The Foxes Redesign the Hen House (i.e., "Bailout")

The American people are angry.

by: randall nunn | published: 09 25, 2008

The “bailout” plan being pushed by Secretary Paulson and others is beginning to sound like a plan that benefits no one other than those responsible for mismanaging the economy and businesses. The American people are justifiably angry. But this rush to impose a grandiose plan put together in a state of near panic is dangerous.

The economy and the country are continuing to function. The panic is in Washington and on Wall Street—not Main Street U.S.A.

The collapse of Lehman Brothers, AIG and Bear Stearns has been frightening but, in retrospect, management on Wall Street and regulators and representatives in Washington should have seen it coming. After all, these corporate chieftains are paid handsomely because they are highly trained and educated executives who have a wealth of information at their fingertips. Many of them tout their experience and knowledge as being superior to the rest of us and urge us to give them our business and money to manage.

However, it appears that these titans of industry didn’t use their talents or information or they were incompetent. Many of them succumbed to their own puffery and believed they could succeed with risky and ill-advised business models that the average person on Main Street could have told them were dangerous and likely to fail in the long run. Even people in Alaska who never traveled outside of the country could have told them something didn’t smell right.

Loaning money to people who could not readily afford the house they were buying is simply stupid. Loaning money without properly evaluating the credit of the borrower because the information obtained on loan applications is deficient is also stupid. And “packaging” loans into “new” debt instruments that no one can unravel when things go bad is even more stupid. Yet Wall Street investment bankers “packaged” these instruments and sold them while Congressional oversight committees and agency regulators did little or nothing to rein in these excesses or call attention to the danger inherent in these practices.

Normally, Congress would have executives they were displeased with before their committees, asking questions and grandstanding at their expense. How many times have we seen executives from oil companies, airlines, automobile and other industries being grilled by Congressional committees?

Where are the executives of Fannie Mae and Freddie Mac in all of this? They are keeping a low profile because too many politicians would be embarrassed if they spoke of the cozy relationships and campaign contributions.

Guess who the top recipients of Fannie Mae and Freddie Mac contributions were? Senator Christopher Dodd ($165,400) and Senator Barack Obama ($126,349). Congressman Barney Frank received over $42,000. Dodd is Chairman of the Senate Banking Committee and Congressman Barney Frank is Chairman of the House Financial Services Committee.

From 1989 to 2008, 354 lawmakers in Congress received money from Fannie Mae and Freddie Mac. Current members of Congress have received a total of $4.8 million from these two entities, with Democrats collecting the bulk of that money. Does anyone see a conflict of interest here? And wouldn’t this be plastered all over the news if the top recipients were Republicans?

One would think the mainstream media (if it was doing its job) would be asking Senator Obama about his relationship with Jim Johnson, former chairman of Fannie Mae, and why he selected him to head up his vice-presidential search committee. They would also ask about the contributions Senator Obama received from Fannie Mae and Freddie Mac if they were doing their job as investigative reporters. Not to embarrass Senator Obama but to understand his involvement in events leading up to this mess and his objectivity in the bailout plan being put together.

The reality is that the bailout plan is geared more to help politicians claim that they helped “save” the economy and give them political cover than anything else. Do we really want all of the people who were asleep at the wheel or who were taking imprudent risks with other people’s money to design a “bailout” plan in a matter of days? Do we really want to give the Secretary of the Treasury total and absolute power over a $700 billion fund?

If our economy didn’t crash after a few days of dithering and panic by our business and political leaders, it can survive for quite a few more days, even without this disastrous bailout plan. There are some voices of reason in Congress and elsewhere calling for a more careful approach, given the continued failures that followed the previous “bailouts”.

There is a call by some in Congress and elsewhere to insure that executives in the financial services sector do not receive “golden parachutes” when their companies or banks fail or “excessive” compensation. That sounds like a good idea but the details are key. And if this is being demanded from business executives, why not demand that Chairman Dodd and Chairman Frank step down from their committee posts, since their objectivity is in serious question.

The foxes who brought us this disaster are now proposing that they redesign the hen house, and quickly, before things get worse. While the foxes know the issues involved, they are not impartial and unbiased in dispensing their knowledge. And neither are Chairman Dodd and Chairman Frank.

Randall H. Nunn

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