Or, 13 Reasons for Ruin and ... maybe, a few Routes for Recovery

Dear Senators, Representatives and those who want to be President:

As near as I can figure out, up until the last few days, the Republican policies regarding our nation’s financial institutions and financial security seem to have been to:

(1) eliminate most scrutiny and regulation of financial institutions of any sort by changing or reinterpreting the laws,
(2) cut the staff and funding of the existing regulatory agencies,
(3) put agency heads in power who come from the regulated financial institutions and/or who are openly opposed to scrutiny and regulation on principle,
(4) replace the remaining professional staff doing the day to day regulating with either party zealots or those who will do what they are told,
(5) encourage embarrassingly massive campaign contributions from the institutions that were supposed to be scrutinized and regulated,
(6) conduct most public business in private,
(7) arrogantly and patronizingly insist that the “experts” (i.e. themselves and only themselves) know best no matter how obvious or elementary the proposition,
(8) attempt to impose a particular ideology on the market regardless of present circumstances,
(9) proclaim that the many questionable practices being produced such as loaning large sums to people who could not possibly pay it back secured by overpriced housing were somehow sound investments,
(10) assume sales prices of stocks, bonds and homes would continue to increase forever,
(11) cut taxes whether the economy is going up or down,
(12) discourage savings while simultaneously allowing heavy, heavy borrowing by consumers, businesses and the government itself to accumulate to ridiculously high levels thereby shifting the burden to future generations, and
(13) mortgage that future to largely foreign country creditors.

There seems to be little doubt left that above mentioned “baker’s dozen” of boneheaded decisions, bilious due diligence, bad deals and big debt not only busted our dollar’s standing, but caused a cascading collapse posing a deadly threat to our entire economy. The failure has been spectacular to say the least. It is not as if this was impossible to predict though. Some of the reasons behind the disaster are not too dissimilar from the destruction of the Savings and Loan Industry a few years ago, a debacle by the way in which another Bush, Neil, played a prominent role. In hindsight, if the question had been posed as above, that is reciting simply the 13 financial policies on which the economy was retooled starting with Ronald Regan, how could anyone with even a high school education not concluded those cumulative policies could lead to a new meltdown? It is one thing to gamble, but on this scale?

Has no one in the Republican Party ever heard of the Mini/Max concept in which you try at least to minimize your maximum losses. Has no one with a (Chinese made) American flag pinned on their pin stripe suit read Adam Smith? Did everyone in charge assume the law of supply and demand can be violated with impunity? How did “Conservative” with a large “C” come to mean the opposite of “conservative” with a small “c”? Does an MBA degree stand for Must Blow All?

The harm may have been unintentional, but speaking as a practicing business lawyer, the case law has always been quite clear on such situations. Those whose wilful acts or omissions cause reckless endangerment of others should be held responsible. And, it was dangerous, extremely so given the size and interlocking aspects of the undertakings. Frankly, if the five Republicans on the Supreme Court had put self declared terrorist, Osama bin Laden, in the White House in 2000 instead of the self declared “Business President,” bin Laden probably would not have been able to do as much harm to our nation. At least his policies would have received better scrutiny than the current occupant.

There were some greedy Democrats among the many, many Republicans who were more interested in lining their pockets and protecting privileges than protecting the country. And, other Democrats no doubt deserve a certain portion of the blame for being too weak, too cowardly, or too ineffective to be able to stop the looting that has gone on for the past decade or so when Republicans either controlled Congress or had enough votes to block changes. I am not a Democrat and do not care for the present Democratic Party leadership and almost all need a swift kick in the pants or replacement. But, for the most part, blame for this latest in a series of monumental crippling fiascos must be laid squarely at the feet of the Republican Party as a whole and those the party members gleefully selected to lead them. Democrats may be stupid or naive, but the Republicans are truly scary. Extremely frightening to me, in fact. Worse, they succeeded at all or almost all they sought and the direct result is the potential equivalent of bankruptcy not merely for millions of citizens and companies, but the country itself.

