TPMDC Saturday Roundup
Obama says he told bankers: "Show some restraint. Show some -- show that you get that this is a crisis and everybody has to make sacrifices." That and other political news in today's TPMDC Saturday Roundup.
--Eric Kleefeld
SuperSized, Pt. 2
I wanted to share this graph with you. It's not dispositive of any specific questions in itself. But it's a valuable set of data for evaluating the question we've been discussing in many posts today -- the relative size of the financial sector relative to the rest of the economy.
The graph comes from an article by Simon Johnson in the current issue of The Atlantic, 'The Quiet Coup', which I strongly recommend.
The text is a little small. So the first graph shows financial sector profits as a percentage of US business profits going back to the end of World War II. The second charts income per worker in the financial sector as a percentage of average compensation across the economy. As you can see, the pivot in each case is around 1980.
The number that jumps out at me is that at that peak point upwards of half the profits in the entire US economy was in the financial sector. And it's been near or above a third for most of the last decade. Quite apart from the public policy implications, but rather in the realm of political economy, these graphs provide a revealing look at what the 2005 push to privatize Social Security was all about and what the implications of its success could have been.
For now, late as it is, I'll leave you to make your own judgments about what it means and, I'd strongly recommend, read Johnson's article. And we'll return to this subject over the weekend.
Also check out our TPMtv interview with Johnson from last month.
--Josh Marshall
Everybody Cries ... Sometimes
From the Times ...
The financial giant Goldman Sachs spent tens of millions of dollars to bail out two senior executives last fall who were short on cash, according to the bank's proxy statement filed on Friday.In an unusual move, Goldman bought back stakes in some internal investment funds from Jon Winkelried, the bank's co-chief operating officer, and Gregory K. Palm, its general counsel.
Both executives are among the largest shareholders in the bank, owning more than a million shares each, and directors were concerned that a large sale of Goldman shares by the two men would alarm investors during a period of market turmoil, according to a person briefed on the matter.
--Josh Marshall
What Cool Stuff Did You Miss at TPM This Week?
Never fear! We've pulled together all the best stuff from the last week for your reading and viewing pleasure. Bachmann, Jindal and exploding Volcanos, the shiny GOP budget leaflet, Michael Steele and so much more.
--Josh Marshall
All In
As you likely know, on Tuesday a special election will be held in New York's 20th congressional district to replace now-Sen. Kirsten Gillibrand (D-NY). The race pits New York State Assembly Minority Leader Jim Tedisco against Scott Murphy, a venture capitalist.
At the start, national Democrats were not eager to get heavily engaged in this race. The 20th is a Dem-trending but still basically Republican district. George W. Bush carried the district in 2000 and 2004, though Obama won it by a 
solid margin in 2008. And it was long represented by Republicans until Gillibrand beat scandal-plagued Rep. John Sweeney (R) in 2006.
So it was the kind of race where there was more for Obama and the Dems to lose than gain since a victory would not necessarily make headlines and a defeat, especially if the national Dems seriously engaged, could be spun as the beginnings of a resurgence for Republicans or evidence of deterioration for Obama.
But over the last several weeks, Tedisco, who seemed like the odds-on, though not overwhelming favorite, watched his lead slip away. And the most recent polls suggest that Murphy has opened a minuscule lead.
As interesting to me is that the fact that Murphy, far from charting an independent course in this Republican-or-swingish district, has based his campaign on two things: support of Obama and support of the Stimulus plan. Murphy's latest mailer tells voters: "On Tuesday, you can help President Obama," by electing Scott Murphy.
Tedisco, meanwhile, has been reduced to framing his campaign around the intricate claim that Murphy supports the AIG bonuses because Murphy supports the Stimulus bill and the Stimulus Bill didn't contain the retroactive limits on bonuses that would have nixed the AIG bonuses. Got that?
In any case, now in the final stretch, national Dems are getting in in a pretty big way, signaling they think the chances of a Murphy victory are good enough to take the risk. Obama sent out an email to supporters in the district, formally endorsing Murphy. Biden recorded a radio ad. And the DNC is up on the air in the district reminding voters that Obama supports Murphy.
At this point, they're all in. We'll know more Tuesday night.
--Josh Marshall
Big PhARMA
Larry Sabato suggests Rep. Michele Bachmann bone up on what Marxism actually is or maybe just take a tranquilizer.
--Josh Marshall
Excellent News for Tedisco!
This morning brought news that Democrat Scott Murphy has a tiny lead in the latest poll of the New York-20 special election. And now comes word that Eric Sundwall, the Libertarian candidate who Tedisco's supporters were able to boot off the ballot at the last minute, is endorsing Murphy.
--Josh Marshall
Candy
If you've yet to sate your daily appetite for Michele Bachmann's unique brand of slapstick fascism, don't forget the 'Bachmann Effect' from earlier this week.
--Josh Marshall
Fox Commits ... Journalism?
After months of litigation, Fox Business News managed to get a thick ream of TARP office emails through a FOIA request. Neel Kashkari figures prominently. And we've got some of the choice details.
--Josh Marshall
SuperSized
TPM Reader PW with some more thoughts on the size of the finance 'industry' ...
Absolutely. You've probably been noticing some people talking about "overcapacity" in the finance industry, and in a sense this is what they're talking about. It's like the auto industry's ability to produce way more cars than the world needs or wants to buy in a given year, only worse. Worse because finance wizards, like doctors, are also the ones telling you how much of their product you need to buy to maximize your investment returns -- indeed, in the case of funds that they manage, they're the ones who make that decision for you. So the more masters of the universe there are (attracted by the way-higher-than-median compensation) the more trading and the more deals you need to generate the commissions and underwriting profits to keep them in cigars and summer homes. And the more they tilt the playing field to divert surpluses to themselves, leading to more of the "best and brightest" going into finance...So what we really need is a downsizing along the lines of the auto industry's, against a lobby that makes the AMA and the legal profession look like the Society of Friends.
--Josh Marshall
A Slo-Mo Cover Up?
We're trying to pull together the many moving parts of the AIG story. And here's some more on one issue that seems particularly important. Yesterday we mentioned that the chief risk officer at AIG, strange as it may seem, still has his job. But now we find that like AIG's in-house auditors and its outside accountancy, the risk assessing team itself was not given full access to the book of AIG Financial Products.
The next step will be to get some read on just when it was that AIGFP Chief Joe Cassano started shutting everyone out. And what didn't he want them to see?
--Josh Marshall
Now Specter's Toast
Sen. Arlen Specter's probable primary challenger Pat Toomey teams up with Joe The Plumber.
