Trouble with moving targets

Trouble with moving targets

While describing the challenge facing the government as it pursues a bailout plan for the financial markets, an analyst said a few days ago, “they’re shooting at a moving target.” It was an apt but imperfect metaphor. Congress and the administration are shooting at moving targets from a car that’s speeding in reverse.

The targets are getting out of range, and the shooters are using up shells at an alarming rate. Two weeks ago it was presumed that $700 billion worth of ammunition would do the job; now there are doubts.

Consider what happened with American International Group, the insurance giant known as AIG that was one of the Bush administration’s first targets. When the Federal Reserve issued more than $100 billion in emergency credit to AIG in September, it did so at an interest rate of 14 percent. Perhaps that seemed prudent, but the effect was to force AIG to sell off some of its assets to repay the loan, and that put the company in another tail spin.

Now the deal is being restructured, and the Treasury Department will use about $40 billion from the $700 billion Troubled Asset Relief Program to seal the deal. Along with more than $250 billion the Treasury has already committed to faltering banks, the commitment to AIG brings the government within $60 billion of using up the first half of its $700 billion kitty.

In exchange for tapping the relief program, the government will get equity in AIG. It will hold a nearly 80 percent share of the company.

But it’s hard to know what that will be worth. The company’s stock, which has traded between $1.25 and $62.30 in the past year, is now at about $2.50.

That’s part of what Daniel J. Ikenson, associate director of the Center for Trade Policy Studies at the Cato Institute, a free-market think tank, was talking about when he said, “They’re shooting at a moving target.”

And AIG has multiple targets of its own — complex financial instruments it structured for commercial banks, investment banks and hedge funds — scattered all over the world.

Another target

Meanwhile, even as the relief fund pot is approaching that halfway mark — after which additional congressional authorization will be needed — President-elect Barack Obama and members of Congress are suggesting some of that ready cash should be used to shore up the auto industry. That seems to make sense because the automakers are going to need a quick infusion of cash to meet expenses.

We don’t know — we doubt that anyone knows — whether the collapse of AIG or General Motors, Ford and Chrysler would be worse for the economy. But we’d put our money on the automakers (and being in the center of the Mahoning Valley, we’ll make no apologies for that).

President Bush has responded to the call for an auto bailout by saying he’d be willing to cooperate if Congress reverses itself and supports a free trade agreement with Colombia.

We’d suggest that the Republican Party might want to count how many Colombian votes there are in the United States compared to how many votes are connected to the domestic auto industry. Holding help for U.S. automakers hostage to a Colombian free trade agreement makes no political sense.

Congress and the president have to set their sights on the important targets. There are more than enough of them, and they’re constantly moving and changing. Congress, President Bush and Treasury Secretary Henry Paulson don’t even know all the targets. But know this: Every day that Congress and the administration waste increases the likelihood that the big one is going to outflank them and bite all of us.