March 19, 2009, 9:15 a.m.
and More Bad News
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Since last September I have repeatedly been arguing against transfers of massive amounts of taxpayer money to those who created this problem, for reliance upon "the market" (with examples of where and how it has been working even during this crisis), against "trickle down," and for trickle up. (E.g., "There are three groups of people I care about in this mess -- none of which is made up of Wall Street or Main Street bankers. I am concerned about (a) depositors, (b) workers, and (c) homeowners." Nicholas Johnson, "Alternatives to 'The Plan,'" September 28, 2008.)
And speaking of "the marketplace," note the comment in this morning's New York Times about the 90% tax on bonuses that "Several banks are considering refusing to participate in government financial rescue programs if the bill passes, according to a person briefed on the banks’ plans." Carl Hulse and David M. Herszenhorn, "House Approves 90% Tax on Bonuses After Bailouts," New York Times, March 20, 2009.
Secretary Paulson had passed along an earlier, comparable threat last fall.
There is no positive spin one can put upon those sentiments. (a) If the banks, if the market, will function with or without these bailouts, why are we giving them trillions of dollars of our money? (b) If their executives are so selfish, greedy and unpatriotic that, even though their incomes put them somewhere between the top 2% and top 1/100th of 1% of the nation's wage earners, they would rather see their bank go bankrupt than lose their precious bonus, why would we want to protect them from failure (so long as the depositors are protected by FDIC)?
Much as I continue to hope that Washington knows what it is doing and will eventually succeed and prove me wrong, I must confess to a little sense of vindication this morning [March 20].
Presumably the goal here is to reverse a downward spiral of reduced sales, leading to reduced manufacturing, leading to increased unemployment, leading to a repetition of this further deepening cycle, that has thrown business and consumers alike into a personally rational (even if group irrational) reassessment of their borrow and spend behavior. They want to reduce expenses and debt, use cash rather than credit, save rather than spend. Businesses cut costs by laying off workers; consumers by no longer running up debt, spending money they don't have to buy things they don't need.
As we've discovered with the auto industry, you can't revive an economy through a program of increased automobile sales by putting billions of dollars into the hands of auto executives -- especially those with a proven track record of inability to make cars people want to buy or otherwise run a corporation at a profit. The problem never was a shortage of GM cars coming off the assembly lines, or sitting in dealers' show rooms.
The problem was that there weren't all that many people who wanted to buy them in the best of times. And now, in what is fast becoming the worst of times, the problem is not a lack of opportunity for consumers to take on a hefty increase in their debt load to buy a new car. The problem is that laid off workers are not the only ones who are hunkering down, reapplying the Depression-era wisdom ("Use it up, wear it out, make it do, or do without"), and wisely deciding this is not the time to be taking on more debt.
And if it makes no sense to try to revive the auto economy by giving billions to auto executives, it makes even less sense to try to revive an entire economy by transferring trillions of taxpayer dollars to bankers. Here again, the problem is not that businesses and consumers don't have the opportunity to run up even more debt. The problem is that they have the wisdom not to want to do so, especially at this time.
"Trickle down" didn't work in the best of times, and certainly won't work now.
And I'm not even talking about fairness and equity, "government by campaign contribution," outlandish bonuses, or the near criminality and stupidity of putting these trillions of dollars into the hands of those who, like auto executives, have a demonstrated inability to run a corporation with ethics, common decency and common sense (not to mention long term survival and profit), executives who created the problem through their own greed.
No. Of course those are reasons enough not to be giving them our grandchildren's trillions of dollars. But my point for now is that even the world's best and most honorable bankers couldn't solve this problem with that much money. Trickle down doesn't work. In addition to common sense, intuition, and long history, we now have the lack of results from the most recent six months of trying.
The solution? I won't repeat everything laid out on this blog over the last six months (most of which are linked at the bottom of this entry), except to say that it involves trickle up not trickle down, a focus on the consumer, on 300 million Americans, not 300 thieves in suits, a massive and yet precisely targeted jobs program, mortgage relief for deserving homeowners, immediate health care for all during the downturn (while long term solutions are being crafted), and continued protection for bank depositors (not investors).
If that had been how we'd invested all those trillions given to bankers over the past few months I think we'd be well out of this mess by now.
Meanwhile, on top of everything discussed in this blog entry yesterday, below, there are now a couple of other, equally disgusting revelations.