Good grief. The number of zeros in the amount demanded by the White House, $700,000,000,000.00, for its so-called “bailout” plan to hopefully slow down the hemorrhaging is approaching the gargantuan sized pile the Pentagon spends on everything it does including two separate wars and trying to refit a tired and badly used military. Yet, the hundreds of billions in supposedly needed instant “bailout” was not even on the budget. Talk about budget busters, it is the biggest “bailout” of all time and may be greater than all the past ones put together especially when the other buyouts of the past few weeks are counted in dramatically upping the total. It’s staggering in its implications, almost unimaginable in scale. In any event, much of it is likely a net loss, maybe all. And, there is no reliable evidence that the hemorrhaging stops at a mere trillion or so. Shouldn’t there be some nagging doubt or scepticism about the concept as well as the amount since those telling us so are the same ones who told us the Iraq War would “only” cost $20 billion?

So, what to do? Bush’s Treasury Secretary has proposed a “bailout” which will give him an initial three-quarter trillion to play with. That Treasury Secretary and his boss had the nerve to initially demand Congress abdicate its Constitution responsibility to oversee the taxpayer resources being possibly squandered. The Secretary (who came to his position straight out of the same group of preening, cover storied, “geniuses” on Wall Street who made a lot of other promises and representations) asked, no - demanded, that he be given the power to do whatever he jolly well pleases with that huge pile of cash. He insisted that there be no oversight and especially no penalties or future liability for him. As to what he plans to do with it, he has already indicated he intended to simply hand the money over to the malefactors who caused the problem with no strings attached. He apparently planed to buy up his buddies stupidities (or thefts) and happily stick the tab with the taxpayers. If there are any profits later, those would have been kept solely by those who caused the losses. The Treasury Secretary still insists this be done almost immediately with next to no debate or investigation. The unmitigated gall and arrogance of such a proposal is something only the current Administration could have come up with. In light of their track record on this and almost everything else, they could have at least acted humble when they were proposing a pocket picking and power grab of such magnitude.

Since Senator McCain has said only days ago he greatly admires that Treasury Secretary. Of course, the Treasury Secretary McCain likes so much is the same guy who in March of this year was still going on TV to say the economy was great and let’s keep doing what we have been. McCain has voted for almost every financial deregulation plan his party has proposed over the past few decades and is showing us nothing really different even now. So, McCain just lost my vote for sure.

That leaves the rest of you in Congress such as my own Senator Gordon Smith, who wants to be re-elected for another two to six years even though he has supported so many of those Republican policies that lead us to this juncture. Whether I vote for him will depend on what he and the rest of you do about this between now and election.

If you vote in Congress to pass anything like what has been proposed by the Treasury Secretary, you do not deserve mine or anyone else’s vote. What might get my vote for an incumbent?

• For one, there needs to be denunciation of President Bush and the Treasury Secretary for even proposing such a “bailout” as initially proposed. There should be a public admission by Republicans that the Republican platform and policies on the economy over the past decades was a terrible idea. As for the Democrats, no gloating. You spineless wonders caved in on the abandonment of the concept that financial institutions should be fiscally conservative (with a small “c”). You have complicity in the tragedy thanks to your incompetency in stopping the rape of the system by the Republicans.

• Words are not enough though. If there is to be a transfer of taxpayer money from desperately needed other programs such as rebuilding our national security readiness and protecting our health, jobs and infrastructure, then NO CASH FOR TRASH!!!! Either buy the assets at current market value or buy appropriate shares of the company stock so that taxpayers can have at least a chance as owners, albeit a slim one, of protecting their investment. Or, possibly only allow the money to be given out loans secured by all the assets of the businesses obtaining the money.

• Maybe instead of giving the money to the idiots and maybe criminals directly responsible, perhaps use it instead to take over the mortgages of those poor homeowners suckered into the subprime mortgages with the escalating rates. By the way, didn’t anyone in charge begin to have suspicions once they heard about the “miraculous” growth of what turned out to be aptly named “subprime” mortgages? What part of “subprime” did they not understand? Certainly change the bankruptcy laws to once again allow the court to write down interest rates to fair market rates. Why should the banks be given a write down unless the people they duped or mislead get one too?

• There must be far better oversight and it better be both open and nonpartisan. Congress should closely and frequently oversee progress. Moreover, not all the money should be spent instantaneously. In other words, no bailouts without open and public hearings on each including looking at the books of the target institutions.

