Maneuvering for Socialism

I read two analyses of the same story, both of which were critical of the president’s actions but for very different reasons and with very different conclusions.  The news story I speak of is that President Obama’s Treasury Department is considering converting the shares that the government owns in our nation’s banks from preferred stock to common stock.  One article, from Business Insider, criticized the possible change for quite legitimate reasons:

Doing this would allow the Treasury to strengthen the banks without going hat in hand to Congress for more bailout money.  It might also, however, screw taxpayers yet again–by converting the preferred, dividend-paying securities they now own into common stock.  Common stock no longer pays a dividend at most TARP banks, and if the bank fails or needs more capital, the common stock gets hit first.

Obviously, one wants to be holding preferred stock when a company goes belly up.  The Business Insider article also discusses the other real results of such a move, noting that “converting preferred stakes to common stock will dilute common shareholders, perhaps severely.  Since dilution is preferable to bankruptcy, however, the stocks may not get hammered on this news”.  That is somewhat optimistic.  But this article glosses over the real results of this stock change:

Such a conversion would also radically increase government ownership of the banks.  Since the government already controls the banks through de facto nationalization, however, this would be more an acknowledgement of the existing reality rather than a major change.

What the Business Insider article did not acknowledge directly was the main difference between preferred stock and common stock, and it is the biggest factor that needs to be considered when debating this change.  The second article that I read discussing this possible change was from Dick Morris; he goes so far as to say that Mr. Obama is manuevering for socialism with this change:

President Obama showed his hand this week when The New York Times wrote that he is considering converting the stock the government owns in our country’s banks from preferred stock, which it now holds, to common stock.

This seemingly insignificant change is momentous. It means that the federal government will control all of the major banks and financial institutions in the nation. It means socialism.

Now before you dismiss this as hyperbole from Morris, consider his main point that for some reason was glossed over by the Business Insider article:

“Preferred” means that these stockholders get the first crack at dividends, but only common stockholders can actually vote on company management or policy.

 

Now, by changing this fundamental element of the TARP plan, Obama will give Washington a voting majority among the common stockholders of these banks and other financial institutions. The almost 500 companies receiving TARP money will be, in effect, run by Washington.

 

And whoever controls the banks controls the credit and, therefore, the economy.

 

That’s called socialism.

This change allows the government to vote in stockholder meetings.  Morris finishes with more observations:

Meanwhile, to keep its leverage over the economy intact, the Obama administration is refusing to let banks and other companies give back the TARP money until they pass a financial “stress test.”

 

Nominally, the government justifies this procedure by saying that it does not want companies to become fully private prematurely and then need more help later on. But don’t believe it.

 

They want to keep the TARP money in the banks so they can have a reason and rationale to control them.

 

The Times story did not influence the dialogue of the day. People were much more concerned with the death of 21 horses at a polo match.

 

As much as we will miss these noble animals, we will miss our economic freedom more.

You can read Morris’ take on this here, and read the Business Insider article here.

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