Bonus Rage: Right Message – Wrong Messengers
(A note from Mike Walker)
All,
There is justifiable anger over the bonus situation at AIG and other firms. I am both disappointed and angry. In their defense, there is nothing wrong with rewarding good performance especially if those rewards are transparent and part of a legally binding contract. If that is the case then pay the employees. We desperately need more good performers in the financial sector just now.
But what is not transparent is what the financial consequences were for the folks who brought the business down. If you lost $ billions did you lose you job or get a bonus? If you oversaw the disaster as senior management what consequences did you face? Where was the board that was supposed to protect the shareholders? What price did they pay?
One thing is for sure, none of those bums should get a penny in bonuses.
And, as a guy who plays by the rules, what are the consequences of all those folks who played the "liar loan" game?
Is some judge now going to write down the loan on their super house to the same size as that of the decent folks who live in homes like my very nice but far more modest abode?
Does that mean the "Liar's Club" members are going to make big bucks later when the housing market recovers and they sell their McMansion for much more than my modest home when both of us paid the same mortgage bill? So much for the American Dream and our trust in the government to look out for the middleclass.
And don’t fall for that “it’s too hard” to find the “liar” mortgages malarkey. Any government official who says that is the biggest liar of all.
If the IRS can do a very good and competent job of tracking and verifying the tax returns for tens if not hundreds of millions of individual Americans and the President can push for 21st century IT systems in healthcare that can individually track information on hundreds of millions of Americans saving us billions of dollars then the selfsame government can certainly identify the liars and not conspire with them in gaining an ill-gotten financial windfall.
And why does the Washington bailout allow for big-time winners and losers in the financial crisis? Madoff is wickedly reckless with $40 billion or so and his investors get what, 3 cents on the dollar? Meanwhile Countrywide is reckless by giving birth to hundreds of $ billions in losses yet Angelo Mozilo goes out the door with OVER $100,000,000 stuffed in his golden parachute. Unbelievable.
These are some of the reasons why so many folks do not trust Washington to solve problems in the economy.
And that gets to the next big issue. The messengers I see on TV and read about in the newspapers as well as on the internet, the politicians who are supposed be looking out for us, are all deeply mobbed up in the scam.
Let us look at three of our supposed champions of the little guys like me.
Here at home in California we have Congresswoman Maxine Waters. She is a member of the House Financial Services Committee. Here is what she said during a hearing back in 2003 when the issue of new regulation to rein in the risky behavior of Fannie Mae and Freddie Mac was being urged (You remember Fannie and Freddie, they are the two busted government sponsored enterprises (GSE's) that played a major role in the current financial meltdown):
"…if it ain’t broke why do you want to fix it? Have the GSE’s ever missed their housing goals?”
And
“Mr. Chairman we do not have crisis at Freddie Mac, and in particular at Fannie Mae, under the outstanding leadership of Mr. Frank Raines. Everything in the 1992 act has worked just fine. In fact the GSE’s exceeded their housing goals.”
How and why GSE’s Fannie and Freddie were exceeding those goals was precisely the problem. As for “outstanding” Frank Raines, well, he was forced to resign a year or so later when an “Enron-like” accounting scandal broke at Fannie Mae. He is currently awaiting trial in a lawsuit brought by the regulators to recover $115 million in bonus payments made to Fannie executives. Sound familiar? AIG? GSE? As Yogi Berra once said, “Its déjà vu all over again.”
But more on the “housing goals” problem later for the good Congresswoman also appears to be up to some shenanigans regarding all the bank bailout monies floating around.
As it happens, her husband has hundreds of thousands of dollars in stock with OneUnited Bank where he was, until recently, a board member. It appears the bank is in trouble and (like all the big bosses in the financial industry) he doesn’t want to lose any of his money. A few weeks ago, she conveniently set up a meeting between the Treasury Department (who pays out the bank bailout money) and a group of bankers to discuss “policy.” She also ensured that a senior executive from OneUnited Bank was in the group.
To put the icing on the cake, somehow Congresswoman Waters forgot to mention this potential conflict of interest to the Treasury Department. Here is what the Atlantic reported about her actions in a short piece entitled “Maxine Waters: crazy like a fox.”
'"Here you had a tiny community bank that comes in and they are not proposing a broader policy -- they were asking for help for themselves," said Stephen Lineberry, a former Treasury aide who attended the meeting. "I don't remember that ever happening before."
Ms. Waters declined on Tuesday to comment on the meeting, or to say whether her husband still owned shares of OneUnited. Her staff released two letters that showed the meeting had been initially called to discuss industry concerns broadly.'
How can we count on someone like Congresswoman Waters to do the right thing for the American people in this crisis when she is busy looking out for “numero uno” while missing the big problems? The answer is we should not.