--Josh Marshall
Part of the Problem
We're listening to the bank CEO press conference after their meeting with the president at the White House. And among other comments Jim Rohr, chairman and chief executive of Pittsburgh's PNC Financial Services Group, has just noted that the financial services industry is the "biggest industry we have in the United States." I take it that some of that metric may be tied to just how one defines and delimits what constitutes an 'industry'. But this points up a basic structural problem. The point of the financial services 'industry' is to efficiently allocate capital throughout the economy or to put it a bit more cheekily to actual 'industries'. Now, that's a critical function. But when it becomes the biggest 'industry', and in many ways clearly the most powerful, that's a problem.
--Josh Marshall
Blood and Iron
Republican Rep calls for "revolution" to block Obama's embrace of "Marxism."
Late Update: The DNC responds.
--Josh Marshall
TPMDC Morning Roundup
Obama announces his strategy for Afghanistan this morning. That and the day's other news in the TPMDC Morning Roundup.
--David Kurtz
Disgrace
"America's criminal justice system has deteriorated to the point that it is a national disgrace," said Senator Webb. "With five percent of the world's population, our country houses twenty-five percent of the world's prison population. Incarcerated drug offenders have soared 1200% since 1980. And four times as many mentally ill people are in prisons than in mental health hospitals. We should be devoting precious law enforcement capabilities toward making our communities safer. Our neighborhoods are at risk from gang violence, including transnational gang violence. There is great appreciation from most in this country that we are doing something drastically wrong. And, I am gratified that Senator Specter has joined me as the lead Republican cosponsor of this effort. We are committed to getting this legislation passed and enacted into law this year."
Those are Sen. Jim Webb's (D-VA) words on introducing the National Criminal Justice Commission Act of 2009.
Read more about it here.
--Josh Marshall
Paulson to Write a Book
Fresh off trying to keep the world economy from exploding, ex-Bush Treasury Secretary Hank Paulson's going to write a tell-all credit-default-swap, Bush tell-all.
--Josh Marshall
The Devil is in the Lack of Details
A sampling of the reaction to the House GOP's "there's nothing to see here" budget announcement. From Gibbs' mocking to Contessa Brewer's rant to Norah O'Donnell's skewering of Rep. Mike Pence for specifics:
Late Update: Ezra Klein calls it his favorite "budget" ever:
If you're having a bad day, I highly encourage you to spend some quality time with the Republican budget proposal. It's reads like what would happen if The Onion put together a budget. "Area Man Releases Proposal for 2010 Federal Spending Priorities." (Though, to paraphrase William F. Buckley, it turns out that I'd prefer a federal budget written by an area man than the first six names on the House Republican Leadership roster.) ...The threat going around the Capitol is that some impish Democratic chairman will ask the CBO to try and score the Republican proposal.
--David Kurtz
A Knight's Tale
Sir Allen Stanford's criminal defense lawyer, the famed Dick DeGuerin of Houston, tells TPMmuckraker that his client is a victim of Bernie Madoff's scam, too, albeit indirectly:
"They got egg all over their faces when they failed to sufficiently oversee the Madoff Ponzi scheme. What the SEC is trying to do is make up for their embarrassment over Madoff."
--David Kurtz
We Wants Our Bonuses!
Security traders groups sends typo-riddled letter to Congress saying it's a bad idea to take away their bonuses.
--Josh Marshall
Social Contract Under Strain
We've been in the midst of the reporting on the AIG bonus story and related high-octane blow-ups over compensation and the behavior of key players in the finance sector. And we've seen a non-trivial number of complaints that we're sensationalizing this or that story or engaging in 'cheap' populism. Beside the reporting innards of the story, though, what interests me about this meta-story is the way it shows the implicit social contract under deep strain and some people operating totally outside of it without realizing it at all.
In ordinary times, most people seem more or less content with people in finance making vast sums of money. But when the companies that provide these salaries come to the government with hat in hand or when they're credibly charged (in the loose, not the legal sense) with creating vast harm to the whole economy, the whole calculus changes. And fast. In fact, there was a poll yesterday that showed, not surprisingly, that people overwhelmingly oppose regulation of executive pay levels for independent companies but overwhelming support it for those companies that take federal aid.
On the one hand, I can understand the argument of Jake DeSantis, the AIG executive who says he agreed to stay and work for a year in exchange for a big bonus, was repeatedly assured he'd get it, and then was muscled into giving it up after a big popular outcry. 'A deal's a deal' is always a strong argument.
On the other hand, when the public is funding the project, you're just inherently out on a limb when you say: "Okay, I put in my year of work. Where's my $1.5 million?"
When the companies have come to the taxpayer hat in hand, begging for money, at that point you're into the average citizen's moral space, in which it becomes her or his business whether you really deserve that much money -- something that people just don't think is their business as long as you're talking about private corporations making or not making money in whatever way they're able.
For what it's worth, that's the way I think too. As much as I think some exec paychecks are obscene and point to real imbalances in our economy, I'm really leery of limits on pay levels in private companies. To the extent that executives are paid too much, it seems like a broader issue of poor corporate governance, since shareholders shouldn't be willing to pay executives obscenely more than they're worth. But that's sort of the point: shareholders, in practice, exert little real control over this sort of thing. (And I suspect, though I don't know enough about this stuff to know, that that's the case because in the post-1980 stock market, investors are much less concerned about the functioning of the companies -- in a direct sense -- than their ability to drive stock valuations.) But, yeah, when a company would be out of business without taxpayer help? Then we're in your business. Do you really need $15 million as opposed to $2? Is your mortgage that high? Do you have that many kids in school.
I'll leave to the side for a moment whether restrictions on pay at one taxpayer backed company will just leave it ripe for the plucking by other companies still operating without federal aid. And this is one reason why I think we might be better off with some sort of rapid restructuring that more quickly got these institutions cleaned up and reprivatized as quickly as possible. Because the whole situation gets awfully messy really fast, which is why it's vastly better to keep these two spheres separate.
But I'd just like to conclude by saying that as much as we rightly look dimly on cheap populist outrage, we show no higher level of moral or intellectual sophistication by reflexively treating all public anger as undirected, contentless, stirred up agitation by unnamed dopes who haven't taken the time to understand the complexities. There are real and wholly legitimate -- just not always openly articulated -- social bargains that explain why it is that the overwhelming number of people are content with the fact that some people make $45,000 a year and other people make $45,000,000 a year. It's not just a given. And when parts of that bargain get upset, things can change very fast.
--Josh Marshall
Boehner: We'll Have to Get Back to You With Those Pesky Details
The House GOP set today for the rollout of its own budget proposal. You know, instead of just being the "Party of No" they'd actually show the public which hard decisions they would make. Well, not so much. Elana Schor just attended their press conference and let's just say it was a glossy, but detail-free, rollout.
--David Kurtz
AIG: We're Being Extorted!
