Tuesday, March 31, 2009

More on Bailouts, Autos and Banks

Yesterday, I analyzed the differential treatment of the banking and automobile industry. Liberal websites like Daily Kos, however, have pointed out that CEOs at AIG, Fannie Mae and Freddie Mac were forced to leave their jobs as a condition of the companies they managed receiving federal assistance. But the government essentially "took over" these companies and has been running them since that time. The situation with the automobile industry is vastly different.

Today, Eugene Robinson of the Washington Post has joined others who have criticized the disparate treatment. The fact that Robinson has criticized President Obama is far more important than the substance of his criticism, because Robinson has been one of the most loyal supporters of Obama among journalists at major media outlets. As Robinson observes, the automobile industry certainly requires a tough love approach, but so does the banking industry.

The Editors of the Detroit News have also come out swinging against the disparity. The newspaper argues that the ouster of General Motors CEO Rick Wagoner was a political ploy designed to make the President appear tough on bailouts, given the public's anger over Wall Street. According to the Detroit News, the automobile industry is simply the scapegoat in a political game:
Obama has been banged around the last couple of weeks because of the bonus scandal at AIG. His administration, with the help of Congress, botched the aid package to the failed insurance giant, allowing the indefensible bonuses to be paid and triggering public outrage that is increasingly focused on the White House.

Dumping Wagoner lets Obama deflect attention away from Wall Street, where his Treasury Department is still moving through quicksand, and turn it on Detroit.

He can portray himself as being tough on the corporate executives who are ruining America, without having to draw blood from the bankers.
The White House's approach to Detroit, as opposed to the financial industry, applies a clear double-standard. The existence of a double-standard, however, does not mean that automobile manufacturers deserve leniency. Instead, both industries should face restructuring and greater controls.

The banking industry in fact deserves more scrutiny because its reckless behavior was the leading cause of the global financial crisis, and it has received far more federal assistance than any other business sector. Other than the relative political and economic power of Wall Street, it is difficult to understand why the government continues to coddle the banks and pay off their investors, while providing very little direct assistance to consumers and other commercial sectors.

Monday, March 30, 2009

Discriminatory Bailouts? $2 Trillion for Wall Street, Tough Love for Detroit

According to the Associated Press, the White House has demanded that Chrysler and General Motors restructure before the companies can receive additional financial assistance from the government. General Motors CEO Rick Wagoner resigned Sunday at the request of the White House, and federal officials are reportedly pressuring Chrysler to accept a partnership agreement with Fiat SpA. Ford, the third United States car manufacturer, has not received federal assistance and is not subject to White House plans.

Here is a clip from the story:
The White House says neither General Motors nor Chrysler submitted acceptable plans to receive more bailout money, setting the stage for a crisis in Detroit that would dramatically reshape the nation's auto industry.

President Barack Obama and his top advisers have determined that neither company is viable and that taxpayers will not spend untold billions more to keep the pair of automakers open forever. In a last-ditch effort, the administration gave each company a brief deadline to try one last time to convince Washington it is worth saving, said senior administration officials who spoke on the condition of anonymity to more bluntly discuss the decision. . . .
Question: Why Does Detroit Receive Tough Love, While Banks Are Waiting for the Next Trillion-Dollar Installment?
The White House approach to domestic automobile manufacturers seems rooted in an understanding that market forces have seriously eroded demand for their products and that management has not adequately responded to this reality. With respect to banks, however, the government has proposed tossing another trillion dollars into the very industry that is largely responsible for the global financial and economic collapse.

Based on the banks' culpability in the economic crisis, the better argument would have the White House make stricter demands on banks than automobile manufacturers. The fact that the banking bailouts dwarf the magnitude of federal assistance for Detroit warrants even greater caution regarding the financial sector.

Experts ranging from Nobel Prize winning economist Paul Krugman to famed Merrill Lynch analyst Richard Bernstein have argued that the government should abandon its heavy subsidization of financial institutions and their investors. They believe that the government should instead offer financial institutions a healthy dose of tough love in the form of either nationalization and restructuring (Krugman) or promotion of greater consolidation within the sector, rather than artificially inflating the price of and purchasing toxic assets (Bernstein). Even former Federal Reserve Chairman Alan Greenspan recently promoted the idea that "It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring.”