(1) Apparently taxpayer protection language -- that AIG couldn't be paying millions in bonuses to the guys who created this problem while receiving billions of taxpayer dollars -- was once in Senate and House versions of a bill and then deleted under cover of darkness in conference as a result of Secretary Geithner's pressure on Senator Chris Dodd. Raymond Hernandez and Thomas Kaplan, "Connecticut Senator Draws Voters’ Ire for His Bonus Role," New York Times, March 20, 2009 ("[AIG's] employees, political action committees and subsidiaries have made campaign contributions of nearly $300,000 to [Senator Chris] Dodd since 1989. . . . [Senator Dodd] finds himself a symbol of the political establishment’s coziness with tainted corporations and a target of populist wrath over their excesses. . . . That change [in the bill] exempted bonuses protected by contracts, like those at American International Group . . . that received billions in federal bailout money. Mr. Dodd said that his staff revised the bill at the urging of Treasury officials . . ..").
Edmund L. Andrews and Jackie Calmes, "Many in Government Knew Weeks Ago About A.I.G. Bonuses," New York Times, March 20, 2009 ("Interviews with senior Federal Reserve and Treasury officials, as well as members of Congress, leave little doubt that the bonus program was a disaster hiding in plain sight. Mr. Geithner is not the only one who appears not to have understood the populist fury the bonuses would set off. Career staff officials at the Treasury, Fed and Federal Reserve Bank of New York exchanged e-mail messages about the A.I.G. bonus program as early as late February, according to a person familiar with the matter. A.I.G. itself revealed the bonus plan in regulatory filings last September.").
The rationale? The sanctity of contracts. You can't retroactively change an employment contract. Oh, really? Apparently that's a legal principle only applicable to thieves in suits. Auto workers' contracts, and those of millions of other workers across America, have already been changed, with more to come -- contracts regarding wages, health care benefits, and pension funds. It's just one more example of the stench that's accompanied this con game from the beginning.
(2) Apparently Treasury secretaries and other appointees are not the only folks who don't feel they need to pay taxes. A hefty proportion of the corporations receiving billions of taxpayer dollars aren't paying their taxes either.
"[T]he AP reported Thursday [March 19] that 13 firms receiving billions of dollars in federal bailout money owe a total of more than $220 million in unpaid federal taxes. Rep. John Lewis, D-Ga., chairman of a House subcommittee overseeing the federal bailout, said two firms owe more than $100 million apiece. . . . Banks and other firms receiving federal money were required to sign contracts stating they had no unpaid taxes, Lewis said. But the Treasury Department did not ask them to turn over their tax records . . .." "House OKs Hefty Tax on AIG Bonuses," PBS Online News Hour, March 19, 2009.
It turns out this is actually only a small part of a much larger problem: "Two out of every three United States corporations paid no federal income taxes from 1998 through 2005, according to a report released . . . by the Government Accountability Office, the investigative arm of Congress." Linley Browning, "Study Tallies Corporations Not Paying Income Tax," New York Times, August 12, 2008.
Now, here's how it looked yesterday:
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It would be such a relief if yesterday [March 18] had brought an effective rebuttal to Monday's blog entry, Nicholas Johnson, "Government by Campaign Contribution" in "The Story of Stuff," March 16, 2009:
Government by Campaign ContributionNicholas Johnson, "The Story of Stuff," March 16, 2009. And for more detail about what AIG and the bankers did and how they did it see the "Prologue" and "No More for AIG" in Nicholas Johnson, "Bankers as Arsonists," March 3, 2009 ("[Arsonists'] fires are not 'acts of God.' Nor is this economic calamity. Both are the clearly predictable result of reckless and irresponsible behavior by humans. The only difference is that those who deliberately set the woods on fire don't personally profit financially from their acts. These men and women did.").
There are some feigned expressions of outrage from Washington, that those who created the problems through personal enrichment are now enriching themselves further with taxpayer-funded multi-million-dollar bonuses, but little in the way of prosecutions, or efforts to get our money back. There are expressions that "we must re-examine and improve our regulatory model so that this never happens again." But we have had this conversation before; this is the happening that is "again;" and the problem is not entirely the model, it is also the people running it -- and few to none of them seem to be being prosecuted either.
Congress has a lot of explaining to do -- after we clean out the lot of them. I've documented before how those who make campaign contributions in the $100,000 to $1,000,000 range generally get something like a 1000-to-2000-to-one return on their "investment" -- for an investment it is, and one that pays much better returns than any on Wall Street. Nicholas Johnson, "Campaigns: You Pay $4 or $4000," Des Moines Register, July 21, 1996, p. C2.