The London branch of AIG was so concerned about the demands to return the bonuses that a compliance officer asked British law enforcement whether it amounted to extortion:
After the meeting, a compliance officer for the Banque AIG unit in London went so far as to ask UK authorities from the Serious Organised Crime Agency (SOCA) to probe whether demands to return the payments could be considered extortion, according to emails obtained by Reuters.But AIG spokesman Mark Herr said in a statement on Wednesday that the concern by compliance officer David Haig "on the legality of the repayments or potential repayments was not shared by the company." Herr said that SOCA "has granted consent for the repayments to go forward." A SOCA spokesperson said earlier in the day that the agency could not confirm or deny if the matter was under investigation.
However, such a probe likely would be a departure for the agency, given that its mission is to investigate serious organized crime matters.
SOCA should definitely look at AIG, but for entirely different reasons.
Late Update: Moe Tkacik has more at TPMmuckraker.
--David Kurtz
Barton: Adapting Is A Way to ... Adapt
It's useful on occasion to remind ourselves what the GOP is still saying publicly and proudly about climate change. Here's Rep. Joe Barton (R-TX), ranking member of the Energy and Commerce Committee, speaking yesterday:
--David Kurtz
Keep An Eye on This
From the BBC:
Police are to investigate whether an MI5 officer was complicit in the torture of ex-Guantanamo detainee Binyam Mohamed. ...Ethiopian-born Mr Mohamed says he was tortured while in US custody in Pakistan, Morocco and Afghanistan, with the complicity of MI5.'
He says that in Morocco in 2002, he was mistreated by local officers who asked him questions supplied by British intelligence.
Mr Mohamed returned to the UK in February 2009 after seven years in custody - four of which were spent in the US camp at Guantanamo Bay.
BBC security correspondent Frank Gardner said the investigation would focus on an MI5 officer known as Witness B, who travelled to Karachi in 2002 to question Mr Mohamed.
It is alleged that Witness B told Mr Mohamed that his only way out of Pakistani custody was to co-operate fully, and that the officer knew to where Mr Mohamed would be subsequently rendered.
Our correspondent added that a police investigation would be "deeply uncomfortable" for many in MI5.
--David Kurtz
Going Down
Not looking good for wannabe-Madoff Sir Allen Stanford. His #2, James Davis, just flipped and is having a heart to heart with the FBI.
--Josh Marshall
TPMDC Morning Roundup
Progressives in the House want more face time with Obama. That and the day's other political news in the TPMDC Morning Roundup.
--David Kurtz
John Hope Franklin, 1915-2009
The acclaimed historian died today at 94. We remember him here.
--Josh Marshall
What's With the Czechs?
A bunch of right-wing sites are crowing about a speech by the President of the European Union harshly criticizing President Obama's Stimulus spending and claiming his policy is paving a "road to hell."
The Czech Republic currently holds the six month rotating EU presidency. And thus the president is Czech Prime Minister Mirek Topolanek. But is he really Prime Minister? Apparently one of the triggers for Topolanek's outburst was that fact that just one day earlier the Czech parliament had ousted his government with a no-confidence vote. And his high-profile freak-out was a way to demonstrate his continued relevance.
And remember, with Topolanek's government tossed into the ash heap of history, that leaves the next decision to Czech President Václav Klaus, who is one of world's most outspoken global warming deniers, and darling of right-wing websites everywhere. Earlier this month he was the keynote speaker at a big global warming deniers ho-down in New York.
Whatever happened to Vaclav Havel? Can they bring him back?
--Josh Marshall
Next Up
At a hearing tomorrow, Secretary Geithner will outline the administration's plan for stiffening financial sector regulation and bring hedge funds, derivatives trading and all the other good stuff under federal regulation.
--Josh Marshall
Hmmm, That Was Interesting
Michael Steele just did an interview on CNN. And in addition to speculating about a possible future run for president, he seemed to say that his blow-up with Rush Limbaugh was actually a strategic decision to see, or rather smoke out, who would stand up and criticize him if he did something really stupid.
I guess he got his answer: a lot of people.
--Josh Marshall
Could Work
We've linked to a number of criticisms of the Geithner bank plan. So I wanted to flag the piece penned today by Dr. Doom, Nouriel Roubini, the guy who predicted a lot of the mortgage-driven financial collapse. He's cautiously supportive.
--Josh Marshall
Good Help Is Hard to Find
Top Obama EPA nominee withdraws amid "scrutiny" of his work with scandal-plagued non-profit.
--David Kurtz
Ohhh Boy ...
Sounds like we will soon have Michael Steele to kick around some more.
--Josh Marshall
Thanks, Norm
We shouldn't let the day pass without noting, for the record, that the Minnesota Senate race saga has now (or will as of the end of the day) set the record for longest unresolved election drama in the state's history.
--David Kurtz
Street to DC: We Got Our Mojo Back!
That 'take this job and shove' letter in the Times today was one example. But it's been a trend over the last couple weeks. A growing chorus of bankers and financiers, who'd largely been keeping their heads down, piping up and telling Washington and pretty much everybody else that they're back, have new cigars and generally aren't going to take any more of your crap.
We round up the recent examples in this new post.
--Josh Marshall
Where Do They Get These Guys?
We're listening to Rep. Jeb Hensarling (R) explain that the economic crisis was caused by the Democrats because the Democrats controlled Congress from January 2007 on.
Late Update: Here's the video:
--Josh Marshall
The Moderates
Kent Conrad and senate moderates are cutting money from Obama's proposed budget. But as Brian Beutler points out, a decent amount of their cuts aren't really cuts but efforts to switch back to Bush era efforts to obscure future spending.
--Josh Marshall
Call on Me!
Timesmen get a little snippy about not getting called on at Obama's presser.
--Josh Marshall
Rushology
I see I was not to be totally disappointed in wanting my fix of Bobby Jindal. He appeared at a fundraiser last night during President Obama's press conference. And his choice of topic seemed well-suited to the GOP's new Rush Limbaugh era. The self-consciously intellectual Jindal set for himself the task of providing the intellectual justification for wanting the president to fail.
Jindal described the premise of the question -- "Do you want the president to fail?" -- as the "latest gotcha game" being perpetrated by Democrats against Republicans."Make no mistake: Anything other than an immediate and compliant, 'Why no sir, I don't want the president to fail,' is treated as some sort of act of treason, civil disobedience or political obstructionism," Jindal said at a political fundraiser attended by 1,200 people. "This is political correctness run amok."
...
"My answer to the question is very simple: 'Do you want the president to fail?' It depends on what he is trying to do."
--Josh Marshall
Bobby and the Volcano
I'm still feeling kind of cheated about there being no Bobby Jindal official GOP response yesterday. But we've still put together a special honorary, Gov. Bobby Jindal slideshow with images of the new eruption of Alaska's Mount Redoubt.
--Josh Marshall
One Lost Vote for Specter
From TPM Reader AR ...
