AIG – Arrogance Incompetence Greed

In reference to lawmakers’ request for a list of AIG‘s counterparties, U.S. Rep. Carolyn Maloney, D-New York, told CNNMoney it was critical to determine whether AIG‘s collapse would have resulted in a market catastrophe. A wonderful idea that has yet to see any investigation. AIG has received $182 billion in federal bailout money. The bonuses totaled $165 million. That means bonuses totaled .09% of the bail out money.

Where is the anger over the total bail out? Why hasn’t Rep. Carolyn Maloney’s commentary seen follow up with a real investigation? Perhaps the real question should be “when will the members of Congress do something to protect our taxes and our nation?”

Based upon the reports I have read there seems to be a long list of senators, representatives, Treasury department officials, and others from both parties that have been involved in the bail out of AIG , banks and Wall Street investment businesses. My thoughts about socialism-for-the-rich-free-markets-for-the-poor are more on point now than they were when I wrote them on July 29, 2008.

This AP report says it all:

WASHINGTON – Under intense pressure from the Obama administration and Congress, the head of bailed-out insurance giant AIG declared Wednesday that some of the firm’s executives have begun returning all or part of bonuses totaling $165 million.

Edward Liddy offered no details, and lawmakers were in no mood to wait. He was still fielding their questions when House Democratic leaders announced plans for a vote Thursday on legislation to tax away 90 percent of the extra pay for executives at AIG and many other bailed-out firms.

Liddy, brought in last year to oversee a company that has received $182 billion in federal bailout money, said he, too, was angry about the bonuses. But he did not respond directly when advised in pungent terms to pay to the Treasury all the money handed out last weekend in “retention payments.”

“Eat it now. Take it out of your profits down the road. It’s a lot sweeter now than it’s gonna be later,” said Rep. Gary Ackerman, D-N.Y.

Liddy slid into the witness chair at a congressional hearing as President Barack Obama sought anew to quell a furor that has bedeviled his administration since word of the bonuses surfaced over the weekend.

Obama, who took office just under two months ago, told reporters his administration was not responsible for a lack of federal supervision of AIG that preceded the company’s demise, nor for the decision made last year to pay what he called “outrageous bonuses.”

Still, he said, “The buck stops with me.” He said that “my goal is to make sure that we never put ourselves in this kind of position again,” and he disclosed the administration was consulting with Congress on the possibility of creating a new agency to govern the meltdown of large financial institutions such as AIG.

He also gave a strong vote of confidence to Treasury Secretary Tim Geithner, who has been the target of growing Republican criticism.

Later, at a town hall meeting in Costa Mesa, Calif., Obama said that while his administration was addressing the AIG bonuses specifically, he said he wanted to “make sure we don?t find ourselves in this situation again, where taxpayers are on the hook for losses in bad times and all the wealth generated in good times goes to those at the very top.”

Obama spoke as congressional Democrats worked on legislation designed to recoup most or all of the $165 million by exposing it to new taxes.

Rep. Charles Rangel, D-N.Y., chairman of the tax-writing House Ways and Means Committee, said the new 90 percent tax would apply to bonus money paid to employees earning more than $250,000 at firms that have received more than $5 billion in federal bailout funds. Mortgage giants Fannie Mae and Freddie Mac are covered under the proposal.

Liddy said that on Tuesday, he had “asked those who have received retention payments in excess of $100,000 or more to return at least half of those payments.” Some have “already stepped forward and returned 100 percent,” he added.

Majority Leader Steny Hoyer, D-Md., said the House bill would be voted on under rules requiring a two-thirds majority for passage. Democrats are in comfortable control of the House but do not control two-thirds of the seats, meaning the outcome of the vote would probably be determined by tax-averse Republicans.

Republicans raised pointed questions about the extent of Geithner’s advance knowledge of the bonuses, and stressed they had been locked out of discussions earlier this year when Democrats decided to jettison a provision from legislation that could have revoked the payments.

“The fact is that the bill the president signed, which protected the AIG bonuses and others, was written behind closed doors by Democratic leaders of the House and Senate. There was no transparency,” said Sen. Charles Grassley, R-Iowa, the senior Republican on the Senate Finance Committee.

On Wednesday, Sen. Christopher Dodd, D-Conn., the chairman of the Senate Banking Committee, acknowledged that his staff agreed to dilute an executive compensation provision that would have applied retroactively to recipients of federal aid. Dodd told CNN the request came from officials at the Treasury Department whom he did not identify.

