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2008-11-23 BACK
The Same Old Same Old
The Same Old Same Old This article originally appeared in the Texarkana Gazette on November 23, 2008 Larry Davis, Ph.D., Professor of Economics & Management, College of Business, Texas A & M University-Texarkana I have read and experienced that "if you keep on doing the same old things, you'll get the same old results." As related to the economic crisis that exists in the United States, it seems that the Congress and other government officials never read that. Near this time last year, the Dow-Jones Industrial Average peaked at approximately 13,400 or 5,000 points higher than it is this week. There were a lot of happy investors and, speaking of happy, a long list of financial and insurance companies including JPMorgan Chase and Company, Bank of America Corporation, Citigroup, Inc., Lehman Brothers Holding Company, AIG, Fannie Mae, and Freddie Mac were abundantly happy while they wallowed in profits. Then their financial walls came crashing down as their economic foundations collapsed. Fannie Mae lost $29 billion and while the U. S. Treasury Department provided bailout packages for some, Lehman Brothers was allowed to disintegrate. I think an abundance of irresponsible operational policies and leadership, too much unethical business conduct by greedy and overpaid business executives and a lack of oversight contributed to the crisis. Alan Greenspan, former head of the Federal Reserve System, acknowledged that he had made a mistake in thinking that the financial industry could manage its own affairs. As the financial crisis became intense, the President gathered a select group of "experts" to craft a remedy. Some invited to the table were themselves guilty of at least negligence as the collapse evolved. For example, according to a statement made at a House (of Representatives) Oversight Committee on Domestic Stability hearing last week, Treasury Secretary Paulson said in September that Freddie Mac and Fannie Mae were economically sound. The President's economic gathering eventually resulted in Congressional passage and Presidential signature of the Emergency Economic Stabilization Act that "requires the Treasury to modify troubled loans wherever possible to help families keep their homes." There was legislative intent to help mortgage holders whose property and collateral values have fallen significantly below values at the time of financing and now face possible foreclosure. Imagine the resulting transition of financial institutions becoming the owners of thousands of foreclosed real estate property. According to testimony in the previously mentioned House Committee hearing, Secretary Paulson ignored that provision of the Act and, instead, directed $350 to troubled banks and insurance companies to help "stabilize" the economy. Instead of using the funds to help troubled homeowners, a large portion of the money was given to banks that, in turn, used it to acquire other banks that were vulnerable or had collapsed, further concentrating the industry. Paulson pulled the plug on Lehman Brothers Holding, Inc., but loaned $ 85 billion to financially troubled AIG that then took a group of its executives and clients to enjoy the luxuries of a resort at a price tag reported to be almost half a million dollars. AIG has reportedly set aside more than $ 500 million in either executive bonuses or deferred compensation, depending on the explanation that one listens to. They explain that it is to "provide incentives" to keep "key" personnel from leaving the company. My question is, where do they think they would go? And is it not an employer's market where qualified people are available to fill any vacancies? The bipartisan House Committee questioned Neel Kashkari, Interim Assistant Secretary of the Treasury for Financial Stability about the Treasury Departments implementation of the provisions of the Emergency Economic Stabilization Act. My perception was that he answered questioning in a patronizing, arrogant, and sometimes evasive manner. The committee apparently felt the same in asking Mr. Kashkari if he "got it" and asked if he was a "chump" who was waiting to give more "handouts" to financial and insurance institutions without accountability. He continually told the committee that he and the Treasury Department were working hard, to which Chairman Dennis Kucinich acknowledged, but left him with the question "who are you working for"? My point is that a significant provision of the Emergency Economic Stabilization Act was ignored by the Treasury Department that should be representing the financial interests of the citizens of this country. Those who partially allowed, if not contributed to the financial crisis in this country were the recipients of bailout funds in the billions of dollars. They were the same people and institutions that were at the center of the crisis. With that, how can one expect the core problems to be repaired? With the same management executives doing the same old things, now at taxpayer's expense, how can we expect the problem to be resolved. Where is the accountability? At this point, how have the citizens of this country benefited from the stabilization program? I think it is time that the citizens being stuck with this bailout bill ought to demand fiscal responsibility and accountability from their congressional representatives. Maybe it is time to clean the slab and begin to rebuild instead of a costly renovation.
