Why are double standards being employed in Government Management of the Economic Crisis?

Many have cried foul over the double standard being employed by the federal government regarding the various requests for financial assistance by financial and automotive companies. The U.S. Treasury Department and the Federal Reserve came to Congress kicking and screaming for funds to rescue the financial industry and walked away with TARP. They handed over hundreds of billions of dollars to the financial services industry, free of any real oversight. The U.S. automotive manufacturers came in and asked for assistance that amounted to a small fraction of TARP and were greeted with lectures on fiscal responsibility and flying in private corporate jets.

The reasons for this double standard can best be explained by examining the institutions and people involved in this “crisis management”.

The first to be examined is U.S. Treasury Secretary Henry Paulson. Paulson is the former CEO of Goldman Sachs, a major Wall Street player. While at Goldman, Paulson succeeded in persuading the SEC to exclude major investment houses (such as Goldman) from a requirement to hold reserve capital in order to minimize risk exposure. Many feel that this regulatory relaxation is a major factor in the current meltdown. Paulson received a large payout when he left Goldman Sachs. It’s fair and reasonable to conclude that Mr. Paulson’s eagerness to “bail out” the financial services industry is merely action to take care of his own, particularly in consideration of the fact that he participated in deregulatory actions that led to the current crisis.

While the Federal Reserve is not being run by an individual who is obviously part of the financial “in-crowd”, it is owned by members of the financial services industry (it is not a government agency in the true sense). Its chairman’s and board members’ terms span multiple administrations and Congresses and their decision-making is only subject to periodic government review. Its bank shareholders receive a dividend for their stock holdings and these shareholder banks are its customers.
To say that these banks do not influence the Federal Reserve, as the Federal Reserve itself suggests (see their FAQ page) is disingenuous. The Federal Reserve did nothing to prevent the current crisis. In fact, former chairman Alan Greenspan’s monetary policy arguably made a significant contribution to it by growing the real estate bubble that has burst.

The Congress is knee-deep in this mess as well. It not only passed the financial deregulation in the 1990s, but stood by while deregulation was furthered by the Bush Administration. This occurred on both sides of the aisle.
Those who had the power to prevent this, such as Representative Barnie Frank(D-Ma.) and Senator Christopher Dodd(D-Ct.), are among those who acquiesced by allowing institutions such as Fannie Mae and Freddie Mac to run aground by granting senseless mortgage loans to people who didn’t come close to qualifying for them, despite warnings and calls to action. They obviously felt a need to rectify their own inaction. Their haste to do so is evidenced by the absence of any real oversight in the TARP program.

None of these entities, other than those congressional delegations from states with a heavy domestic auto presence, have any real connection with the auto industry. Having already been burned once by TARP, Congress has no trouble holding the big 3 autos to the fire; the Treasury Department doesn’t have any good old boys to protect; and Congress, reading the polls, acts like a kettle calling the pot black by lecturing these companies about fiscal irresponsibility. The irony in all of this is that the auto companies would be going to the banks to get the loans if the banks were loaning, as was intended with TARP.