There's just no chance he wins the general now. On top of unions, which are really the only way to win in Philly (although even here they're losing their cachet a little bit), the reality is the people in PA broadly speaking like Obama a lot. And as someone who would have actually probably would have voted for Specter--it would have been with my eyes closed, but I still give him credit for at least nominally standing up to Bush when it came to judicial appointments--I now see him as someone who made the stimulus package worse, won't let EFCA come to a vote, and generally is the worst kind of moderate (that is, not someone who is liberal on some issues and conservative on others, but someone who pretends to be a moderate on every single issue). I think it's obvious that he can't win the primary (not only is he too liberal, but people who are still registered as republicans in PA are a special kind of hard core), and even if he did, I just don't know anybody around here that would prefer the 60th vote in the senate to be an unpredictable attention whore. I guess I've just had it with Specter.
--Josh Marshall
TPMDC Morning Roundup
Jindal: I may want Obama to fail. That and the day's other political news in the TPMDC Morning Roundup.
--David Kurtz
Why Arlen Sold Out the Unions
For some background as to why Arlen Specter -- who in the past has had a pretty good record of supporting unions -- came out yesterday against EFCA, look no further than this new poll number. Specter is currently running with 27% support against winger Pat Toomey in next year's Republican primary. Remember, he only barely beat Toomey back in 2004.
Specter could probably win in the general, without too much difficulty. But the big problem is whether he can get the GOP nomination.
But by turning so dramatically on labor, which is a particularly big deal in Pennsylvania, I'm curious whether he can really make it through in the general, given the wild level of kow-towing to the right he'll need to do to secure the nomination.
--Josh Marshall
Deep Thought
Please save us from the living hell of Time-Warner Cable of Manhattan.
--Josh Marshall
Sum Up
One thing that was clear from tonight's press conference was why the White House keeps wanting to get Obama out in front of the cameras and on TV. Obama has a ready and mainly unflappable command of the issues confronting the country, which I think people find reassuring in itself. In a climate of crisis such as this, I don't think most people's focus is ideological. They're looking for competence and command, a sense that someone is sailing the ship, at helm with a clear sense of where they're going.
There was nothing particularly soaring about the answers or the exchanges. But it's not that kind of a setting. What Obama did manage were a few of those 'gimme a break' zingers that ends an exchange on his terms.
What did strike me was that there was not a single question on what I think is the question of the day: the Geithner bank rescue plan. I take it that that means that most of the reporters think that issue is largely behind us now unless the market or any clear economic realities say otherwise. For better or worse.
The point of the exercise for the White House seemed summed up in Obama's clearly heavily-thought-out conclusion, the gist of which was: We just got here. The country's a huge mess. It's going to take a long time to dig our way out.
Not a bad point.
(ed.note: Live-blogging of the event below.)
--Josh Marshall
Not So Deep Thought
Still not clear what Chuck Todd was thinking with that sacrifice question.
--Josh Marshall
Live Press Conference Blogging, Pt. 2
8:40 PM ... Man, that was an awfully policish question from the Politico version of Mike Allen.
8:44 PM ... One of the things with Obama is that he's just very quick on his feet and has clearly thought through the issues. Change we can believe in. And makes sense why they keep wanting to get him in front of the public.
8:45 PM ... Not sure who this Chappell reporter works for (ed.note: apparently he works for Ebony), but who did he think he was actually asking a question about people who are out of work and suffering because of the terrible economy?
8:54 PM ... Obama: Steady as she goes ... A strong conclusion.
8:58 PM ... Yeah, no questions on the whole bank bail out plan. Just strikes me as weird.
--Josh Marshall
Live Press Conference Blogging
8:07 PM ... Cool, down to some questions. Hmmm, maybe not. The AP reporter just why, if it's been so hard and unwieldy keeping banks and non-bank financial institutions on life-support, we should try to set up a system of taking them over and shutting it down. So, if this bad situation is so bad, why shouldn't we try to improve it? Good question.
8:11 PM ... Not sure I'm getting Chuck Todd's question. Isn't the public sacrificing by lots of people losing their jobs and the whole country going into a huge amount of debt? I like Chuck Todd and I'm honestly not planning to criticize every question. Honest. But maybe that question needed to be thought out a little more clearly.
Can we cancel the bonuses of these reporters? (Hey, come to think of it, Todd works for NBC, which is owned by GE. So this just might be doable.)
8:17 PM ... Phew ... Jake came through with a decent question. It wasn't looking pretty.
8:27 PM: ... Not sure Obama had a really clear or necessarily really good answer on long-term deficits. Orszag, what happened?
8:30 PM ... Just occurred to me: I think we're a half hour into this thing and we haven't had one real question on the bank bail-out plan the administration just announced? We're done with that?
8:32 PM ... Huh, Ed Henry asks a pretty solid question. Why is Andrew Cuomo getting more action with AIG than you and Tim Geithner are. Come to think of it, yeah, good question.
8:34 PM ... Maybe it's not a simple argument to make but there is an argument behind what Obama's doing -- we need upfront investments to alleviate our structural deficits over time, particularly on the health care front. But he's not really making that argument. (Okay, making it a bit now. But still, not leading with it.)
8:36 PM ... Can't wait to hear Bobby Jindal's response after Obama's done.
8:37 PM ... Major Garrett is one cartoonish dude.
--Josh Marshall
Grading on the Luntz Curve
Fox is featuring one of Frank Luntz's bogus focus groups for tonight's coverage of the presidential press conference. How does this "random" sampling grade Obama 10 weeks into his presidency? Luntz just threw that question out to the group a few moments ago: a smattering of As, a few Bs -- but most of the group grades Obama at a C so far.
--David Kurtz
The Horror ...
Eric Kleefeld dares to go where no one else will and unveils the 'Bachmann Effect'.
With special video included.
--Josh Marshall
Tune In
Tune in at 8 PM tonight. We'll have live-blogging at TPM and TPMDC of tonight's presidential press conference as well as video of the key moments.
--Josh Marshall
Circling In
The House Oversight committee wants to have a sit-down with Joseph Cassano, the guy at the center of the AIG credit default swap implosion.
--Josh Marshall
Go-Go-Goldman?
TPM Reader AR looks at the bright side ...
Maybe I'm crazy, but if Goldman says that they can't run their business with our money, and that in fact they can run it without it (which they certainly couldn't 5 months ago), then doesn't it mean that this whole thing might actually be working? I mean, the best case scenario from the beginning had to have been that the banks were able to repay all of the TARP funds and still operate, no? Sure, Goldman got money from AIG, but the reality is that the trades they made with AIG were actually evidence of recognition of the riskiness of their CDO and CDS bets. At any rate, if Goldman wants to give us our money back, and continue operating, that doesn'y preclude us from passing tighter regulations, and if TARP turns out to be a $700B bridge loan instead of a $700B expenditure, I don't see how that's anything but good.
As far as it goes I would say this is right. To the extent that the banks can pay us back our money and go back to being banks, great. And I'd leave it to more knowledgeable to decide just where we draw the line. But as a general matter my concern is that we still have a financial and banking sector that is on the brink and a lot of treatment -- of whatever sort -- left to go. To the extent that Goldman hops out of the TARP club and starts gaming the regulatory gradient separating it from the rest of these peer institutions and mucking up what we're trying to do, that's really not change we can believe in. And to the degree which Goldman is still benefiting from a heap of federal largesse, I think we have a strong claim to nixing their gambit.
