Absolutely nothing. Two railroads already service the coalfields. DM&E itself is among the worst-run railroads in the country, with the worst safety record of the major railroads. It is financially overextended already, and if the feds approve this loan, they will have a debt-to-equity ratio almost twice the industry average.
In fact, after years of seeking private financing for the project, and getting no takers, DM&E gave up and turned to the federal government because no private investors would touch their project.
So again, what makes DM&E so special? Well, it turns out that they are politically well-connected. Sen. John Thune, who turned Senate Minority Leader Tom Daschle out of office in 2004, made a living lobbying for DM&E before running for Senate. Thune, along with Sen. Trent Lott, managed to earmark money for the loan in the 2005 Transportation Bill.
To add insult to injury, taxpayers aren’t even allowed to access the application for the loan, and DM&E is a privately-held company that withholds its financial records from scrutiny. There is almost no publicly-available information about who owns the company and how likely it is to be able to repay the loan. Independent studies - done with admittedly too little information because the real numbers are withheld by the company - make it clear that DM&E is unlikely to be able to make its loan payments.
Why should you care?
Because deals like the DM&E loan are becoming common practice, barely worthy of notice by the media and the political class. Back in 1979, Congress vigorously debated the bailout of Chrysler before putting taxpayers on the hook for a $1.5 billion loan. Today, a Freshman Senator can earmark $2.3 billion in loans for his former employer without eliciting a peep.
That’s just how its done in Washington these days, and we are supposed to shut up and take it.
This isn’t what Republican control of Congress was supposed to mean. And for anyone dedicated to free markets and limited government, it’s a scary indicator of what the future could be like without serious reform.