So it comes as no surprise to me to find out that the financial community has contributed some $5 billion to Congress over the past 10 years in campaign contributions and lobbying expenses. After all, members of Congress and senators are honorable people; they don't take $5 billion from someone and then give them a poke in the eye with a sharp stick -- not if they want another $5 billion over the next 10 years. They behave as they've been behaving; they give Wall Street its $5-to-10 trillion return on its $5 billion investment. See the report, Robert Weissman and James Donahue, "Sold Out: How Wall Street and Washington Betrayed America," Essential Information/Consumer Education Foundation, March 2009, linked from "$5 Billion in Political Contributions Bought Wall Street Freedom from Regulation, Restraint, Report Finds," March 4, 2009, Wall Street Watch.
But it didn't. If anything, yesterday just made it worse.
Of course the $160 million in extra pay for those who brought down AIG and the world's economy with it is outrageous -- as is the role of the past and present administrations in going along with it. So are the expensive corporate gatherings at spas and expensive resorts, the $50 million private jets for executives, and Bernie Madoff's jewelry and yachts.
But all of that day-long ranting and raving by members of congress yesterday is one big shell-and-pea game of diversion. Those AIG bonus payments are less than 1/10th of 1% of the $170 billion taxpayers are in hock to for AIG. That doesn't make the bonus payments any more justified, but it does kind of put them in perspective.
Meanwhile the President, understandably, wanting to get as far from Washington as possible went to California to get some positive vibes and re-creation from "the people," doing what he does best: campaigning at a town meeting. Helene Cooper, "President Takes Campaign for Budget to California," New York Times, March 19, 2009.
However, at one point during the day he was asked by a member of the news media a two part question. One part had to do with his Treasury Secretary. Jackie Calmes, "AIG Uproar is a Defining Moment for Geithner," New York Times, March 19, 2009.
He answered that part. Geithner may have frightened Obama enough to make him leave town, but not enough to reduce the President's professions of "confidence" in him.
The part of the question left unanswered; actually the first part?
What do you have to say about that $100,000 campaign contribution you got from AIG?
Yes, even the President is not free of the questions raised by the $5 billion the financial community contributed to public officials over the past 10 years. (See the "Government by Campaign Contribution" excerpt, above.)
And at another appearance yesterday he almost literally echoed the line quoted in that excerpt, that we should see to it that "this never happens again": "My goal is to make sure that we never put ourselves in this kind of position again." Mary Williams Walsh and David M. Herszenhorn, "AIG Seeking Return of Half of Its Bonuses," New York Times, March 19, 2009.
Yeah, right; who can argue with that? But isn't it just another diversion? When we focus on future reforms, as when we focus on 1/10th of 1% of the problem, we aren't focusing on what's going on right now!
And what's going on right now is what AIG is doing with that $170 billion. To the extent AIG executives are not entertaining themselves at resorts, and enriching themselves with bonuses, they are essentially flowing through that $170 billion of ours to other members of that vast army of "thieves in suits."
And who might they be? Try Goldman Sachs -- yes, the same Goldman Sachs we've already financed with taxpayer money directly -- now getting our taxpayer money from us indirectly, by way of payments of our money we gave to AIG, to the tune of $8 billion.
And then the Fed, in another burst of great generosity, decided "Oh, what the hell, another day another trillion dollars" -- and I'm no more confident we'll ever find out where this trillion will go than the last, now uncounted, trillions of our money they've already given away. The resulting increases in the prices of gold and oil, and decline in the value of the dollar, gives you a clue as to how the world views this additional step toward inflation. Edmund L. Andrews, "Fed Plans to Inject Another $1 Trillion to Aid the Economy," New York Times, March 19, 2009.
No, I'm afraid yesterday didn't make me feel any better.
Nor will today, as Congress endeavors to redeem itself in our eyes for falling sway to to the $5 billion in campaign contributions and lobbying of the financial industry by passing a special extra tax of 90% on those bonuses. Even if it passes, and even if it's legal, it really is far, far too little too late. Carl Hulse and David M. Herszenhorn, "House Approves 90% Tax on Bonuses After Bailouts," New York Times, March 20, 2009.