Again, where one draws the line, their relative health vs. the other banks and even the health of the other banks themselves, those are all questions i'll leave to others to hear more on. And so I'll reserve judgment.
Late Update: TPM Reader CS says the banks just can't win with me. Hold the TARP money and it's one criticism, give it back and it's another. Fair enough. I can see some merit in that. But globally, I think we're still dealing with a financial sector that has brought the world economy to the brink of catastrophe. And not just that they're the location of the crisis, but largely the cause -- a significant difference. So as the con law folks would say, I think all their actions are deserving of strict scrutiny.
--Josh Marshall
Rosencrantz or Guildenstern?
Shorter Michael Barone: Banking crisis shows financial sector is over-regulated.
--Josh Marshall
I'm Too Naive
Rep. Boehner still lying about the scoring of the House GOP's alternative stimulus bill.
Here's our run-down from back when they started with this bamboozlement.
--Josh Marshall
Idle Goldman Questions
If Goldman can so easily pay back the $10 billion in TARP money, does that mean they didn't need the $13 billion we gave them in AIG bailout money all that badly?
More generally, if Goldman can use taxpayer largesse to get out of under the TARP restrictions, won't that leave them nicely poised to cherry pick hotshots from the remaining banks that are?
Also, is Goldman having second thoughts about changing its status last year from an investment bank to a bank holding company, with all the benefits that brought during its hour of need?
Late Update: Just to follow up, this does sound like ... well, maybe the ultimate regulatory arbitrage power-play, though not in the sense in which that term has been meant before. Quoting the Sorkin piece from this morning: "Paying back the TARP money would probably give Goldman Sachs a bigger lead over its rivals. With a Yankees-like payroll, it will continue to be able to steal the best talent from weaker firms that still have TARP money and are subject to restrictions on pay and the like." So, as one reader points out, the point is precisely for Goldman to get out of under TARP -- that's clear -- but also for everyone else to stay in, creating a completely lopsided playing field on the hiring front.
--Josh Marshall
Hmmm
Going on three months into a new Democratic administration. Isn't about time for some Republican members of Congress to start hinting about the violent overthrow of the federal government?
Oh right, I forgot.
--Josh Marshall
Big Feet
FedEx to Congress: If you want us to keep buying American planes, keep those pesky unions off our backs.
--Josh Marshall
Not So Fast, Pt.2
As we noted this morning, Goldman Sachs is now saying they've had enough of federal government oversight of their business. So they're going to pay the TARP money back as soon as next month. The problem is that TARP money was only the start of the government aid Goldman got since last fall. There are loan guarantees, more than ten billion in additional dollars funneled through AIG. Zack Roth adds it all up here.
This leaves aside the more speculative question of whether Goldman could have survived without the federal government's other aid to the financial sector in general.
--Josh Marshall
Part of a Bigger Plan?
From TPM Reader AC ...
Josh, I am wholly out of my comfort zone in discussing the economy, but I've been following the arguments here, on Krugman's blog, and over at Kevin Drum's blog. Doesn't the request by the administration for more powers to take over banks after they have shored-up some fear among the Wall Street crowd strike you as part of a bigger plan? Part of the problem, as I understand it, is that no one knows what these banks are holding. We soon will under Geithner's plan, and hopefully, before the dust settles, we'll have "forward looking" legislation in place that will serve to fix the very problems we're facing now once we know what the banks have got. All without the incredible market turmoil that would occur if the administration started marching through a take-over powers bill without easing fears on Wall Street first.
I think this is an optimistic take, but by no means impossible. And I am curious to know more about the thinking behind the 'ask' now for the powers that could have allowed us to handle this situation much differently last fall.
TPM Reader PH is optimistic too ...
I totally agree with AC about what the administration is doing. To use the explosive metaphor that is so popular now, the very FIRST thing that has to happen is to make the bomber feel less isolated, more comfortable. Offer a cigarette, a cup of coffee (OK i've seen too many movies) anything to get the attention off the switch in the other hand. Meanwhile, the SWAT team... well, you get the idea. I think President Obama has already shown that he is not going to be shy, and that he does not lack confidence, so indecisiveness and "going along with the status quo" are contrary to what we should expect from him. He has repeatedly said the system needs to be changed and most importantly re-regulated, but the first step is defusing the bomb, even if that means letting the bombers get away. For Now.
--Josh Marshall
"Zombie Taxpayers"
CNBC International, where they seem to be more emotionally stable, interviews David Karsbol from Saxo Bank of Denmark. He says that bank plan will likely work but mainly by trading zombie banks for zombie taxpayers.
Karsbol argues that this will be a boon for the financial sector but not necessarily for the broader stock market because of the excessive strain it puts on the country's broader finances.
--Josh Marshall
Retrospect
Fed Chair Bernanke has now added his support for new legislation giving the Treasury the power of take over failing major non-bank financial institutions and a set of tools, short of outright takeover, for limiting the risk they pose to the rest of the economy. What's interesting in this discussion is that the advocates -- Bernanke and Geithner -- appear to be saying explicitly that had these powers existed last fall the Treasury could have and should have taken over AIG, rather than keeping it on life support and paying out all its obligations at full dollar value.
--Josh Marshall
Losing the Nobel Laureate Crowd
Stiglitz not liking the Geithner plan, either:
"Quite frankly, this amounts to robbery of the American people. I don't think it's going to work because I think there'll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer."
--David Kurtz
My Plan is the Greatest!
Everyone keeps quoting a certain Wall Street honcho on how great Geithner's bank plan is -- without mentioning that said honcho was one of the originators of the idea.
--David Kurtz
Not So Fast
Andrew Ross Sorkin reports today that Goldman Sachs is going to pay all its TARP money quickly. The idea being that they're tired of federal interference and oversight. And paying it off will mean they're back on their own. But of course Goldman Sachs got substantially more money, roughly $13 billion from the AIG bailout, and there are numerous others programs, including but not limited to, loan guarantees that Goldman has used to stay afloat over the last six months. So the idea that simply paying back the TARP money means they're back on their own is really a crock.
We'll be bringing you more on this shortly. But over recent days I've seen several good write-ups detailing the lengthy list of federal aid Goldman has received. If you can think of good write-ups like that, please send them in asap and we'll add them to the mix.
--Josh Marshall
TPMDC Morning Roundup
An active news day: Geithner and Bernanke testifying on the Hill this morning at 10 ET, and Obama's second primetime press conference tonight at 8 ET. That and the day's other political news in the TPMDC Morning Roundup.