Number two on our hit parade is Senator Chris Dodd. He is Chairman of the Senate Committee on Banking, Housing, and Urban Affairs. Senator Dodd quite probably takes the prize for pure chutzpah. He was one the “big three” for top-dollar political contributions from Fannie Mae. He has made a couple of “sweetheart” real estate deals with discredited Wall Street insider trader Edward Downe, who was “only” convicted of securities fraud, wire fraud, and filing false income tax returns. And let us not forget that Senator Dodd was not only the biggest recipient of political contributions by Angelo Mozilo’s now defunct Countrywide but he was also given the special mortgage treatment (spelt s-a-v-e b-i-g b-u-c-k-s) by Countrywide as part of what was known as the “Friends of Angelo” program.
And what did this appear to buy? During the drive discussed above to regulate Fannie Mae in 2003 he put together a filibuster team to ensure that GSE regulation was dead in the Senate. Senator Dodd successfully lobbied President Clinton to get Mr. Downe a pardon for his conviction. Not surprisingly, Senator Dodd did this without getting the normally required pre-approval from the Justice Department. And when Countrywide started to go under in the great mortgage meltdown (in which it played a large role), Senator Dodd introduced legislation that would have pushed $ billions in taxpayer bailouts in the direction of companies like Countrywide. I guess the “Friends of Chris” program is the real winning ticket for the well connected, sorry Angelo.
Our last tainted hero is the leader of the pack, Congressman Barney Frank. He is Maxine Waters’ boss as the Chairman of the House Financial Services Committee. A good argument can be made that this guy bears more personal responsibility for the unprecedented mortgage meltdown than any other elected official in the nation. Where to begin? How about Fannie Mae and Freddie Mac, our two broke GSE pals that are now run directly by the government? Their financial failure is going to cost the American Taxpayers who knows how many billions of dollars to bailout.
And the real shame is that all the writing was on the wall. The cause was plain old greed. It began in 1998 when the head of Fannie Mae told their Wall Street investors that he would double the price of Fannie Mae stock by 2003. As Vanity Fair reported in their article “Fannie Mae’s Last Stand:”
“”All the V.P.’s in the company looked at each other and said, ‘How is that going to happen?”’ says a former executive. The promise, combined with the lure of financial rewards, created an unhealthy pressure throughout the company.”
One very unhealthy result was that Fannie Mae and Freddie Mac gave the equivalent of the “good housekeeping seal of approval” on all the Sub-Prime and Alt-A Mortgage Backed Securities (MBS’s) and the firms that created the mortgages. In the past, these types of firms made big bucks in good times and usually went bankrupt in any downturn. They were marginal players for those with a taste for high-risk profits and losses.
Overnight Fannie Mae took the bad-boy, high-risk players in the mortgage business out of the back alley and put them on Main Street. They made the gamblers legitimate. They had to. The only way to keep Fannie’s share price sky high was to generate more and more mortgage revenue and these guys could deliver. That is why Fannie Mae was always exceeding its housing goals. Exceeding the goals was a key indicator that something was wrong but for our heroes it was a grand measure of success not an omen of pending doom.
And Congressmen Frank was the unstinting cheerleader of this recklessness. As U.S. News and World Report pointed out in “Barney Frank’s Fannie and Freddie Muddle,” he dismissed those who warned of the coming disaster…
“These two entities, Fannie Mae and Freddie Mac – are not facing any kind of financial crisis.”
George Orwell would have been proud. But to really see his political art, consider the regulation fiasco of Fannie and Freddie in 2003. It is hard to overestimate how clever this guy is. Consider this little canard of a press release:
“The truth is when President Bush took office, and the Republicans controlled both houses of Congress, he did not make any progress on comprehensive legislation to reform the regulation of the Government Sponsored Enterprises.”
Of course the reason why Bush and the republicans “did not make any progress” is because Congressman Frank was doing everything in his power to ensure no progress was made in the House. And we already noted above how Senator Dodd killed GSE regulation in the Senate.
If you want to digest the consequences of allowing Congressman Frank to run the national economy then coming to grips with this quote might do the trick:
“I do not think I want the same focus on safety and soundness that we have in OCC (Office of the Comptroller of the Currency, the guys who regulate the banks) and OTS (Office of Thrift Supervision, the guys who regulate savings & loans and other thrifts). I want to roll the dice a bit more in this situation towards subsidized housing...”
And roll the dice they did in Washington. There are some big rollers in Vegas, but Congressman’s Frank’s gamble has cost the American taxpayers at least a trillion dollars. That has to go down as the most expensive roll of the dice in world history.
And there you have the Chairman of the House Financial Services Committee. Good grief!
All these self-anointed protectors are already long in bed with some of the worst offenders and all are looking out for themselves, their careers, and/or their wallets (but not the taxpayer’s wallet).
I’ll keep to the message against undeserved bonuses but as for these messengers, let’s quit rolling the dice with them. Enough is enough.
Semper Fi,
Mike