P.S. Congressman Barney Frank said yesterday he wanted to have the names of those who received bonuses, and how much each has returned to the government. AIG CEO Liddy expressed concern of mass assassinations by outraged members of the public were that to be done. Mary Williams Walsh and David M. Herszenhorn, "AIG Seeking Return of Half of Its Bonuses," New York Times, March 19, 2009. If that proves to be a reasonable concern, rather than fail to reveal anything about this outrage, here's a modest suggestion.
Let's at least start with a list, released to the public and media, with the names redacted and replaced with numbers, along with the title/job description of the individual (or department -- enough to give some idea of what they were paid to do, as narrowly identified as possible without revealing their identity), along with what they did to earn the bonus or "retention" payment, their total salary, benefits, and other perks, the amount of the bonus, and how much has been returned.
Nicholas Johnson, "Who's The Reason?" September 5, 2008
Nicholas Johnson, "How Much Do You Owe the Chinese?" September 6, 2008
Nicholas Johnson, "Taxpayer Rescue," September 15, 2008
Nicholas Johnson, "Global Finance: The Great Fountain Pen Robbery," September 21, 2008
Nicholas Johnson, "Alternatives to 'The Plan,'" September 28, 2008
Nicholas Johnson, "Better Alternatives to Congress' Bailout Plan," October 2, 2008
Nicholas Johnson, "Can We Trust Our Bankers?" October 29, 2008
Nicholas Johnson, "It's the Economy," November 7, 2008
Nicholas Johnson, "Jobs, Not Unemployment, Key to Recovery," November 8, 2008
Nicholas Johnson, "Trust Your Instincts, Auto Bailout's Terrible Idea," November 14, 2008
Nicholas Johnson, "Auto Bailout: An Open Letter to Congress," November 19, 2008
Nicholas Johnson, "A Trillion Here, a Trillion There," November 20, 2008
Nicholas Johnson, "FromDC2Iowa's Weekend Edition," November 21, 2008 ("The Answer to Global Economic Collapse" and "Auto Bailout: 'Show Me the . . . Plan'")
Nicholas Johnson, "Citigroup Deal Stinks," November 25, 2008
Nicholas Johnson, "Only Select Few Are Thankful for Trillions," November 27, 2008
Nicholas Johnson, "Auto Loan Makes Too Few Dollars Even Less Sense," December 4, 2008
Nicholas Johnson,"Quick Fix for the Economy," December 12, 2008
Nicholas Johnson, "You Know It's Serious When We Start Laughing," December 15, 2008
Nicholas Johnson, "A Car in Every Garage," December 16, 2008
Nicholas Johnson, "Forget Madoff, Focus on Bernanke," December 17, 2008
Nicholas Johnson, "Of Theaters and Automobiles," December 20, 2008
Nicholas Johnson, "There's Bad News and . . . and . . .," December 21, 2008
Nicholas Johnson, "Et Tu, Toyota?" December 22, 2008
Nicholas Johnson, "Revolting Developments," December 23, 2008
Nicholas Johnson, "First Things First," January 8, 2009
Nicholas Johnson, "Why We Should 'Point Fingers' and 'Look Backwards,'" January 13, 2009
Nicholas Johnson, "Fool Me Twice," January 14, 2009
Nicholas Johnson, "Economic Sorrows and Solutions," January 27, 2009
Nicholas Johnson, "No More for Wall Street!" February 1, 2009
Nicholas Johnson, "Hang Onto Your Wallet," February 5, 2009
Nicholas Johnson, "Quick Fix: Support Jobless, Not Bankers," February 7, 2009
Nicholas Johnson, "Geithner's Same Old, Same Old," February 10, 2009
Nicholas Johnson, "Terrorist Bankers," February 13, 2009
Nicholas Johnson, "Financial Crises for Dummies," February 17, 2009
Nicholas Johnson, "They're Back!!" February 20, 2009
Nicholas Johnson, "The Burden We Ought to Bear," February 23, 2009
Nicholas Johnson, "Candid Conservatism," February 27, 2009
Nicholas Johnson, "Bankers as Arsonists," March 3, 2009
Nicholas Johnson, "Don't Buy Stuff," March 6, 2009
Nicholas Johnson, "The Story of Stuff," March 16, 2009
Nicholas Johnson, "What a Mess," March 19, 20, 2009
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* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson
1 comment:
Interesting read, I am impressed! thanks a ton for posting, you totally rock, keep posts like this one coming!
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