While the House and Senate reconciled their stimulus bills last month, the Treasury Department expressed concern with a Senate restriction on bonuses, noting that if it applied to existing compensation contracts it could face a legal challenge.

“The alternative was losing, in my view, the entire section on executive excessive compensation,” Dodd told CNN. “Given a choice – this is not an uncommon occurrence here – I agreed to a modification in the legislation, reluctantly.”

The legislation does include a provision that allows the Treasury Department to examine past compensation payments to determine whether they were “contrary to the public interest.” Geithner on Tuesday said he was using that provision to review AIG‘s bonuses.

Liddy’s presence in a congressional hearing room was evidence of a bipartisan opposition to the bonuses, although his status as a $1-a-year CEO called out of retirement last year to try and untangle AIG‘s financial mess made him a less-than-easy target for expressions of outrage.

“No one knows better than I that AIG has been the recipient of generous amounts of government financial aid,” he said. “We have been the beneficiary of the American people’s forbearance and patience,” he added, acknowledging the patience was wearing thin.

Asked by Rep. Barney Frank, D-Mass., whether he would turn over the names of individuals who received the bonuses, as well as the amounts, Liddy said he would do so only if assured the information not be made public.

When Frank said he might seek a subpoena, Liddy said he was concerned about the safety of the employees and their families, and read aloud from a death threat received by one of them.

Frank said he would be guided in part by security considerations, but Ackerman later noted that Andrew Cuomo, the New York attorney general, was already seeking the names with a subpoena.

Liddy said he had not yet complied, sidestepped several times when asked whether he would, and finally said “it would be our intent” to do so.

Cuomo swiftly issued a statement saying Liddy’s pledge was “simply too little, too late. … Rather than take half-measures, AIG should immediately turn over the list, which we have subpoenaed, of who got what and when.”

Separately, a New York state judge ordered Bank of America Corp. to disclose information about bonuses given to employees at Merrill Lynch & Co. just before the bank bought the brokerage company. Cuomo, who has been sparring with the bank over release of the information, said the decision “will now lift the shroud of secrecy surrounding the $3.6 billion in premature bonuses Merrill Lynch rushed out in early December.”

“AIG should take heed and immediately turn over the list of bonus recipients we have subpoenaed,” he said. “The deadline for responding to our subpoena is tomorrow. “

AIG spokesman Mark Herr said he could not say how many executives had turned back the money. “Bear in mind, these bonuses were only just paid,” he said.

In Wilton, Conn., headquarters of AIG Financial Products Corp., police chief Edward Kulhawik said his department had not received any reports from the company of threats to employees but was in contact with the company and keeping “a special eye on that whole office complex.”

Liddy said the Federal Reserve knew long in advance of the bonus payments and acquiesced in them, noting that officials from the independent agency attend key company meetings. But he said the same was not true of Geithner, adding, “We do our work with the Federal Reserve.”

Liddy gave skeptical committee members what amounted to a tutorial in the practice of paying retention bonuses – he did not call them that – to executives.

He said the money was offered to executives in AIG‘s financial products section, where risky investments finally became the entire company’s undoing. He said each executive was offered money to dispose of his “business book,” meaning the transactions he had been in charge of handling, and thus far, the company’s financial derivatives had been reduced from $2.7 trillion to $1.6 trillion.

He had decided it was worth paying the money to retain the services of executives who knew the business best, he said. And he had received legal advice that there were valid contracts requiring the payments.

“I know 165 million is a very large number. It’s a very large number. In the context of 1.6 trillion … we thought it was a good trade,” he said.

Liddy added there was still a risk of financial catastrophe if the remaining $1.6 trillion in financial instruments were not disposed of properly.

But Rep. Stephen Lynch, D-Mass., angrily told the witness the contract read like “the captain and the crew of the ship reserving the lifeboats.”

Liddy replied that he was not at the firm when the contracts were negotiated, and said, as he has before, that he would not have approved them.

Lynch said the terms had been put in place in December, after Liddy arrived at AIG.

But Liddy disputed that. “I take offense, Sir,” he said.

“Well you take it rightly. Offense was intended,” shot back Lynch.

