Step right up for a share of the federal bailout

TRIGAUX E-mail: Click here Archive

© St. Petersburg Times,
published October 14, 2001

Memo

To: Corporate America

From: Bush administration and Congress

Subject: Federal bailouts

All industry requests considered! Please take a number. Line forms to the right.

Want a government bailout? There has never been a better time to ask for one. Or two. Or three.

Since the Sept. 11 attacks, our federal leadership seems hellbent on tossing financial lifelines with an eye on entering the Guinness Book of World Record Bailouts.

Earlier this year, the Bush administration sang a different tune. It lectured a begging California, suffering power blackouts and a dud energy deregulation plan, to suck it up and let the free market sort out sky-high electricity prices.

Now, helping the bludgeoned U.S. economy is admirable. But once federal bailouts with taxpayer money gather steam, when will they stop?

The country's beleaguered airlines managed to secure one of the largest and certainly the quickest bailouts in U.S. history. Within 11 days of the terrorist attacks, Congress agreed with little debate to provide $15-billion in aid and loan guarantees.

Good politics. Not so great economics.

(Before 9-11-01, Congress could not hold enough hearings criticizing airlines for lousy service and a disregard for their customers.)

More and more industries are clamoring for some kind of federal bailout. The insurance industry. The tourism industry. New York City. Amtrak. Power companies. Local water suppliers.

Hey, no shoving in the handout line.

It's enough to make the fans of free enterprise very uncomfortable when a company's shareholders are protected from loss by government funds.

"If people's wishes are for there to be fewer flights, then there ought to be fewer flights," says David Henderson, a research fellow at the Hoover Institution.

A corporate failure here and there. A takeover of a weak company by a stronger competitor. Gee, isn't that how the U.S. economic system is supposed to work?

No question, a little federal help never hurts in times of crisis. But this lengthening queue of U.S. industries out for federal dollars is beginning to look a bit like one big gravy train.

Bailout pitches can sound very persuasive these days.

If airlines fail, just as the Bush administration tries to rebuild consumer confidence in travel, people are less likely to fly.

If risk-wary insurance companies won't insure businesses against terrorism and also raise the price of all coverage, the economy can't gain any momentum.

If the nation's $582-billion tourism industry (rental car companies, hotels and travel agents included) falters, hundreds of thousands of additional layoffs will occur.

If New York City doesn't get a mass of federal dollars, it can't rebuild and risks the additional hit of losing more than 100,000 jobs as companies go elsewhere.

If Amtrak can't get more federal bucks, it can't handle the flood of travelers who want to avoid flying.

If California's big power companies can't get extra aid, the country's richest state will fall further behind any economic recovery. And if local water providers can't get aid, they say they can't assure safe supplies.

Convinced? Ready to open the federal coffers? Given the rapidly disappearing federal surplus and the extraordinary costs of the new war against terrorism, after many years the government may find it must again adopt deficit spending to pay for its long list of bills. Will there be room for new bailouts or, as the airlines already hint, a second round of aid?

Conventional economic wisdom says federal bailouts in this country are rare and frowned upon.

In reality, corporate "bailouts" by the feds have taken place often since well before the Depression.

Some federal bailouts are well known. In the 1970s, there were multibillion-dollar assistance packages for Lockheed Corp., a near-bankrupt New York City, the Conrail railroad system and troubled Chrysler Corp.

In the 1980s, the mother of all federal bailouts arrived in the $200-billion-plus aid package for the crumbling U.S. savings and loan industry. (That bailout was orchestrated by another President Bush: George W.'s father.)

And in the late 1990s, the feds (using private money this time) had to engineer the rescue of Long Term Capital Management, a high-flying hedge fund that nearly collapsed the international financial system.

Before the terrorist attack, the airline industry was expected to lose $2-billion this year. With travelers scarce, analysts now put that loss closer to $5-billion.

The federal bailout package comes with conditions. Airline executives earning $300,000 or more last year will not be paid more this year or next. And the government may insist it will take an equity stake in airlines so that taxpayer funds used in the bailout might eventually be recovered.

Of course, weaker airlines -- some of which were bankruptcy candidates before Sept. 11 -- could take their federal dollars down the tubes with them.

The insurance industry wants a federal bailout similar to one sought after the costs of Florida's Hurricane Andrew and California earthquakes shocked insurers in the 1990s.

The industry hopes to shift some risk to the government by creating a federal insurance company to cover future terrorist attacks. In effect, the insurance industry wants the feds to become the nation's "insurer of last resort" and supplement private insurers in the event another catastrophic event exceeds their capacity to pay.

As proposed, the federal bailout option for the insurance industry would expire after six years. Presumably -- hopefully -- the risk of terrorism would have declined by then.

To help U.S. car rental companies, a Florida congressman this month proposed $1.5-billion in government loan guarantees. Republican Rep. Clay Shaw, whose Fort Lauderdale district is home to the parent of the National and Alamo car rental lines, says the $20-billion industry deserved attention because it was so closely linked to airports and because it helps support other industries such as car manufacturers. (Hertz and Avis are not supporters of the relief effort.)

Is all this poormouthing by corporate America on the up and up?

Or are American businesses, weaker from a slower economy before Sept. 11, grabbing some freebies from a federal government so eager to salve national wounds?

Some aid is necessary. But in a year or two, in the clear light of day, many of these bailout efforts will seem garish in their dependence on the feds.

The assault on the World Trade Center was enough of an insult to the U.S. economy.

-- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

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