While the federal government has lavished trillions of dollars on the banking, Wall Street brokerage, insurance, mortgage lender and other industries, with few strings attached except for CEO-pay conditions, the defense industry is being bled dry of funds vital to existing procurement programs.
And a key senator cannot abide that disconnect.
Sen. Jon Kyl of Arizona, the Senate minority whip, spoke before a National Defense University Foundation and National Defense Industrial Association breakfast in Washington at the Capitol Hill Club.
Kyl was incensed when he was asked a question: if full funding is restored to programs that Secretary of Defense Robert Gates wants to slash or kill, then what other defense spending programs should be cut by an equal or offsetting amount?
That brought a strong retort from Kyl.
Why is it, he asked, that trillions of dollars can be heaped on banks and brokerages, mortgage firms, insurance companies and more, but when it comes to defending Americans and their cities and homes against enemy nuclear missile attacks, suddenly money gets tight and it’s time for hard decisions? He particularly cited a Federal Reserve program to, in essence, invent $1.2 trillion or more for a support program.
The numbers have been dizzying. There was $182 billion for insurance giant AIG. Another $700 billion for the Troubled Assets Relief Program, including $20 billion at one point to help the biggest bank, Bank of America, buy the long-time biggest broker, Merrill Lynch. Then there was $400 billion for Fannie Mae and Freddie Mac, helping to prop up the value of $1.3 trillion of Fan and Fred debt held by foreigners (including $376 billion by the Chinese), and more.
In that Federal Reserve program Kyl mentioned, the central bank in essence is printing $1.2 trillion to buy government securities and mortgage-backed instruments, attempting to drive down interest rates on longer-term loans.
Importantly, this may be just the beginning. If the banking/insurance/brokerage/mortgage industries need more, and analysts say they will need huge added amounts, they will get it.
But if you are the defense industry, sorry, the cupboard is bare. Tough luck/tough love. The Gates plan would hack $2.3 billion out of the $10 billion yearly missile defense effort alone, by Kyl’s estimates. That $2.3 billion shortcoming equals roughly one-thousandth of the bailout money loaned or effectively given to favored industries thus far, with vast added sums yet to come.
Aside from the defense industry, the only other industry getting a fist instead of fiscal bailouts from Uncle Sam is the auto industry. So far, Detroit has received only about $25 billion, a mere sliver out of the TARP money and chump change by financial-industry bailout standards. That came after GM and Chrysler had to come up with viability plans, something not seen in some other, far larger bailouts. Washington may shove both Chrysler and General Motors into bankruptcy, in which case there is a major question as to whether potential carbuyers would purchase vehicles from those firms, on fears that vehicle warranties could become worthless. (President Obama promised the government will back warranties.) Then, if GM and Chrysler go out of business, there is a major question as to whether Ford can remain viable, because it uses many of the same suppliers serving GM and Chrysler. That will leave Americans with the choice of which foreign-car-nameplate they would like on their next car. The fascinating point is that Detroit did what it should and provided Americans with the vehicles they wanted — big, powerful, stylish — but Detroit couldn’t survive a recession-driven drop from 16 million vehicles sold nationwide yearly to only about 9 million to 11 million.
The financial industry, on the other hand, caused its own grief by doing everything wrong, especially lending money to people who it was certain wouldn’t be able to repay it. But the financial industry gets truckloads of bailout bucks.
Both former President Bush and President Obama have heaped untold fortunes on various industries, though Republicans now assert it is just Obama who is overspending with borrowed money.
Kyl expressed disbelief that these gargantuan bailout sums, totaling years worth of defense procurement spending, are tossed out the door at various industries with few strings, but defense programs are going to be hammered.
“We’re going to spend a lot of money in order to create jobs and get the economy going again,” Kyl observed. But why couldn’t the economy have been stimulated with one kind of spending that would yield a benefit militarily — weapons procurement such as missile defense? Kyl asked.
“One area that we might have looked to is in the area where we are cutting now,” he said. “I have to be honest with you, and say, that in order to achieve a stimulative effect, I would have taken the roughly $69 billion that the Pentagon says that they needed right now — and nobody can spend money more quickly — they give the order and the money goes out the door — they needed about $69 billion worth of stuff. Well, that might have freed up $69 billion for the kinds of things that I’m talking about. So, I don’t accept the premise [that the most important program] has got to get cut, whereas frivolous and wasteful spending is just the ticket to get us out of the [economic] fix we’re in.”
Obama now must consider the proposed defense spending cuts that Gates proposed and decide whether to endorse them. Then Obama must send his federal government budget, including proposed defense outlays, to Congress for its approval or revision.