Federal bailout during crisis times
By Bob Keefe
When you're giving away money, the lines can get deep pretty fast.
Nowhere has that been more evident lately than on Capitol Hill. After approving $15 billion in cash and loan guarantees to the beleaguered airline industry, Congress was inundated by industries requesting aid to keep their businesses afloat in the wake of the Sept. 11 terrorist attacks and the increasingly lousy economy.
Everybody from travel agents to Amtrak managers followed the airline money trail to Washington and queued up before Congress, looking for help. Representatives of industries ranging from agriculture to steel also renewed their pleas for government aid, using the terrorist attacks and the damage inflicted on the economy - and Congress' quick-to-spend airline bailout - as fresh fodder for their own SOS calls.
Pork-barrel politics also was evident. New York Reps. Carolyn Maloney and Thomas Reynolds introduced the "I Love New York Tax Deduction Act," which would give tax breaks to tourists.
Noted University of Dallas economist Michael Cosgrove: "Anytime people can find a reason to get cash out of the government trough, they'll do it."
The questions from John Q. Public were clear: Why should airlines get government aid when their chief executives make so much money? Shouldn't I get a tax break if my small business dropped off after the attacks? Why should only certain industries get government breaks when everyone is struggling?
My editors and I knew that in this economy, where virtually every business is hurting, the corporate handout line would clearly only get deeper if Congress let it. Further, propping up industries in a country built on capitalism and competition would certainly have some far-reaching aftereffects once the country got out of this mess.
A tricky road
Covering the West Coast from San Diego for Cox Newspapers, I was further from Washington than anybody on the chain's national staff. But as a business reporter and editor for the past 13 years, I also had some experience covering companies and knew a bit about corporate bailouts. (Perhaps most importantly, I was a free body at a time when all my East Coast colleagues were swamped.)
Even on the other side of the country, finding background information was pretty easy - given some of the electronic tools we all have in our journalistic tool kit today. For example:
At the same time, simply reviewing history as other journalists had recorded it yielded some interesting voices from the past - and present.
- Using Editorsweb.org, the excellent online service that compiles daily news releases in Washington - introductions of bills, government agency actions, even politicians' chicken-dinner proclamations - I electronically examined everything I could find since Sept. 11 that looked like a terrorism-related aid request. That's where I found the "I Love New York Tax Deduction Act."
- Going to the Library of Congress' Thomas site, I was able to review specific bills, such as Florida Rep. Alcee Hasting's "Ancillary Airline Industry Relief Act of 2001," which would give $4 billion in grants to travel agents, car rental agencies and other travel-related businesses. I could also research other pending financial aid bills, such as those for the agriculture and steel industries. With the names of sponsors and supporters of those bills, I talked to aides who cautiously told me how they were forming their pleas for funding in the wake of the Sept. 11 tragedies.
- With the help of Profnet.com, I tracked down economists and business school academics who had studied the effects of bailouts, such as Cosgrove. A simple search on Google.com led me to an essay on the airline bailout package by another insightful academic, Suffolk University professor C. Gopinath, whom I interviewed. These and others who have studied economic intricacies told me that propping up businesses in a competitive market - no matter what the circumstance - was taking the government and the U.S. economy down a tricky road.
- Combining information from LexisNexis and The Atlanta Journal-Constitution's research staff, I got some clips, congressional records and other background from past bailouts. I knew about Chrysler and the savings and loan bailout, the latter of which I had covered bits and piece of as a younger reporter. I had forgotten about the bailouts of Lockheed Aircraft Corp. and Penn Central Railroad, which with other failed Northeastern train lines, later formed Conrail.
Specifically, in testimony before Congress in 1971 a guy named Alan Greenspan - then just a private consultant - warned against bailing out Lockheed because that industry was already in bad shape. Two years later, then-Treasury Secretary George Schultz similarly warned that it was not a good idea to bail out the Penn Central Railroad, because it would change the rules for the railroad industry.
With a Republican president and a pro-business Congress, the idea of government bailouts today seemed pretty ironic. With a capitalistic icon like Greenspan and former Reagan Secretary of State Schultz warning of bailouts in the past, it made the story all the more interesting.
I also learned from clips how past government interventions in corporate affairs had turned into boondoggles. The government did OK in the Chrysler bailout, history showed. But the Conrail fiasco cost it - and taxpayers - at least $5 billion. Depending on who you talk to, it could take until 2019 for taxpayers to finish paying the hundreds of billions it cost to bail out the S&L industry - although that action, aimed at insuring consumers' funds as much as anything else, was under much different circumstances than today's business bailouts.
I wanted to talk to some of the beneficiaries of past bailouts, but - probably in part given the rising controversy over corporate aid - I didn't have much luck. I tried several former Chrysler executives. I tracked former Chrysler chief Lee Iacocca to Las Vegas, where he was attending a trade show. But he never returned my calls. Likewise with former Chrysler right-hand man Robert "Steve" Miller, now chief executive at Bethlehem Steel Corp. Miller apparently was busy with other problems; I later learned he put Bethlehem into Chapter 11 bankruptcy court protection a few days after I tried to talk to him about Chrysler.
Striking out with direct beneficiaries, I next tried to talk others who had benefited to try and give some perspective as to whether they were worth it. I knew that the city of Marietta, Ga., was a Lockheed town, so I tried tracking down the mayor. Using the Internet, I also found City Councilwoman Jo Anne Darcy in Santa Clarita, Calif., another Lockheed town.
Darcy ran the chamber of commerce there back when the government agreed to guarantee $250 million in Lockheed loans to keep the company afloat. She told me that government intervention did make a difference in her central California town - temporarily. Lockheed planned to cut 40 percent of its local workers there if it didn't get the government help, she said. But ultimately, not even government-backed loans could keep the airplane maker from shutting down the local factory a few years ago.
In the end, the piece gave some insight into the news of the day - that the airline industry certainly isn't the only business hurting and looking for help - and some indication of what Congress' actions hold in the future, based on the results of past bailouts.
Bob Keefe covers the West Coast for Cox Newspapers, focusing on business and technology.