“We have sort of become a nation of whiners. You just hear this constant whining, complaining about a loss of competitiveness, America in decline. You’ve heard of mental depression; this is a mental recession.”
“Thank God the economy is not as bad as you read in the newspaper every day.”
July 2008, Phil Gramm, vice chairman of the Swiss bank UBS, senior economic adviser to John McCain, former Texas senator, and holder of a doctorate in Economics
I got a ‘D’ in Intro to Econ in college. After the last class of the semester I couldn’t wait to get my workbook into a urinal and invite others in the dorm to join me in symbolically ending my career as a student of Economics. But even I understand that borrowing to pay back borrowed money, repeated 20 or 30 times and always adding “a little something” for yourself, is a recipe for guaranteed disaster.
So what’s with these bankers and Wall Street fat cats? Did they fail their Econ courses? If that was the problem, we could just send them back to school. No – behind all the fancy terminology and slick deals is a more fundamental issue: greed. Eeewww. That’s a word we usually hear in church, not in the marketplace. But its practitioners in the financial world have exercised greed so blatant and outrageous that the word is now back in common use.
So much for the idea that business does best with no government interference (ie, regulations). Looks like Adam Smith’s ‘invisible hand’ has actually been using a chainsaw to cut off its own legs. Once-venerable banks and financial institutions are crumbling under mountains of bad debt. The sickening part of this mess is that it was knowingly created by financial wizards who figured they could get their piece of the action and get out before it all collapsed. The heck with the rest of us.
One of the bitter ironies here is the extent to which the financial services industry tried to keep the government out of its business. According to a BankNet360.com analysis of data, the finance, insurance & real estate sector (which includes commercial banks, credit unions, and mortgage banks) increased overall spending on lobbying by 4.7% in 2007 to nearly $390 million. In fact, the finance, insurance & real estate sector spent close to $3 billion on lobbying from 1998 to 2007, more than any other industry in the nation. In the last ten years, Fannie Mae and Freddie Mac alone spent nearly $200 million on lobbying and campaign contributions.
Now these guys are lined up with hats in hand asking the government to bail them out. Not only that, they have the gall to try and shape the legislation being considered by Congress. If a kid comes home (hopefully unhurt) after wrecking the family car as a result of carelessness, what parent would be interested in hearing the kid’s ideas about revising traffic safety rules? Would the kid be out driving another family car very soon? Probably not at our house. I can’t think of a reason we’d trust bankers or Wall Street execs to help craft solutions to the current financial crisis. Foxes in henhouses. Henry Paulson used to be CEO at Goldman Sachs ($37 million compensation package in 2005; net worth estimated at more than $700 million). Not sure he qualifies as a ‘disinterested party’ to steward up to $1 trillion of taxpayers’ money.
So I’m in agreement with Christopher Dodd, Chair of the Senate Banking Committee:
- Do not allow the Treasury Department to purchase any assets “unless the Secretary receives contingent shares in the financial institution from which such assets are to be purchased equal in value to the purchase price of the assets to be purchased.”
- Limit executive pay “to exclude incentives for executives to take risks that the Secretary deems to be inappropriate or excessive.” The provision would also permit limitations on senior executives as it is “determined to be appropriate in the public interest in light of the assistance being given to the entity.”
- Create a special inspector general program and a separate emergency oversight board including top officials from the Federal Reserve, Federal Deposit Insurance Corp., and Securities and Exchange Commission.
President Bush, who has been practically invisible in the midst of yet another disaster occurring on his watch, now wants Congress to bail out the banks his way, and fast. Please excuse us, Mr. President, if we don’t rush to embrace another of your administration’s “solutions.” And we’re going to need more than the two-and-a-half-page request for $700 billion that Henry Paulson initially brought to Congress. People across the country and around the world are still reeling from the effects of other horrendous decisions President Bush has made, so let’s take the time needed to get this one right.
What if the bankers and high-rolling financiers aren’t happy with the terms of a bailout? First, as Phil Gramm might tell them, “Quit whining!” They’re not really in much of a position to bargain. And if they don’t like the taxpayer’s extraordinarily generous offer, that’s fine. They’re welcome to go find themselves a better one.
