President Obama now wants Congress to spend $50 billion to keep state governments from laying off government employees. In essence, this is a bailout for the public-employee unions that bankroll liberal politicians. Earlier, Obama’s allies in Congress proposed spending billions to bail out mismanaged and underfunded union pension funds.
The state governments will never have to pay back any of this bailout money, which rewards them for irresponsibly increasing government-employee pay much faster than inflation, to levels much higher than in the private sector.
While millions of private sector employees have been laid off in the current recession, few government employees have been. The few government layoffs that have occurred would not even have been necessary if government employees were willing to accept pay cuts. For example, in Montgomery County, Maryland, where a handful of teachers may end up being laid off due to a huge budget deficit, the average teacher makes $76,483 in base pay, not counting $30,000 in benefits, and other county employees are paid much better than teachers. (Even if teacher layoffs occurred across the country–which they won’t–class sizes would still be smaller than they were a decade ago, since there are more teachers with higher pay teaching fewer students in the typical American classroom.)
Obama has not hidden his bias towards these unions. As he noted in a 2006 book, “I owe those unions. . .When their leaders call, I do my best to call them back right away. I don’t mind feeling obligated.”
Obama’s $800 billion stimulus package was deliberately crafted to focus on propping up pink-collar government employment at the expense of private-sector blue-collar jobs, where unemployment is concentrated. The stimulus package is using taxpayer subsidies to replace U.S. jobs with foreign green jobs. It also destroyed jobs in America’s export sector.
The private sector bailouts have been bad enough. An oversight panel found that the bailout of insurance giant AIG had “poisonous” consequences.
But bailouts of governmental and quasi-governmental entities will end up being far more costly. The Obama administration lifted a $400 billion limit on bailouts for Fannie Mae and Freddie Mac, the corrupt, government-sponsored mortgage giants that even Obama administration officials admit were at the “core” of “what went wrong” in the financial crisis.
At the direction of the Obama administration, Freddie Mac ran up more than $30 billion in losses to bail out mortgage borrowers, some of whom have high incomes. Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public. The Obama administration showered the mortgage giants’ executives with $42 million in compensation.
Fannie and Freddie helped spawn the mortgage crisis by creating an artificial market for risky mortgages. “From the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime.” They paid their CEOs millions, and engaged in massive accounting fraud–$6.3 billion at Fannie Mae alone–to increase the size of their managers’ bonuses. As Government-Sponsored Enterprises, they were exempt from the capital requirements that apply to private banks, so they did not have enough reserves to cover their losses when their mortgages started defaulting.