Government Policy Summed Up

The Wizard of Id has managed to succintly summarize our Government's policy towards troubled businesses.  Here is the comic in full:   

More Government Waste with No Bid Contracts

Earlier this month, President Obama brought John McCain to the White House to announce a restructuring of the way the US government procures goods and services.   In particular, the Obama administration claimed to limit the practice of using no-bid contracts.  No bid contracts are uncompetitive and result in higher payments for fungible goods and services.  

Within a few days after the words of eliminating no bid contracts left the President’s mouth, his Treasury Secretary, Tim Geithner, sought to procure for the US Treasury a supply of notebook computers.  Here is the announcement.    The procurement goes through great detail specifying the performance of the computers, what types of drives and memory, the operating system, etc.  It goes on to specify that in fact what the Treasury needs is Dell computers.  Yup, this  "competitive bid", can be filled only by a single source - Dell Computer!  Still, it is put out to bid.  I wonder how many competitive bids the Treasury will get from say HP, IBM, Acer, Gateway or other computer manufacturers?  This is simply more evidence that when Obama speaks he means the opposite of what most people understand his words to mean.  

Congress and Obama Knew About AIG Bonuses

One thing that has been, and is still, a certainty is that when any government politician says something we know the opposite is true.  The furor over the AIG bonuses is a prime example.   (see AIG Bonus Firestorm Misdirection - Updated and AIG Bonus Firestorm Misdirects Attention Away From CDS Payments for prior discussion.)  We now know that President Obama knew about the amount of the AIG bonuses on Thursday March 12 - several days before his "impromptu" expression of outrage.  

The real outrage, however, is that we now learn that Obama's treasury secretary, Timothy Geitner, not only knew about the bonuses in advance, but with Connecticut Senator Christopher Dodd's assistance, inserted a provision in the $400+ billion spending bill that preserved AIG's bonuses.  In a New York Times article on the fallout affecting Senator Dodd, Geitner takes the blame for protecting the bonuses:

On Thursday, Treasury Secretary Timothy F. Geithner came to Mr. Dodd’s defense, saying in an interview with CNN that his staff had raised concerns about whether the legislation limiting executive compensation “was vulnerable to legal challenge.”

Dodd - the chair of the Senate Banking Committee and person responsible for the portion of the legislation providing the loophole, was not forthcoming about his involvement.  The NYT article went on

This week’s uproar was triggered largely by Mr. Dodd himself, when he provided conflicting answers about the provision that allowed the bonuses at A.I.G. According to the Center for Responsive Politics, the company’s employees, political action committees and subsidiaries have made campaign contributions of nearly $300,000 to Mr. Dodd since 1989.

Initially, Mr. Dodd said he did not know how the loophole got into the legislation that sought to crack down on executive compensation. But then in an interview Wednesday with CNN, he acknowledged that his staff helped write the revisions after receiving a request from the Treasury Department.

Aside from the asinine attempts at covering up what was done, the question we should be asking is why did NONE of the 534 other elected officials raise any concern about this provision?  The answer is pretty clear - the $787 Billion stimulus bill was rushed through Congress, and the controlling parties would not let a full debate come to the floor.  Provisions were  inserted in backroom meetings and both houses were given a mere 24 hours to pass the bill.  No debate was allowed.  That, my friends is not how democracy is supposed to work.

The reason this happened is that our elected Senators and Representatives failed to perform their job.  It is their job to represent us and debate the legislation.  I am very skeptical whether any of the 435 Representatives or 100 Senators even read the full bill before it was voted upon.  America, we were cheated.  Our elected officials are no better than the greedy bastards that took the bailout money and lined their own pockets.  In fact, it is worse.  It is nothing short of a breach of trust.  

