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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.”

Former Vice President Al Gore has come out in support of the idea of moving as quickly to a post-fossil fuel economy as possible. I whole-heartedly agree. The tricky part will be how to acheive that goal without a) unhinging the American economy too much and b) navigating the morass that is American politics today. While the idea is very laudible and probably from a pure technology perspective reachable (if not by 2018 most likely by 2025) the question remains how to achieve this goal while minimizing the pain felt by Americans. I’m not saying that there won’t be any pain…there will be. We’ve had the OPEC oil needle in our arms for some half-century at this point. Removing it and getting the fossil fuel monkey off our back will be a significant task. But it is doable. It’s a shame that on September 12th 2001 President Bush didn’t make it a national priority to end our addiction to oil and other fossil fuels and declare that renewable energy development would be the “Manhattan Project” of our time rather than tell Americans to “go shopping.” Now we’ve lost almost 7 years of time towards this worthy goal. It’s time for us act. We need this goal and the politicians in Washington (both Republican needs to wake up and Democrat) need to stop their bickering and do something meaningful.

President Bush has already started the demonizing of congressional Democrats for not giving in and repealing the 1981 law that banned offshore oil drilling. Now the GOP members of Congress are chiding in as well…it was to be expected. CNN reports (“Bush: Congress Standing between Americans and Offshore Oil,”http://www.cnn.com/2008/POLITICS/07/15/bush.oil/index.html, June 15, 2008 ) that

“Congressional Republicans joined the president in pressing the Democrats to repeal the drilling ban.

House Minority Leader John Boehner, R-Ohio, accused congressional Democrats of standing “in the way of more American-made energy” and pushed for legislation that would not only permit offshore drilling but also allow oil exploration in the Arctic National Wildlife Refuge in Alaska and the processing of oil-containing sand in the West. Democrats have repeatedly blocked oil exploration in ANWR, arguing that it would damage the fragile Arctic environment”

Senate Minority Leader Mitch McConnell, R-Kentucky, said “$4-a-gallon gasoline is unacceptable to the American people and unacceptable to the Republicans in Congress, and we want to do something about it. And doing something about it involves both finding more and using less. We need to do both.”

Amazing. Like a kneejerk reaction the Republican leadership in the House and Senate figured out that the real impediment to solving our high gas prices today must be the Congressional Democrats since they clearly must like high gas prices! Where do these clowns come from? Perhaps they should look to their own leadership (or lack thereof) when it came to the administrations original energy policy which focused predominantly on…you guessed it…oil and coal. Vice President Cheney made no effort to have his task force which drafted this policy to look beyond the immediate future and see that one day oil would run out. Is this current crisis just this administration’s fault? Clearly not. We’ve known this day is coming for many years. The Reagan administration, the first Bush administration, and the Clinton administration all did nothing when it came to preparing the U.S. for this day. At the very least I could forgive them a degree for their lack of vision. However this administration could see this coming for quite a while…and they chose to do nothing visionary when it came to alternative energy development. And now they and their Republican cohorts in Congress figure that “when in doubt…drill” and the blame for the current crisis can be foisted onto the Democrats. Sorry GOP — you’re just as responsible for the problem as the Democrats. And the idea of drilling as a solution to this problem — come on…get real. It will take quite a long time for the oil that is discovered to make it to the market. And by the time it does get to the market it will be just as expensive as oil from the Persian Gulf or from Venezuela or wherever else oil come from on that day.

It is quite clear that the GOP and the Bush administration are going to use the Democrats’ opposition to offshore drilling as a way of foisting blame for the current price (and the future price) of gas at the pump as part of their election year politicking effort. Sorry guys (and gals)…you’re as much (if not more) to blame for this than the Democrats.

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