High Jinks in the Arrogant World of High Finance

OP-ED

Instead of seeing a coherent plan that anticipates each new crisis, do you sometimes get the feeling that Henry (”I’ve got a 2-1/2 page plan”) Paulson, Secretary of the Treasury, and Ben (“Rubber Stamp”) Bernanke, Director of the Federal Reserve, are making up their strategy for countering a plunging economy as they go along? The nation's sudden realization that these experts allowed the country’s financial health to deteriorate rapidly without sounding alarms is what is truly scary about the present malaise.

No Surprises
We shouldn’t be surprised at the belated awakening to reality of the Paulson/Bernanke duo. Bernanke is an academic and an expert on recessions and depressions, particularly the Hoover Depression of the 1930s, so he should be quite comfortable with the mess the Bush administration has bequeathed us. Before his appointment in 2006, Paulson, a former CEO of Goldman Sachs, made over $100 million in total compensation in three years, not to mention the millions of Goldman Sachs shares held in trust for him when his government stint is over. On his watch, the number of competing investment banks was reduced to two--Goldman Sachs and JP Morgan Chase--but the secrecy that surrounded these disappearances led to the air of distrust that refuses to dissipate.

The fact that the U.S. Treasury attached no strings to the cash it handed out to banks makes it appear naïve and trusting, and fails to inspire confidence. Now we have the spectacle of the banks hoarding the cash distributed to them, and the government begging recipient banks to lend the money. For reducing the number of Goldman Sachs competitors, Mr. Paulson will surely be well rewarded when he returns to Wall Street after being booted out by the Obama administration. The big question is whether the country can survive until Inauguration Day, January 20, 2009?

The government is now making emergency loans to financial institutions to the tune of $2 trillion, $200 billion has been made available to Fannie and Freddie, $700 billion to the TARP (Troubled Assets Relief Program)--half of which has already been expended--$140 billion in tax breaks for banks, and $110 billion to rescue AIG (American Insurance Group). The total tab now comes to more than $3 trillion. These numbers remind us of the remark attributed to Everett M. Dirksen, longtime U.S. senator from Illinois: “A billion here, a billion there; pretty soon it begins to add up to real money.”

On November 12, Mr. Paulson unabashedly admitted what was obvious from the very beginning: His original plan for buying the troubled mortgage assets bundled by financial institutions was “not the most effective way” to use the $700 billion TARP package. Buying troubled assets of doubtful worth from banks and other institutions was patently unworkable from the moment it was proposed. The now-faltering and discredited bailout plan pushed by Messrs. Paulson and Bernanke appears to have merely been a piece of financial flimfam used to induce an initially reluctant but gullible Congress to pass a massive rescue bill. The more than three trillion dollars it will cost could have brought every uninsured person in the United States under the health insurance umbrella and provide everyone with the kind of health insurance Congress enjoys..

Your Tax Dollars at Work
The plan originally conceived by Mr. Paulson and blessed by Mr. Bernanke was described as a “bailout.” Some regarded it as more of a cop-out by the government. It now turns out to have been a sellout of American taxpayers and a handout to the very institutions that caused the financial meltdown. Among the firms Congress was assured was “too big to fail” was international insurance giant AIG, now wallowing in the massive trough provided by the government. AIG repaid the favor handsomely by spending $440,000 for a retreat by AIG executives at the St. Regis Monarch Beach Resort and Spa in Southern California, only days after the taxpayer-financed AIG bailout. Congress, the White House and "Saturday Night Live" all raked AIG over the coals for its thoughtless behavior.

Here’s where some of your tax money went on this junket: For starters, a generous $2,949 went for tips and gratuities paid to the help at the posh resort. Next, for those keeping score at home, $1,488 was spent at the resort’s barbershop called Salon Vogue. Then there’s the $1,900 spent at the resort’s Monarch Bay Club. And how about the $6,939 of your money spent on the resort’s golf links? Executives need relaxation, don’t they? It just goes to show you. Make bad business decisions, proclaim yourself “too big to fail,” and you’ll get a handsome handout from Uncle Sam.

As TV pitchmen say, “Wait! There’s more!" Four AIG execs sought relaxation from the stress of near-bankruptcy by flying to England for partridge hunting. This junket cost a measly $87,000. One unapologetic hunter told a reporter, “The recession will go on until about 2011, but the shooting was great today and we are all relaxing fine.”

It gets even better! Even as the company was pleading the federal government for another $40 billion dollars in loans, AIG sent top executives to a secret gathering at a posh resort in Phoenix, Arizona, on the weekend of November 5-7. The event was called the "2008 Asset Management Conference,” and attendees included many top managers of AIG.

Reporters for Phoenix TV station KNXV caught the AIG executives on hidden cameras poolside and leaving the spa at the Pointe Hilton Squaw Peak Resort, despite significant efforts by the company to conceal its involvement during the three-day event.

"AIG made significant efforts to disguise the conference, making sure there were no AIG logos or signs anywhere on the property," KNXV reported. A hotel employee told KNXV reporter Josh Bernstein, "We can't even say the word ‘AIG.’" Nick Shook, an AIG spokesperson, confirmed that AIG instructed the hotel to make sure there were no AIG signs or mention of the company by staff. "We're trying to avoid confrontation, keep our profile low," said Ashooh. "Some of our employees have been harassed." Not surprisingly, we might add.

And Wachovia, the largest of the several banks caught with their mortgages down, canceled an all-expenses-paid cruise to the Greek islands for 75 employees of A.G. Edwards (Wachovia’s subsidiary brokerage firm) and their wives or girl friends. Jim Griffin, a Wachovia spokesman, explained the changed plans: “With the uncertainty in the markets right now, financial advisors have told us that they prefer to remain close to their clients.” A likely story.

The government will finance the bailout by borrowing the money in the international monetary marketplace and adding it to our national debt. To keep swindles from happening, Hank and Ben were supposed to be exercising oversight of the money so generously being ladled out to indigent bankers. At the very least, we deserve to see greater transparency as well as tougher and more realistic dealing by the government. After all, the tab for the huge sums Messrs. Paulson and Bernanke are handing out by the bushel basketful with no strings attached will be paid by taxpayers, their heirs and descendants, making for still another blot on the Bush administration's soiled escutcheon.