We need and deserve better representation.  Ask your congressman why he or she voted for a stimulus bill that allowed recipients of federal money to pay huge bonuses?  Listen to what they say and ask them if they personally read the 1000 page bill before they voted on it.  If they told you they did, they are lying.  If they admit they did not, ask them to step down.  It is time that we either throw all the bums out of Congress.  At the very least, we need to make sure that our representatives are effective and that we have a voice.  Consider insisting on our Constitutional right to have one representative for every 30,000 inhabitants (see, Taxation With Representation Is Not So Good Either.)   With more members of Congress, we the people will have more control and the elected officials, individually, will be less powerful, albeit collectively we will all be more powerful.  If none of the 535 members had the foresight or fortitude to question the $787 Billion dollar spending bill, then maybe, just maybe increasing the size of the representatives to 2500 would produce one or two who would stand up for what is right.  It is time to act now before it is too late.

AIG Bonus Firestorm Misdirection - Updated

Update on yesterday's post on AIG Bonus Firestorm Misdirects Attention Away From CDS Payments.  Mike Shedlock's blog quotes Eliot Spitzer as identifying the real disgrace of the AIG scandal is the billions of dollars in taxpayer funds paid to the AIG counterparties.  Here is what Shedlock said:

The Real AIG Scandal

Eliot Spitzer is writing about The Real AIG Scandal.

Everybody is rushing to condemn AIG's bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG's counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?

For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman's collapse, they feared a systemic failure could be triggered by AIG's inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG's trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.

Eliot Spitzer nails it. However, any rage at this point is justified. Our best hope is the rage continues and Republicans get some new found backbone to block all further bailout efforts.

In addition, several bills have been introduced into congress to tax the bonuses paid to employees of companies receiving bailout funds!  Here is our post from yesterday:

An incredible amount of outrage has been written and expressed about the $165 Million in bonuses paid by taxpayer owned AIG, and rightfully so, but the AIG bonus issue is simply a misdirection of the real outrage - the payment of $60 Billion in credit default swap bets with taxpayer bailout money. The fact remains thatpouring money into AIG is pouring money into a black hole.

The outcry is building about the AIG bonuses.  President Obama knew about the payments by at least last Thursday, and his administration knew before then. The Treasury is now making noise about either recouping the funds paid on bonuses, or reducing the next tranche of bailout funds.  Provisions are being floated around Congress to tax the bonuses at varying levels.  Frankly, while I am loathe to suggest that Congress use tax policy to penalize anyone, in this instance it could be a winner.  Tax the bonus recipients at the 75-90% level (states will follow suit as well), make the excessive payments non-deductible by AIG.  Taxpayers will recover the bonus payment and AIG will still be responsible for paying back the money borrowed (which will never happen). 

Whatever solution is proposed, however, only focuses on the bonuses.  The real outrage is the payout of billions to CDS counterparties.  Last week, AIG disclosed that it used the bailout funds to bailout its credit default swap counterparties at the same time Treasury learned of the bonuses.  Payments went to Germany's Deutsche Bank, France's Societe Generale, England's Barclay's, Spain's Banco Santander, and many others, including Goldman Sachs, Merrill Lynch, UBS, Royal Bank of Scotland, Bank of America, and Bank of Montreal.  Follow the money - this is nothing more than backdoor bailouts.  Taxpayer funds went to AIG, and AIG in turn distributed the money not only to US institutions, but international financial entities.  That means that we, the taxpayer, are not only bailing out AIG from its bad business decisions, but we are bailing out foreign counterparties that took a risk that AIG would pay off its bets.  

Where is the outrage?  The amount spent on these bailouts far exceeds the bonus payments, yet despite knowing last Thursday about the bonuses, President Obama timed his expression of outrage to coincide with AIG's disclosure of payments to counterparties.  While it isn't a cover-up, it certainly looks like our attention is being misdirected away from a major problem to focus on a relatively small problem.  It is unlikely that the taxpayers will ever see the $170 Billion of bailout funds repaid - and certainly any payment will not be made with equivalent dollars (but that is another topic), and it is likely that unless something is done, the taxpayers will continue to fund the losing propositions made by AIG and the other banks.  We are, however, not helpless while waiting (futilely) for the government to do something.  We can take matters into our own hands and stop doing business with AIG.  It is very simple.  Look at all your insurance policies and find out if any of the issuers are subsidiaries of AIG.  If so, cancel the policy and replace it with a policy from another, more solvent insurer.