Say it ain’t so!

So it’s been a while since I last blogged because my time is very tight lately…I’m working, looking for a new position in the company, taking a class to get my Six Sigma green belt certification as well as a beekeeping class given by the Montgomery County Beekeeper’s Association here in Montgomery County. Even so I’m trying to keep up with what’s been going on in the state of economic affairs and last night’s New York Times story about A.I.G. is a doozie.

A.I.G., once the world’s largest insurance company and who has to date taken $170 billion dollars from the U.S. government (i.e. taxpayers) in bailout money is now planning to pay $165 million dollars in bonuses to executives in the same business unit that last year brought the company to the brink of financial collapse (Andrews, Edmund L. and Peter Baker, “A.I.G. Planning Huge Bonuses After $170 Billion Bailout“, The New York Times, March 14, 2009). The reasoning, according to the government appointed chairman Edward Liddy is that

We [A.I.G.] cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury

(Andrews, Edmund L. and Peter Baker, “A.I.G. Planning Huge Bonuses After $170 Billion Bailout“, The New York Times, March 14, 2009)

Retention bonuses? Where does Mr. Liddy really think these guys (and gals) are going to go in today’s Wall Street environment? Mr. Liddy also points out that these bonuses are contractually obligated in that they were agreed upon in the early part of 2008 — before A.I.G. fell apart and that both A.I.G. lawyers as well as Treasury Department lawyers have determined that there is no way to abrogate this contract.

This is truly an insult to the American taxpayers who are currently keeping A.I.G. afloat. In my mind these executives who are offered the bonus should be told that their services will no longer be needed if they take the bonus. The American taxpayer should not have to be continually insulted by Wall Street this way. We’re the ones who are bailing them out…it seems that A.I.G. executives still haven’t figured this out and seem to be playing the game as though they deserve this money. When will this administration and Congress get it. If they don’t find a way put a stop to this nonsense and these institutions that have taken taxpayer money in order to survive continue to behave this way then it will be the voters of this country who will make their voice known in 2010. And if that means that every single Congressman (and woman) and Senator should be voted out of office then that’s just what it might take.

Jon Stewart Eviscerates Rick Santelli of CNBC

This is too funny…and so true. I have to disagree with Jon a bit as I don’t feel we should be bailing out all of the homeowners who bought a house they clearly could not afford. There are those who should be helped but some of the more egregious cases are clearly going to have to be allowed to lose. Same with GM and the banks…but this is just too funny.

Way to go Jon!

And what did you do with that money?

A recent op-ed by Frank Rich of the New York Times made me do a little digging this morning into just where our taxpayer money being used to bailout institutions like Morgan Stanley, Citigroup, and Goldman Sachs (to name a few) is going. Unfortunately the picture is not looking too good at the moment.

It seems that along with throwing $700 billion of taxpayer money (Treasury Secretary Henry Paulson asked for the other half of the $700 billion to be released back on Friday, December 19th after originally indicating that he would leave it available for the incoming administration) at these institutions the government (that would be both the current administration and Congress) has failed to conduct the appropriate oversight necessary to ensure that this money was not being used to pay for bonuses and other compensation. The Government Accountability Office (GAO) recently released a report, GAO-09-161 detailing a lack of specific, enforceable methods of ensuring that the money given to banks is used according to the original intent of the Toxic Asset Relief Program (TARP). Specificially, the GAO report notes

We spoke with representatives of the eight large institutions that initially received funds under CPP [Capital Purchase Program — clarification added, ID], and they told us that their institutions intended to use the funds in a manner consistent with the goals of CPP. Generally, the institutions stated that CPP capital would not be viewed any differently from their other capital—that is, the additional capital would be used to strengthen their capital bases, make business investments and acquisitions, and lend to individuals and businesses. With the exception of two institutions, institution officials noted that money is fungible and that they did not intend to track or report CPP capital separately.

(Government Accountablility Office, TROUBLED ASSET RELIEF PROGRAM Additional Actions Needed to Better Ensure Integrity, Accountability, and Transparency, December 2008, p. 25)

By the way, the definition of the word “fungible” is interchangeable (see dictionary.com). As amazing as it may seem the indications are that the money which the U.S. taxpayer has given these institutions to help right themselves after nearly collapsing last September/October can well be used to pay bonuses to managers and executives. How is this possible? Weren’t we assured that this would not happen?

As originally written the bailout bill would have provided for limitations to the compensation given to Wall Street executives who took money from the Troubled Asset Relief Program (TARP) and provided a framework for reviewing and penalizing those institutions that broke the rules in the program. It seems, however, that as the bailout bill was winding its way through the White House a small, one-sentence change was made to the wording in the bill by the Bush administration. According to the Washington Post

The change stipulated that the penalty would apply only to firms that received bailout funds by selling troubled assets to the government in an auction, which was the way the Treasury Department had said it planned to use the money.

(Paley, Amit R., “Executive Pay Limits May Prove Toothless,” The Washington Post, December 15, 2008 )

Now it appears that this little change has provided a huge loophole. Barely a month after the TARP was put in place Treasury Secretary Paulson indicated that the Treasure would not be using the TARP money to buy the toxic assets off the balance sheets of the banks but rather would invest the money in the banks directly. This about face has left the issue of oversight as to how the money is used in a bit of a limbo. As the GAO report notes

it is unclear whether Treasury plans to leverage bank regulators, which in the case of the largest institutions have bank examiners on site, to conduct any oversight or monitoring related to CPP requirements. However, unless Treasury does additional monitoring and regular reporting, Treasury’s ability to help ensure an appropriate level of accountability and transparency will be limited.(emphasis added)

(Government Accountablility Office, TROUBLED ASSET RELIEF PROGRAM Additional Actions Needed to Better Ensure Integrity, Accountability, and Transparency, December 2008, pp. 25-26)

Without transparency there will be no way to know how these banks are using this money and whether it is being used appropriately or not. As the GAO report notes the initial eight institutions that took the CPP money intended to use the funds in “a manner consistent with the goals of CPP” (Government Accountablility Office, TROUBLED ASSET RELIEF PROGRAM Additional Actions Needed to Better Ensure Integrity, Accountability, and Transparency, December 2008, pp. 25). In other words, at this point we are taking them at their word that they’re doing the right thing. However, when asked many of these institutions remain quiet about the specifics of where the money is going (Herman, Charles, Dan Arnall, Lauren Pearle, Zunaira Zaki, “Morgan Stanley Is One Bank That Cites a Loan From TARP Money,” ABC News, December 17 2008 ). It appears that the American taxpayer could well be taken to the cleaners once again. Paul Krugman of the New York Times had it write…it is truly a “Madoff Economy.”