--David Kurtz
Next Time
According to the Post's A1 story tomorrow, the administration is 'considering asking Congress' (i.e., this is a trial balloon) to give the Treasury Secretary powers to seize non-bank financial institutions: in other words, the Lehman Brotherses and AIGs of the financial world.
Also in the background is the emerging debate about what government agency is going to take on the new role as 'systemic risk regulator' -- the Fed? or some new agency yet to be created. This is an issue that Elana Schor has been writing about at TPMDC. And it seems to be swirling in the background in the spat between the White House and Sen. Dodd.
Finally, there's this ...
Besides seizing a company outright, the document states, the Treasury Secretary could use a range of tools to prevent its collapse, such as guaranteeing losses, buying assets or taking a partial ownership stake. Such authority also would allow the government to break contracts, such as the agreements to pay $165 million in bonuses to employees of AIG's most troubled unit.
Breaking contracts covers a lot of territory. So it would be very interesting to see some more detail on this front. But one of the fundamental problems that has hobbled the government's response is that companies that by rights should go through bankruptcy can't go through bankruptcy (or at least that's what many believe) because of the shock to the rest of the financial sector. So perhaps this would give regulators more options.
--Josh Marshall
Must Read
There's an eye-opening, perhaps eye-popping, article in tomorrow's Journal ("Obama Dials Down Wall Street Criticism"), the gist of which is that over the last three months Obama and his team have learned that they've got to start respecting Wall Street and the big banks if they want to get anything done. As Monica Langley describes it, the Obama team went in with a dim view of Wall Street, didn't bring the big bankers in on key policy decisions etc. But now they're realizing they have to play ball. And this is in part why the markets gave a good reception to today's Geithner plan.
Things were coming along until the AIG blow up almost overturned the applecart. Here's the article's concluding graf ...
Bankers were shell-shocked, especially when Congress moved to heavily tax bonuses. When administration officials began calling them to talk about the next phase of the bailout, the bankers turned the tables. They used the calls to lobby against the antibonus legislation, Wall Street executives say. Several big firms called Treasury and White House officials to urge a more reasonable approach, both sides say. The banks' message: If you want our help to get credit flowing again to consumers and businesses, stop the rush to penalize our bonuses.
I'm not here to criticize the article because I'm not clear that what it's reporting isn't true. At the same time, it reads almost like it's about some alternate universe.
Rather than comment, I'd rather hear your take. It's not behind their subscriber wall. So you don't need a subscription.
Give it a read. Am I reading it right? What do you make of it?
Late Update: Noam Scheiber says that "Josh Marshall expresses amazement in response [to the Journal article] --presumably at the idea that Obama would cozy up to the people who inflicted so much damage on the economy in the first place." Alas, I hope I did not write so unclearly. My surprise at the article is its assumption about who holds the whip hand in this relationship -- the White House and Treasury or the execs and the big banks. And secondarily, whether the White House has beat some sort of hasty retreat from its earlier stands.
--Josh Marshall
On the Stump
Off the AP wire ...
Former Arkansas governor and Republican presidential candidate Mike Huckabee likened abortion to slavery in a Monday speech during a fundraiser for an anti-abortion group.Huckabee said that when it abolished slavery, the U.S. debated and decided it was immoral for one person to have complete, life-or-death power over another. He said that should not change whether the control involves racial bigotry or a pregnant woman making a decision for her unborn child.
I thought it was about owning people.
--Josh Marshall
Michael Steele: Please love me
Michael Steele to Christian righties: Did I mention our new web master is super duper Christian?
--Josh Marshall
What a Guy
Back when Sen. Judd Gregg pulled a Bobby Ray Inman and decided there were too many policy differences to allow him to serve as the president's Cabinet Secretary, I think the idea was everyone was still buddies and that he support the thrust of the president's budget proposals. But just a little while ago Gregg was on MSNBC saying the president was bankrupting the country and that Obama was taking a 'Chicago approach' to governing: "You're talking about running over the minority, putting them in cement, and throwing them in the Chicago River."
I guess this is Gregg's contribution to the new climate of bipartisanship and good feelings.
Late Update: You can find the original quotes here.
--Josh Marshall
Bobby?
Now that that volcano has blown up in Alaska and spewed volcanic ash all over the place, we're trying to figure out whether Gov. Jindal has changed his mind about saying that funding volcano monitoring for that specific volcano was some sort of silly idea. But Jindal's office is refusing to provide any comment or response to our press queries.
Can anyone help? Can you get Jindal's office to respond?
--Josh Marshall
Center of the Storm
Just who are Obama's economic advisors? Would you know Jason Furman if he bumped into you on the street? Have you seen Larry Summers at Starbucks? Or could you ID Austan Goolsbee to the cops if he tried to steal your wallet? We introduce you to them today in our Obama E-Team photo feature.
--Josh Marshall
Minority Rules
A lot of readers have asked about the 50-vote reconciliation process in the Senate, which could determine whether health care reform and climate change legislation pass this year. Ezra Klein has a good rundown on the parliamentary ins and outs.
Late Update: TPM Reader AH adds some additional context:
Thanks for the link to Ezra Klein's piece on budget reconciliation process. For such an important part of the legislative process - and used for some really big things too - it is treated as legislative arcanity by the media, always being played as some sort of "obscure" rules that those crafty congresspeople use to do things but that is too complicated for the American people or media to actually understand (I remember a discussion lead by RNC Chairman Ed Gillespie on CNBC during the tax cuts that basically played this line and was totally accepted by one and all).One important aspect of the reconciliation process and the Byrd rule that wasn't brought up by Ezra - any fiscal measures that affect the budget and that get passed by reconciliation process can only be in effect for as long as the then-current official budget estimates play out. In 2001 budget estimates were 10 years - so the tax cuts passed by budget reconciliation HAD to expire after 10 years (it's amazing how many people both in the media and the blogosphere come up with different reasons for why the tax cuts were temporary that have nothing to do with the Byrd Rule requirement). At various times the officialI OMB budget estimates fluccuate between 5 and 10 years in the future - so that does have a bearing.
Something like drilling in the ANWR would have been a perfect candidate - presumably there was a budget item to facilitate development or intfrastructure development, etc. and by the time that particular budget item expired in 10 years, the damage would have been done.
The question is, with regard to health care reform - how much effect would the 10 year fiscal limitiation have on something ongoing like creating real health care reform and the new institutions that that would require. Undoubtedly it would require federal expenditure, and presumably measures to pay for it - none of which could be considered "permanent" according to the rules. Would the democrats do what the republicans failed to do with the tax cuts - pass them in close Congress with the expectation of enhanced majorities in the future enabling a filibuster-proof Senate in the future making them permanent?
The GOP was going to try that with the tax cuts - they even made it their signature legislative goal for the fall of 2005 before Katrina intervened over the Labor Day weekend - which always surprises me that the GOP points to the Democratic failures in the 110th Congress, but never was able to make permanent their signature issue - tax cuts in the 3 Congresses previous.
