Home  |   Jihad Watch  |   Horowitz  |   Archive  |   Columnists  |     DHFC  |  Store  |   Contact  |   Links  |   Search Monday, April 21, 2014
FrontPageMag Article
Write Comment View Comments Printable Article Email Article
Font:
Brazil to U.S.: Send Money By: Larry Elder
FrontPageMagazine.com | Thursday, August 15, 2002


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 Sept. 11, the airlines struggled with over-capacity and a slowing economy. What gives United the gall to ask for taxpayer assistance?

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 billion.

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 management.

"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."


Larry Elder is the author of the newly-released Showdown. Larry also wrote The Ten Things You Can’t Say in America. He is a libertarian talk show host, on the air from 3-7 pm Pacific time, on KABC Talkradio in Los Angeles. For more information, visit LarryElder.com.


We have implemented a new commenting system. To use it you must login/register with disqus. Registering is simple and can be done while posting this comment itself. Please contact gzenone [at] horowitzfreedomcenter.org if you have any difficulties.
blog comments powered by Disqus




Home | Blog | Horowitz | Archives | Columnists | Search | Store | Links | CSPC | Contact | Advertise with Us | Privacy Policy

Copyright©2007 FrontPageMagazine.com