TOP
The Same Old Same Old
The Same Old Same Old This article originally appeared in the Texarkana Gazette on November 23, 2008 Larry Davis, Ph.D., Professor of Economics & Management, College of Business, Texas A & M University-Texarkana I have read and experienced that "if you keep on doing the same old things, you'll get the same old results." As related to the economic crisis that exists in the United States, it seems that the Congress and other government officials never read that. Near this time last year, the Dow-Jones Industrial Average peaked at approximately 13,400 or 5,000 points higher than it is this week. There were a lot of happy investors and, speaking of happy, a long list of financial and insurance companies including JPMorgan Chase and Company, Bank of America Corporation, Citigroup, Inc., Lehman Brothers Holding Company, AIG, Fannie Mae, and Freddie Mac were abundantly happy while they wallowed in profits. Then their financial walls came crashing down as their economic foundations collapsed. Fannie Mae lost $29 billion and while the U. S. Treasury Department provided bailout packages for some, Lehman Brothers was allowed to disintegrate. I think an abundance of irresponsible operational policies and leadership, too much unethical business conduct by greedy and overpaid business executives and a lack of oversight contributed to the crisis. Alan Greenspan, former head of the Federal Reserve System, acknowledged that he had made a mistake in thinking that the financial industry could manage its own affairs. As the financial crisis became intense, the President gathered a select group of "experts" to craft a remedy. Some invited to the table were themselves guilty of at least negligence as the collapse evolved. For example, according to a statement made at a House (of Representatives) Oversight Committee on Domestic Stability hearing last week, Treasury Secretary Paulson said in September that Freddie Mac and Fannie Mae were economically sound. The President's economic gathering eventually resulted in Congressional passage and Presidential signature of the Emergency Economic Stabilization Act that "requires the Treasury to modify troubled loans wherever possible to help families keep their homes." There was legislative intent to help mortgage holders whose property and collateral values have fallen significantly below values at the time of financing and now face possible foreclosure. Imagine the resulting transition of financial institutions becoming the owners of thousands of foreclosed real estate property. According to testimony in the previously mentioned House Committee hearing, Secretary Paulson ignored that provision of the Act and, instead, directed $350 to troubled banks and insurance companies to help "stabilize" the economy. Instead of using the funds to help troubled homeowners, a large portion of the money was given to banks that, in turn, used it to acquire other banks that were vulnerable or had collapsed, further concentrating the industry. Paulson pulled the plug on Lehman Brothers Holding, Inc., but loaned $ 85 billion to financially troubled AIG that then took a group of its executives and clients to enjoy the luxuries of a resort at a price tag reported to be almost half a million dollars. AIG has reportedly set aside more than $ 500 million in either executive bonuses or deferred compensation, depending on the explanation that one listens to. They explain that it is to "provide incentives" to keep "key" personnel from leaving the company. My question is, where do they think they would go? And is it not an employer's market where qualified people are available to fill any vacancies? The bipartisan House Committee questioned Neel Kashkari, Interim Assistant Secretary of the Treasury for Financial Stability about the Treasury Departments implementation of the provisions of the Emergency Economic Stabilization Act. My perception was that he answered questioning in a patronizing, arrogant, and sometimes evasive manner. The committee apparently felt the same in asking Mr. Kashkari if he "got it" and asked if he was a "chump" who was waiting to give more "handouts" to financial and insurance institutions without accountability. He continually told the committee that he and the Treasury Department were working hard, to which Chairman Dennis Kucinich acknowledged, but left him with the question "who are you working for"? My point is that a significant provision of the Emergency Economic Stabilization Act was ignored by the Treasury Department that should be representing the financial interests of the citizens of this country. Those who partially allowed, if not contributed to the financial crisis in this country were the recipients of bailout funds in the billions of dollars. They were the same people and institutions that were at the center of the crisis. With that, how can one expect the core problems to be repaired? With the same management executives doing the same old things, now at taxpayer's expense, how can we expect the problem to be resolved. Where is the accountability? At this point, how have the citizens of this country benefited from the stabilization program? I think it is time that the citizens being stuck with this bailout bill ought to demand fiscal responsibility and accountability from their congressional representatives. Maybe it is time to clean the slab and begin to rebuild instead of a costly renovation.
TOP