Anyway, it amazes me how important somthing like the budget reconciliation process is, and how it was completely ignored and treated as something too arcane to be understood or talked about much when the Republicans ruled the roost. Thanks for you attempts at educating everybody about this.
--David Kurtz
Way To Go Lanny!
Lanny Davis becomes chief hawker of corporate card check bamboozlement proposal.
--Josh Marshall
THAR SHE BLOWS!
The overnight eruption of Alaska's 10,000-foot Redoubt volcano (as of this writing, a series of five explosive events launching ash and debris 50,000 feet into the sky and depositing a light covering of ash on communities more than 100 miles away) is the perfect coda to last month's anti-science rant by Louisiana Gov. Bobby Jindal in which he mocked volcano monitoring funding in the Obama stimulus plan.
--David Kurtz
On Second Thought
After initially concluding that the AIG bonus tax was constitutional, Harvard law prof Larry Tribe has taken a closer look and is now not so sure.
The White House is cool to this legislation to begin with. Tribe's changing course may help give the necessary political/legal cover to slow roll it in the Senate or eventually veto it -- if it gets that far.
--David Kurtz
Natives Getting Restless
From TPM Reader XX ...
I live in a wealthy NJ suburb which is home to a lot of Wall Streeters . I received an impassioned email plea from a neighbor who wants everyone to take action against the 90% taxation of bonuses. He works for JP Morgan Chase. He claims that his company was "forced" to take TARP funds and he should not penalized by the tax. Since his income is mostly in the form of a bonus, he thinks that the confiscation of the bonuses amount to a constitutional taking. As one who is not employed by one of the Tarp banks and whose own bonus is in jeopardy because of a collapsing economy (due to some of those banks misdeeds), I am less than sympathetic. In fact, I am a little miffed. However, my real question is:Was JP Morgan really "forced" to take the funds, or was it just pressured by Paulson to take the funds or else jeopardize some future aid by the government? I can't seem to find an answer.
Let me again stipulate, to start, that I think the current bill moving through Congress is probably a bad idea. Was JPMChase forced to take the money? I'm pretty sure no one was 'forced' to take the money, in a strictly legal sense. But I do recall that Paulson made clear he really wanted all the big exposed banks to take a big chunk. And a number of the banks made a big show about doing the Feds a favor by taking it. Whether that was just grandstanding or denial I'm not completely sure, possibly a mix of both. Because it quickly became clear that not only did many of them desperately need it, at least two (Citi and BofA) came back and pretty short order begging for substantially larger sums. My sense is that of the handful of big banks, JPMChase is in relatively good shape -- though it's hard to say how much that means since the others seem to be effectively insolvent and only remaining afloat via an implicit guarantee from the federal government. So I don't know the best answer to whether JPMChase was 'forced'. But if they were, perhaps they can suggest a schedule for paying the money back to the Treasury?
--Josh Marshall
How Did We Get in This Mess?
Watching Rep. Connie Mack (R-FL) on CNN calling for Tim Geithner to resign. After just nine weeks on the job? We all know the real culprit here is Obama. He's had an entire 10 weeks to wreck the country. Things were fine before.
--David Kurtz
TPMtv: Sunday Show Roundup: Banks, Bonuses, and Budgets
Vice President Biden's chief economic advisor Jared Bernstein says the House's bonus taxing bill "may be a dangerous way to go," Sen. Judd Gregg (R-NH) says the Obama budget will bankrupt America, but WH Council of Economic Advisers Chair Dr. Christina Romer is confident the economy will bottom out and be growing again by year's end. All that and more in today's Sunday Show Roundup ...
Full-size video at TPMtv.com.
--Ben Craw
TPMDC Morning Roundup
Obama: "I think that Vice President Cheney has been at the head of a movement whose notion is somehow that we can't reconcile our core values, our Constitution, our belief that we don't torture, with our national security interests." That and the day's other political news in the TPMDC Morning Roundup.
--David Kurtz
Man of the Day: Tim Geithner
The Treasury Secretary will announce more details on the bank bailout plan in the next few minutes. Treasury has released a new fact sheet on the plan, and in a WSJ op-ed today, Geithner looks to rebrand "toxic assets" as "legacy securities" (bad mortgages are dubbed "legacy loans").
--David Kurtz
Wow, I Needed That
As part of their efforts to make the scale and scope of Bernie Madoff's crimes clear to Judge Denny Chin in deciding the terms of his plea, confinement and eventual sentencing, the folks at the US Attorney's Office for the Southern District of New York submitted emails from Madoff's victims describing the injury they had suffered and the punishment they believed Madoff deserved.
When you read through the emails, though, you do sort of wonder what level of vetting was applied to these emails or who some of those people even are. And when you get to the email on page 36 you get the sense that the quality control on which emails they threw on the pile maybe wasn't all that high.
Here's the text of that email ...
From: [redacted]
Sent: Saturday, March 07, 2009 6:38 PM
Subject: REPLY MEMy Name is Mr. [redacted] but my origin is from Republic of Congo. I have an inherited fund I want to invest in a business in your country with a help of a local. I don't know about what business but I found it wise to invest the funds in your country with your collaboration with me.
Ever since I move to Dubai due to the problem in my country, I have not been able to invest the funds in Dubai due to security reasons. Now I am seeking foreign assistance to transfer the funds in your country based on the news of their development.
If you can assist, I am willing to give you 10% of the funds that is US$3.5Million. You will understand that my entire life and future depend on this money and I shall be very grateful if you can assist me. The major thing I demand from you is the absolute assurance that the funds will be safe and you will not sit on it when it is transferred into your account.
I will be willing to coming to your country once everything has been done and the funds are in your bank to discuss on lucrative investment in your country.
I hope to hear from you so that we might get to talk better on this issue. Please do give me your contact information in order for me to call you ASAP.
If this email offends your moral value, do accept my apology.
Hope to hear from you soon.
Best Regards,
[redacted]
See the original here (scroll to page 36).
I have to confess I couldn't stop laughing for maybe 10 or 15 minutes after I read this. Really a bang on this one, guys. How many of the rest of these 'victim' emails are just crank emails?
(ed.note: Hats off to TPM Reader DW for looking a little closer than the US Attorney's office staff.)
--Josh Marshall
Why Are We Still At This?
Following up on the reviews of Tim Geithner's latest plan, why do we keep coming back to this idea? The modalities are different. But fundamentally it's a different twist on the original TARP idea -- use government muscle (either in dollars or guarantees) to buy the 'toxic assets' from the banks at prices pretty close to the high prices the banks want to believe they're worth rather than the much lower prices that a lot of economists (and let's remember, the market) say they're worth. So, if it's such a bad idea, why do we keep coming back to it.
I posed this question to Joe Stiglitz back in early February. And this is what he said ...
You can see the rest of our Stiglitz interview here.