It’s Class Warfare

After reading the president’s book, “The Audacity of Hope”, listening to his speeches and presentations I have come to the following conclusions.

President Barack Obama really understands the meaning of class warfare. His father deserted his mother. She was left to struggle with the challenges of survival for Barack and herself in the challenging world of Hawaii. It was his grandparents that helped with the financial challenges that he and his mother faced. Given the large group of wealthy people living and visiting Hawaii, Barack Obama learned the meaning of working class family vs. wealthy. Is it any wonder that he sees the need to increase the opportunities for those of us not born into a wealthy family? Many of us can relate to his view that our society has given an unfair advantage to the rich at the expense of the rest of us.

His view of how our nation functions now and how it ought to function is obviously the driving force behind his push for a stimulus package, an enlarged national budget, a new health care system, and the many other programs he has proposed. He is trying to remake much of the system that makes our society function. This is a tall order. He may not be successful. He apparently believes that reaching his goals is more important than a second term in office.

Obviously many people will oppose his objectives. It will not only be Republicans. Many Democrats will aslo see his ideas as un-American and foreign to our history. Many people reading this column will see his ideas of remaking America as socialist, communist, or some other form of government that they find offensive. They are wrong. His ideas are to make Amercan society more just for everyone. That is the reason I call President Obama’s ideas class warfare.

The warfare is evident in the today’s outrage over the multi million dollar bonuses given to AIG managers. Merrill Lynch managers were given bonuses just prior to Bank of America’s acquisition of that firm. It is obvious that will hear about other bonus packages given to other banking and Wall Street companies. Those people receiving the bonuses and their friends see nothing wrong with the wealth and power they have. They are in a financial class that most of us will never know. That is the reason we are going to see more class warfare. Will the wealthy and powerful win or will it be the rest of us? Stay tuned.

Incompetent Sunday Morning Talking Heads

Perhaps it’s the producers of the Sunday morning talk shows that are to blame for their uninformative guests and commentators. May be I have watched too many of these shows. No, neither of these explanations is correct. A scowling Brent Scowcroft (the United States National Security Advisor under Presidents Gerald Ford and George H. W. Bush) would regularly appear on Face the Nation and Meet the Press and avoid answering almost every moderator’s question. That was the failure of both the moderators and the producers.

Today’s This Week was an excellent example of a truly poor performance. Larry Summers (top economic adviser to President Obama) gave vague answers to every question put to him by George Stephanopoulos. Given Mr. Summers’ understanding of economics and the workings of government he should have been able to provide an understandable explanation to every question asked. Instead he fumbled through the entire 15 minute interview. Dithering Senate Minority Leader Mitch McConnell was totally unprepared to answer any questions. The outstanding question being where is the Republican budget plan was answered with the idea that they did not have a plan but that the GOP will offer numerous amendments to the administration’s budget plan. The followup round table discussion provided little in the way of insights or ideas on where the government should go on any of the topics discussed.

The Sunday morning shows need people like Tim Russert as moderators. “Tim Russert, … was a gifted and cunning Sunday-morning interrogator who, while never quite disturbing his genuine persona or television’s conventions, used his outsized position on “Meet the Press” to rattle many more politicians than any of his on-air rivals did.” As David Remnick wrote in The New Yorker. I like David Gregory but he just does not have the authority needed to conduct this program.

Union Supported “Card-Check” Is A Bad Idea

According to the United States Department of Labor accounted 2008 union membership was 12.4 percent of employed wage and salary workers. That is an increase from 12.1 percent a year earlier. Total union membership was 16.1 million people. In 1961 union membership totaled 30 million people. Clearly union membership does not have the impact on America that it had in the mid 20^th century.

Employees now vote by secret ballot election when deciding whether they want union representation in their workplace. Elections are overseen by the National Labor Relations Board, which has numerous procedures in place to ensure fair, fraud-free elections. Because of NLRB safeguards, employees can cast their vote confidentially, without peer pressure or coercion from unions or employers. The rub is that there can be delays of as much as six months from the time employees sign cards asking for an election until the actual election is held. However, most election do occur within 100 days.

Both unions and companies claim that there is harassment by the opposing sides during the period from card signing until elections occur. Pressure from employers during that campaign period does have an effect on unionization efforts. I can confirm that fact from personal experience.

