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Who's Minding the Cookie Jar!?
Letter from an angry Main Street business maven...
by Rose Wright

Posted by the Coffee Coaster
with permission of the author

"The price of freedom is eternal vigilance."
- Commonly attributed to Thomas Jefferson

Subject: Open Letter to Congress[1]

Dear Congress:

Taxpayers expect your fury over the AIG bonuses to be applied equally to the executives of all other bailed-out institutions. According to last fall's C-Span testimony by Fannie Mae/Freddy Mac directors, their $700,000+ bonuses were also contractual—ergo untouchable—regardless of performance or merit.

Fannie and Freddy are federal agencies.

How, in any world that makes sense, are such contracts even conceivable? Which government agency approved them? Those contracts are a flagrant license to steal...

We've just learned that Senator Dodd's office, under directive from the Treasury Dept which feared legal challenges, last month actually inserted a bonus clause into AIG's contract, then denied it until public outrage forced out the truth. Why the coverup?

Half our Congress, and virtually all senators, are lawyers. It's scary that all the concentrated legal talent in Washington DC didn't foresee, or act on, the need to renegotiate contracts as bailout pre-conditions. That's basically Law 101. Now we taxpayers are paying the ex post facto additional expense of your bailout haste. How many more expensive surprises ahead? Is it any wonder public confidence in Washington is plunging?

But what's done is done. The silver lining in all this is renewed taxpayer awareness... renewed insistence on transparency and accountability from our government and bailout architects.

We, the people obliged to pay for all the protections we're not getting, deserve responsive and responsible federal agencies. Let's dismantle those that aren't... such as the SEC. From Enron to Madoff, the SEC has abjectly failed us, blaming its incompetence on an inadequate budget. Such excuses merely point out total dysfunction at top government levels.

We don't need new regulations or legislation; we need to examine existing ones, and their role in this economic meltdown. These go as far back as the Community Reinvestment Act of 1977, which forced financial institutions to begin making unwise loans. The spirit behind that may have been 'noble,' but its thrust was to gradually spread unacceptable risk into the overall economy.

We need to determine whether the 1999 repeal of the Glass-Steagall Act exposed the modest nest eggs of financially unsophisticated Americans to predators.

Above all, we need to end Congressional partisanship, expediency and short-sightedness. Nothing of the scope of this disaster happens in a single administration, or even two or three. You all need to rise above politics and just say no to bad legislation, bad contracts, bad judgment. Say no to future bailouts. Exercise common sense and morality.

We taxpayers, whose lives and actions run in an ongoing continuum, can't escape the dictates of those whose lives and actions are measured in mere election years. Once begun, economic bailouts-like wars-are national sea changes, impossible to reverse. Your actions profoundly affect future generations long after your brief terms have ended. Please think before you act.

Rose Wright
Mid-Michigan, USA


Constructive Counterpoint, by Kay Augustin

I am so glad people are finally getting involved in Government again. For a long time, you and our friends were a few that realized that government actions do change OUR DAILY lives.

I have a slightly different take on Glass Steagall. Clinton repealed it and I believe out of necessity. We were the ONLY country which had the artificial distinction between investment and commercial banks from about 1930 until 2008 (this distinction no longer exists). As a result, our financial institutions were operating in the global arena in a convoluted manner due to this unnatural law applying only to US institutions.

The main problem, in my mind, is that although the investment banks were unregulated—paid no FDIC and other fees into reserve funds for possible rescues—the government is paying US taxpayer money to rescue them.

First, let them fail. Many sought stronger commercial banks as refuge. So we are back to the pre-1930s and on the par with the rest of the world. If they were allowed to fail and the profitable pieces sold off to pay creditors, we would not be having bonus talks. No company, no bonus.

