Bailouts, Compensation and Oversight: Oh My!

Discussion in 'Financial Cents' started by eeyore, Sep 30, 2008.

  1. eeyore

    eeyore Monkey+++

    Bailouts, Compensation and Oversight: Oh My!

    The talk in Congress over the past 96 hours has all been about excessive compensation and the need for more transparency. Too many Wall Street sharpies have been on a binge and now the American taxpayer is asked to pay the piper. Rewarding failed executives with huge salaries and bonuses, in the tens of millions of dollars would be obscene.

    But, with billions in public money currently proposed for so many different bailouts, it's time for Congress to provide some transparency to the American taxpayer, too. In addition to the current, annual, financial disclosure, Congress should categorize their investments and outside business interests in relation to their committee responsibilities.

    Many of these committees are now making decisions to determine who gets bailed out by the government and who does not. My guess is that we would find that more than a few Members have deep financial interests in one or more of the entities now being bailed out.

    For example, Senator Chris Dodd (D-Ct.) has been much discussed in the media concerning his 2003 homeowner loans with Countrywide Mortgage. But, neither Dodd nor the media discusses the potential conflict of interest caused by the Senator's other investments.

    For example, the Dodds have a cottage in Ireland which is mortgaged by AIB, the Irish banking conglomerate, but AIB is both a purchaser of American International Group (AIG) services and AIB is also an investor in AIG. AIG, as most are aware, is one of the major players in the "bailout". Other AIG investors are CME Group, and IPC Holdings, all of which constitute substantial investments in Senator Dodd's portfolio.

    Joining Dodd is Senator Harry Reid (D-NV), the Majority Leader, who has extensive property investments and mortgages. And, of course, Congressman Barney Frank (D-MA), Chairman of Financial Services received almost $40,000 dollars in campaign donations from Fannie Mae. Add into that pool, Congressman Frank's extensive investments in various Massachusetts Housing Authorities which use Freddie Mac as their backbone and you have a potentially volatile mix whose outcome could bias sound judgment.

    So, Senator Dodd is not alone in this lack of true transparency.

    He's keeping good company with Senator Grassley (R-IA), Ranking Minority Member on the Senate Finance Committee, who has extensive property investments, a few mortgages, stock investments in several insurance companies and banks, all of which are tangentially involved with the Senate Finance Committee and AIG.

    But, strangely, Congressman Henry "we need more oversight" Waxman (D-CA), when asked by members of Congress to investigate these and other apparent conflicts of interests, has so far refused to do so.

    Transparency, it seems, is only to be selectively applied. Waxman is always enthusiastic about urging more transparency on the White House, and cites the need for emails, records and such in his desire to find even the slimmest of slim reeds to advance his fierce partisanship. He is not nearly so eager to apply even a modicum of transparency to his friends and special interests.

    Or, perhaps the reason for his inaction is simpler and self-serving: back in 2001, Congressman Henry Waxman also had investments and mortgages with Freddie Mac and Fannie Mae and may personally benefit from a taxpayer bailout.

    Now, there is probably nothing inherently wrong with any of Senator Dodd's investments, or those of Reid, Waxman, Frank or Grassley. And certainly, many of these investments have been in their portfolios for several years, long before the financial crisis appeared on the horizon.

    After all, Senators and Congressmen don't get wealthy from their government salaries, which are capped at less than $250,000.

    Instead, many have sweetheart, real estate transactions, ghost written books, and other deals that make their period of public service more lucrative.

    These Congressmen and Senators are not usually doing anything illegal. But public service should not be a used as a path towards personal wealth.

    Excessive compensation, or any bonus, should be non-starters for executives who led their companies to disaster. In free enterprise, risk has always gone hand in hand with reward. So, I say "no, no and heck no" to any kind of a bonus for the CEOs of the entities currently being bailed out by the American taxpayer.

    Each member of congress needs to achieve a higher standard of transparency and needs to disclose any potential conflicts of interests before hosting hearings, providing public commentary on the testimony of witnesses, or promoting a bailout plan in which they personally stand to benefit.

    For example, I think it makes a big difference to your perception of Senator Dodd's objectivity, when he opines on the future of the Freddie Mac/Fannie Mae, when you know that he is the single largest beneficiary of lobbying contributions from these entities.

    Or, what about Congressman Waxman? How can we have confidence that he will provide balanced oversight when his financial disclosure forms lists almost $100,000 in Freddie Mac/ Fannie Mae easy loans?

    Kinda makes you think. Kinda makes you wonder.

    Are taxpayers really being served, or are the posturing and proddings of Congress motivated by more base, personal, financial motivation? Congressmen and Senators may not come to Washington as wealthy people but the vast majority leaves that way.

    Of course, the majority of Americans will never know the true source of those gains, because many in Congress, who chant the mantra of "transparency" the loudest, are perhaps the least transparent of all. Is an mp3 of the interview to download if you want
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