The failure of unions to organize in so many companies is the result of business recognizing its responsibility to pay workers decent wages and benefits. A good example is foreign car manufacturers in the United States. They are not unionized but do provide their employees with reasonable pay and benefits.

If Congress passes the Employee Free Choice Act, employees lose their right to secret ballot elections. The bill would establish a so-called “card-check” union organizing system, in which a majority of employees simply sign a card in favor of union representation. The flaw in this proposal is it will increase the likelihood of coercion, intimidation, and pressure to sign those cards. The passing of this law will be payoff by the Obama administration to the unions that were vigorous supporters of Barack Obama’s presidential campaign. This will unfairly force unionization where it may not be wanted.

CONSEQUENCES

I just read a column by Thomas Sowell about the consequences of one’s actions. “It is amazing how fast people learn when they are not insulated from the consequences of their decisions.” Mr. Sowell’s comment reminded me of a boss who frequently commented on the consequences of the decisions we make in life. Also the decisions you made for the company that were not in its best interest.

There is a consequence to everything we do. You go shopping and the consequence is you have to pay the clerk for our purchase. If you are going to school and you fail to study, there is the possibility you will not receive a passing grade. When you buy a car with a down payment and fail to make the monthly payments it is likely that the car will be repossessed.

Thousands of Americans bought homes they could not afford. They managed to do this because the banks granted the loans without considering the borrower’s ability to repay the mortgages. Talk about consequences. Everyone is now suffering from those bad decisions. People are losing their homes and banks are holding thousands of mortgages that will never be repaid by the borrowers.

President Barack Obama campaigned on a platform of change and now he is implementing the changes he promised. Many people are upset, especially Republicans, about the things the president proposes to do. A majority voted for him so now that majority must live with the consequence of that election. A majority also elected George W. Bush president and we had to live with the consequence of that vote.

The decision to repeal the Glass Steagall Act is now being debated as the root cause of the current recession. I believe that the repeal resulted in the unintended consequences that have brought the world to the brink of depression.

The End of American Auto Manufacturing is Near

I predicted the American Auto Manufacturing Is Coming To An End! in August 2007. Trends seem to be confirming that prediction. It is not what I wanted but the handwriting has been on the wall for about 30 years. Each year imports have sold a greater percentage of the total United States sales. The American companies chose to ignore the fact that an ever shrinking number of buyers liked their products. The management of the American companies is to blame for the current situation. That this situation has grown critical when the entire economy is doing very badly only adds to a problem facing our government. Barack Obama must decide if the government should prop up the car manufacturers until the economy is strong enough to withstand the loss of thousands of auto manufacturing jobs.

My guess is that the U.S. government will support the car manufacturers for at least two years. The continuing support after an overall economic recovery is doubtful. Looking at European manufacturers that have government subsides will be enough motivation to discontinue subsidies at the earliest possible date.

I received Consumer Reports annual car edition just this week. Their conclusions about U.S. auto makers is devastating. Among the top 10 in their rating the only American car was the Chevrolet Corvette. Among the worst 10 cars, eight are American made. The three lowest rated cars are American made. Even worse in the overall rating of 15 manufacturers, the American companies took 12^th, 14^th, and 15^th place. Consumer Reports takes no advertising in order to prevent their ratings being influenced so I trust their evaluations. The have no axe to grind. Just a few years ago they rated all Hyundai cars very low but this year the Genesis 3.8 model landed on that list of top 10.

Today’s report on ABC World News that an Auditor Report Warns GM Survival ‘Doubtful’ only reinforces my opinion about the survivability of the American car companies.

Backwards No, Forwards Yes!

America is not the bastion of capitalism and free markets that Republicans want you to believe. If that were the case then there would be no protection for banks, auto manufacturers, and other large companies. There would also be no protection for the money you deposit in your bank. The market place would be totally free. There would be no controls.

The U. S. federal government has come to the aid of society numerous times during our history. The Pacific Railway Act of 1862 during the American Civil War and supported by U.S. government bonds and extensive land grants is an outstanding example of government aid to private industry. The state of New York built the Erie Canal. Construction occurred between 1817 and 1825 was a benefit to commerce. U. S. price supports for agricultural commodities date back to 1933. Many other programs started during the Great Depression are still impacting our society including Social Security, rural electrification, and the FDIC.