Late Update: Some of the responses to this post assumed the title was a rhetorical question. Actually, it's a real question. If it's such a bad idea, why is the idea so persistent. Real question.
--Josh Marshall
The Other View
I wanted to flag for everyone that Brad DeLong is not nearly so down on the new Geithner plan as some others are.
--Josh Marshall
Game Theory and the Bailout
We're trying to make sense of what we think of Tim Geithner's latest go at resolving the toxic assets issue. As we've discussed in various places going back months now, it seems like another twist on the basic concept of getting taxpayers to pay or underwrite purchasing these bad debts from the banks at inflated, perhaps wildly inflated, prices. Here's a roundup of harsh critiques of the plan.
But I'd like to take a moment to pursue another point Thoma made a few days ago which, though specifically applied to AIG, applies to the large bank bailout issue as well.
Thoma was reviewing Lucian Bebchuk's argument that AIG is not to big to fail and that rather than continue to pump taxpayer dollars into that black hole we should usher the company through some process of managed bankruptcy/restructuring. Thoma seems to broadly agree that this is the best approach but points to the unlikely but not impossible catastrophic outcome.
Think of it like this -- both to understand the best way forward and as a way to understand the possible thinking of people at Treasury.
For the sake of discussion let's assume that 'biting the bullet' with AIG or the banks (broadly speaking putting them through some form of managed restructuring as opposed to keeping them on life support) has a 5/6 chance of a good outcome, much better and much cheaper for the taxpayer than the current situation. But there's a 1/6 chance of a catastrophic outcome. Are those good odds?
Now, let's think about it from Geithner's point of view. You have a 1/6 chance of literally destroying the economy, with all the real and reputational consequences of that fact. And what are the upsides of the 5/6 chance? Here's where the gaming out gets interesting, for lack of a better word. It's not as though if you try the Swedish model, or some spin on it that everything gets great all of a sudden and people get their 401k money back and everyone who got laid off gets their jobs back.
You'd probably get a good nod in the history books. And you'd likely have saved the taxpayers a ton of money in the longterm and you'd avoid going down in history as the standout driver of moral hazard of all times. But a lot of these benefits and the perception of the benefits would accrue over months and years, even decades.
Now, you might say, tough luck. This is what real leadership should look like -- you take stock of the situation and do what's right, even if the political upside isn't that great. And I haven't taken into account here that the 'safe' approach may not work at all. And if it doesn't then the Stimulus will be stillborn and so forth and we'll remain in a terrible spot. But I do think risk aversion in the sense I've described helps illuminate why we seem to be in the paralyzed position that many of us (I think rightly) decry.
--Josh Marshall
What Are They Worth?
From an anonymous TPM Reader ...
The real problem behind the AIG public relations mess is not the tin ears of all the President's men, or their tone deaf commentary, or their ham-handed approach to decision-making. The real problem is that the AIG situation implies that they, the President's men, don't think like shareholders. They don't act as if their fiduciary duty is to the taxpayers whose money they spend. They don't seem to put the interests of the public first and foremost and ahead of all the interests of private fims. Instead, they seem to think that their job is to have the non-taxpayer, private shareholders and management of various firms return to normalcy -- meaning, doing commerce and making money. This goal is not to be derided, and it is important, but it does not correctly reflect the duties of the government officials who represent the taxpayers in owning or controlling many firms, including AIG. To see the right mirror of those duties, one needs only look to public company boards.On public company boards, compensation committees do not include any members of management. The members of these committees determine, as a matter of law, the compensation of management in all respects. These committee members, composed exclusively of independent directors, owe their duties exclusively to the shareholders. Ben Bernanke publicly talked about the duty owed by the Fed to the institutions it is helping; when it comes to compensation decisions the duty is owed to shareholders, not to the abstract idea of a corporation.=2 0And when the taxpayers are the shareholders, the duty is owed to them.
The corporation, its management, its shareholders and the directors who represent them, are, of course, closely interrelated. Indeed, the goal of compensation decisions in public companies is to align the interests of top management and shareholders. When the executives do well, the shareholders should do well, and vice-versa. The pursuit of this alignment involves difficult decisions, including but not limited to balancing the notion of doing well in the short-term with doing well over the long-run. But this decision-making starts with a clear understanding of roles. Translating the compensation decisions of public company directors to the decision-making at AIG or any of the many many other companies owned in whole or in large part, directly or indirectly, by the taxpayers, through Treasury or the Fed, at least the following questions arise:
First, who represents the taxpayers in the compensation decisions at government-controlled firms? For example, at AIG, how can it be that the CEO, no matter how fine a fellow he may be, operates without a compensation committee of independent directors who decide executive compensation? There must be such an organization, although it has been conspicuous by its absence in the recent "debate." And on it there must be individuals who represent the shareholders exclusively, even when those shareholders are the taxpayers. There must be a reasoned process and a clear, publi c record of decision-making. If these processes, which are routine in public companies, don't exist it should take less than a few days to put them in place. This is not rocket science or even toxic asset clean-up; it is utterly familiar territory for dozens and hundreds of experts ready and able to take the burden of such decision-making off the desk of the Treasury Secretary, the Fed governors, and certainly the folks in the White House.
Second, if the right sort of compensation committees were created, it would follow inevitably that they would decide and announce their philosophy. For example, are they following the necessary goals of compensation: recruiting, retaining, and motivating? How are they putting these tenets into place? How do they balance the need to pay for performance with the general lack of income and liquidity in the troubled firms that the taxpayers have such large stakes in? These decisions are, again, both difficult and extremely familiar in public companies. It is easy to go to the right place for expertise; it is high time for the government's officials to get that expertise. It is past time to assure America that the Treasury Secretary has delegated this sort of responsibility; compensation needs to be done fairly, but it is not as important as various other crises for Tim Geithner to solve. On the other hand, it is a big problem if Treasury doesn't have the inclination or capability to delegate and assign accountability for many many issues, of which c ompensation in not just AIG, but many other firms, is one.
As another example, it is impossible to believe that the current proposed new bail-out plan for toxic assets does not raise issues of possible wealth allocation as among private parties and taxpayers. These issues will include compensation decisions. Treasury cannot be indifferent, secretive, or wholly responsible for such decisions -- it needs to delegate and obtain outside counsel in open, reasonable ways.
Public companies invariably use outside advice to make compensation decisions. Much of that advice draws scepticism. But no one would suggest that comparables and standards are irrelevant. What comparables and standards for reward and compensation shall Treasury apply to its present bail-out plans, or indeed to any and all of the firms where it now has major or controlling stakes? At public companies, transparency is required; at Treasury it ought to be part of the prevailing ethic.
At bottom, the AIG flap is about fairness: fairness of result and fairness of process. As long as Treasury maintains a rule of secrecy, it is certain to generate more AIG flaps, whether or not the flapping is legitimate. People, whether in the role of voter, taxpayer, citizen, or shareholder, simply want to know what's going on.
--Josh Marshall