Second, if you read Bernacke's plan, he is trying to shore up the securitization market. Mortgages, maybe, but credit cards?!! This was just a Merrill Lynch, etc., way to make extra billions:

The issuers of credit are no longer tied to defaults. They are passed to investors. These investors are told that the credit is AAA by rating agencies. Brokers who offered these to retirees (not me) were told they are actuarially safe.

A better regulation—if we are to believe in such things as people do not seem to know what self-interest is (too many coke highs?)—is that no 100% risk-free conduits for issuers be allowed to exist. Make the "packagers" of these conduits and every financial institution that touches them take a piece of the risk. They must stand behind their products.

The third change is to the accounting system. All accounting statements for all companies should include NOTIONAL values in addition to market values. The officers should have to sign that they have reviewed these values and have contingency plans for maximum realization.

Example: I take on a risk to buy xyz commodity in six months. I pay $1 million. My notional value is $30 million (most Wall Street firms were at 30x leverage). Accountants report this as $1 million.

I am proposing that a second part of the financials reports such a contract as $30 million along with measures taken for protection should they have to pay up. Prudent banks, such as Deutsche bank, used AIG insurance contracts to offset the risk. AIG should have had to disclose and show plans on how they would deal with defaults to make good on their policies.


Thanks and Another Reference:


Thanks for your thoughts on Glass-Steagall. I appreciate all views on that topic, which initially got very little play, but is now slowly resurfacing a talking point, anyway.

Another friend just forwarded the attached item by Britain's former Chancellor of the Exchequer (83-89) on the Glass-Steagall topic. Interesting... I strongly support his anti-protectionist arguments. I think the 'buy American' mentality is hopelessly out of touch with today's global reality.


Editor's Note

These comments were really helpful for me to get a handle on what should have been done or might have been done (or might still be done) inside the real regulatory boundaries of a mixed economy... that would have prevented this bubble of devastation. I didn't take any of Rose's comments either in the original letter or the followup printed above as advocating any specific act of selective confiscation of wealth via Congressional legislation... with which many in the freedom community are concerned.

Probably the best analysis of what to do (and what caused the problem) comes from the Ron Paul and the Campaign for Liberty crowd. Basically, RP keeps bringing us back to the crucial problem of central banking: debauchery of the currency and taxpayers guaranteeing the wild investments of casino capitalists who have nothing to lose... and the $trillions just keep on rolling their way.

Needless to say, the casino capitalists tend to cut in their slower-moving friends in the halls of political power, e.g. Senator Dodd.

Speaking of government perfidy of both Democrat and Republican form, I'm fast becoming a real fan of Cindy Sheehan, who has just completed a book right up my alley: Myth America: 10 Greatest Myths of the Robber Class and the Case for Revolution! Follow this link for Cindy's timely blog on the subject. By the way, Cindy has said she will be happy to review my own complementary book: The Sacred Nonaggression Principle. (!!)



[1] The letter to Congress follows on from an actual mailed response to Senator Carl Levin's mailing to his Michigan constituents, which is presented below:

Dear Ms. Wright:

I thought you might be interested in the speech I gave in the Senate yesterday regarding the outrageous bonuses given to executives at American International Group (AIG).

As has been widely reported, AIG chose to dole out sizeable performance and retention bonuses last week to executives of the very financial services division that was responsible for creating many of the exotic securities that brought the company to its knees. This tone-deaf decision represents not only an egregious misuse of taxpayer funds, but highlights just one of the many double standards that have been applied to companies receiving federal assistance.

It was only four months ago that our nation's struggling domestic auto-makers asked for government loans that amount to a small fraction of the money we have given to Wall Street. Hardworking Americans, who put in an honest day's work building automobiles, were summarily criticized for making a living wage as executives at financial services companies receiving billions of taxpayer dollars rewarded themselves with obscene bonuses. Unlike the autoworkers, A.I.G.'s executives didn't step up to the plate. I felt compelled to highlight this shameful double standard when I spoke yesterday on the floor of the United States Senate.

You can view my full statement here.


Carl Levin

Brian Wright Professional Services

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