Are Republicans really opposed to upgrading our society to the 21^st century? Their argument today is that we cannot afford the cost now. The question is when could we afford the cost? They have continually opposed all improvements. They oppose those “extravagent” expenditures on infrasructure but willingly support more money spent for defense spending. Why do they not understand that money spent on education, railroads, highways, energy, and health care makes the United States a better nation?

The problem for Republicans is that they have been high jacked by radio talk show hosts. Most of those hosts are conservatives. They are primarily entertainers that earn more money when their audience is bigger. Rush Limbaugh and Sean Hannity couldn’t be happier. They are the leaders of a group that want to keep America in a category by itself. That category is looking backwards.

America is not about helping the rich at the expense of everyone else. America is about equality and opportunity for all!

Executive Pay

The United States system of free enterprise has made this nation one of the wealthiest in the world. To quote from Wikipedia, “free enterprise is another term for capitalism.” In this system we recognize the ability and right of everyone to earn as much money as possible regardless of their race, color, religion, or national origin.

A consequence of free enterprise is the accumulation of extraordinary wealth by some very smart and lucky people. They are the 1% of Americans who own 33.4% of the nation’s wealth.

If the stockholders of Google have no problem with four of their top executives each receiving 2008 bonuses of more than $1.2 million then why should the rest of us care?

I contend that the wealthy have gained control of the nation’s resources without the consent of the stockholders. After all, take a look at the people on the board of directors of the various corporations. They are not minor stockholders. They are executives in other large corporations. They ignore the will and intent of stockholders in order to help each other help themselves to extraordinary pay and bonus packages. BusinessWeek reported that the average income of top executives in major corporations is $4,000 per hour. How many of you reading this column has earned that amount of money?

The recent failure of the largest banks, investment houses, and auto manufacturers is the result of mismanagement by those overpaid executives! However, since this is a free enterprise society those managers will continue to receive their high pay. Only the stockholders can change this situation. That change may require new laws that will give more power to the shareholders

There is one limit that does seem fair. When AIG, Bank of America, General Motors and the others who have come to the government for ask help from the tax payers, those tax payers have the right to limit pay, parties, and other perks.

Solving the California Drought

California is facing a drought says the governor and the mayor of Los Angeles. OK we all understand that we have a serious problem. There has been no discussion about ways to obtain additional water.

Other nations located in arid climates have looked to desalination. There are functioning facilities throughout the middle east and Australia. The most successful of them is the Askilon facility in Israel. The cost of producing drinkable (potable) water is ½ cent per gallon. That is about the same cost as the water provided by the Los Angeles Department of Water and Power.

Happily there is a desalination facility planned in San Diego County. For some unknown reason this project has been ignored by both Los Angeles Mayor Villaragosa and Governor Arnold Schwarzenegger. Poseidon Resources Group of Connecticut is about to build a facility in Carlsbad, California. The “project will provide San Diego County with a locally-controlled, drought-proof supply of high-quality water that meets or exceeds all state and federal drinking water standards.”

What I do not understand is the behavior of government in retaining the available water. There is the issue of water use on government property including the sides of freeways. Further there is the issue of broken fire hydrants that take weeks to repair. The biggest loss of water is in the Los Angeles River (really a giant storm drain system). There is no program in place to catch water from that river to add to our supply.

Until our government takes water conservation seriously the pubic won’t.

Your Credit Card Interest Rate is Going Up!

The big banks and credit card companies are at again! Despite billions in taxpayer bailouts, they’re hiking interest rates and raising fees on our credit cards, often for no reason whatsoever. In this collapsing economy, we don’t need the big financial institutions looking to our credit cards for ways out of their financial mess.

Members of Congress just reintroduced bills to rein in these abuses, and we need them to pass now! The Federal Reserve agreed credit card reforms are needed, but then gave the companies 18 months before they have to comply. When our rates go up, we’re lucky if we get 24 hours notice, not 18 months!! So until the middle of 2010, card companies can increase our rates and fees and continue to squeeze us to make up for their losses on Wall Street.

Please join me in sending an email to your elected officials urging them to pass credit card reforms and implement them now not in 2010. It is time to prohibit credit card companies from arbitrarily hiking interest rates on our card balances, and stop ‘bait and switch’ clauses that let them change interest rates and fees for any (or no) reason whatsoever.

The more people who send a quick message to their Senators and Representative, the better chance we have at putting Main Street, not just Wall Street, first in the economic recovery.