• There must be investigations to pin point what went wrong. How can we avoid another debacle unless we know what caused it other than voting Republican in the 21st century? Better yet, there must be criminal investigations with subpoena power to ferret out what appears to be some likely fraud and other criminal activity. Some jail time for the worst offenders might prove to have a deterrent effect.

• In that regard, a significant amount of the money allocated to “save” us must go to funding lots more professional non-partisan regulators and sufficient staff for them to do such ferreting. And, let’s roll back the roll back that was done by Republicans when they set out to restrict any serious regulating since the mid-80's.

• Encourage more savings and less spending by consumers. See that interest rates improve for those who want to put money into banks as depositors.

• We definitely need more transparency on accounting, auditors, appraisals and other “due diligence” practices. Ralph Nader had a good idea for reducing conflicts of interest. He suggested taking away power for auditor and rating agency selection from companies and placing it in the hands of the SEC to be administered on random assignment. Maybe create stiff penalties for those who refuse or fail. Certainly no bailout funds unless the companies receiving it agree to new practices and accountability. Prudence and conservatism ought to once again become the principles on which financial institutions make decisions. Increase their fiduciary obligations to protect the money of others.

• Perhaps ask Ralph Nader about another of his suggestions, to create a securities speculation tax, starting with derivatives, to deter what he accurately styled as “casino-style capitalism.” Also look at his proposal to avoid future housing bubbles by removing implicit government guarantees for new mortgages that exceed thresholds of greater than, say, 15 times the annual fair market rent value of the home. Doesn’t that sound like a prudent conservative thing to do? Why reject a suggestion simply because of who proposes it? Maybe Nader is on to something.

• In contrast, maybe there should be a continuing suspicion hereafter of those opinions coming from the now fully discredited (no pun intended) financial institutions. Maybe we need more consumer advocates or taxpayer advocates on financial company boards and regulating bodies. Certainly any member of the FDIC or Federal Reserve ought to be subject to Congressional approval.

• Maybe there ought to be warning labels placed on bailed out companies and executives of those companies similar to warnings we put on food, so that future customers know who were idiots and who weren’t. It could be a mandatory part of their prospectus, offerings, advertisements and websites. That would be a good idea even for the nincompoop pundits who should have known better and lead us to this juncture. Journalism will never be a genuine “profession” unless its members have a license before holding themselves out as practitioners. To be a true profession, it should be one with enforceable ethics and occasionally some getting fired for getting it so wrong.

• It is time to lower expectations. Wall Street rules lead to the breaking up of profitable newspaper chains because they weren’t making enough profits. Banks for the same reason made really risky investments because the bank owners and managers didn’t feel the rate of return was as high as it should be to be attractive. Expensive company CEOs made similar risky short term decisions primarily because their personal rewards in stock options and bonuses were tied to short term income, not long term safety or viability. Every silver lining has a cloud. Or, the proverbial “perfect storm” as this is turning out to be. Those might not have occurred if expectations were realistic.

• Certainly NO bailout of uber rich CEOs! If a company gets any funds, there must be no golden parachutes and none of the executives should be allowed to earn more than the President.

• And, enough of the tax cuts, especially for the massively rich. That includes reimposing a reasonable tax on estates of a million or more. Estate taxes can’t harm the financial institutions and would provide desperately needed funds for essential programs which will otherwise be crippled by the bailout.

• Maybe there should be a restriction on lobbying by companies being bailed out.

• Maybe there should be renewed questioning of aggregations, especially in the communications industry and control of news outlets by holding companies with potential conflicts of interest. It is hard to expect vigorous investigations of GE or Disney for instance by the networks those two own. The antitrust laws were created for a reason. The age of the Robber Barons of the late 1800s is not too dissimilar from today. Then, as now, that puts too much influence on the economy in the hands of too few.

• Do we really want to bailout foreign countries that own big pieces of some of the distressed companies? How will that enter the consideration?

• Whatever you do, do not act precipitously. How about asking for some corroborative proof to the extravagant claims of the Administration officials and those desiring to fleece what is left of our nation’s treasury?

The bottom line, as they ironically say in the financial world, is if you vote on a “bailout” without genuine study and reflection, then your foolhardiness becomes evident. So, what’s it going to be? Do you want my vote or do you want to continue with the binge that has been recklessly destroying our country? Your choice. Then, I get my choice.

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