Final Thoughts
The reality that the United Autoworkers union is a leading supporter of President Obama could potentially make the White House approach politically difficult. With that in mind, perhaps this is Obama's way of indirectly pressuring UAW to accept concessions. A tough public stance towards management could likely conceal the government's desire that UAW relent on issues such as compensation and benefits. On the other hand, a public standoff between the White House and labor would be politically damaging.

The cost-cutting and restructuring that the White House has demanded of the automobile manufacturers, however, would likely necessitate sacrifices by labor. Offering tough love to management could send a message to union leaders that they should approach negotiations with greater flexibility. Banks deserve the same type of treatment.

PS: I wrote a related article on this subject after Senator Dodd called for the resignation of automobile industry management earlier this year. Also, it seems others are making similar observations: CEO Change Begs Question About Banks.

Update: Some auto workers believe they are being punished because the public is upset with the banking bailout.

Sunday, March 29, 2009

George Will Favors A More Activist Court: Argues That Bailout Law Violates Constitution

George Will has published an essay which argues that the Emergency Economic Stabilization Act of 2008 (or "EESA"), known affectionately as the "bailout" legislation, is unconstitutional. Will contends that the EESA violates the "nondelegation doctrine." This doctrine, rooted in the separation of powers, prohibits Congress from delegating its legislative authority. The Supreme Court, however, has applied this doctrine with a tremendous degree of flexibility.

Supreme Court precedent allows Congress to legislate in broad terms and delegate to the Executive Branch the authority to promulgate specific rules and policies that effectuate or give substance to the legislation. The Court only requires that Congress provide meaningful guidelines for the exercise of executive discretion. Chief Justice Taft's opinion in the 1928 case J.W. Hampton v. United States contains the most definitive language on this subject:
If Congress shall lay down by legislative act an intelligible principle to which the person or body [authorized to exercise discretion] is directed to conform, such legislative action is not a forbidden delegation of legislative power.
Will argues that the EESA "flunks" the intelligible principle test:
By enacting [the EESA], Congress did not in any meaningful sense make a law. Rather, it made executive branch officials into legislators. Congress said to the executive branch, in effect: "Here is $700 billion. You say you will use some of it to buy up banks' 'troubled assets.' But if you prefer to do anything else with the money -- even, say, subsidize automobile companies -- well, whatever."
Will analogizes the EESA to the hypothetical and dramatically vague "Goodness and Niceness Act," which Professor Gary Lawson describes in an essay that criticizes the granting of broad discretion to the Executive Branch by Congress. Lawson's hypothetical statute bans "all transactions involving interstate or foreign commerce that do not promote goodness and niceness," and it authorizes the President to "define [its] content . . . by promulgating regulations to promote goodness and niceness in all matters involving commerce and . . . specify[ing] penalties for violations of those regulations."

Will Overstates the Ambiguity of the EESA
The EESA undoubtedly gives the President and the Secretary of Treasury wide discretion (I have previously written an essay on the subject). Will, however, overstates the statute's ambiguity. The statute places parameters around the use of bailout funds by defining "troubled assets":
TROUBLED ASSETS.—The term ‘‘troubled assets’’ means—
(A) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary [of Treasury] determines promotes financial market stability; and

(B) any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress.
Although the statute permits the purchase of "other financial instruments" that promote "financial market stability" but never defines the phrase "financial market stability," this does not mean that the law lacks an intelligible principle. The phrase is sufficiently specific and commonly used to qualify as an intelligible principle under Supreme Court's precedent.

Will Advocates A More Activist Judicial Role In This Area
If the Supreme Court applied the nondelegation doctrine in a more activist fashion, then Will's essay would present a more plausible constitutional argument. The Supreme Court, however, has applied the nondelegation doctrine with a high degree of flexibility.

Will correctly observes that "[s]ince the New Deal era, few laws have been invalidated on the ground that they improperly delegated legislative powers." Will fails to mention, however, that prior to 1935, the Court had never invalidated a law on the ground that it impermissibly delegated legislative authority. For almost the entirety of its existence, the Supreme Court has declined to use the nondelegation doctrine to constrain Congress.

In the 1989 case Mistretta v. United States, the Court upheld over a nondelegation challenge the creation of the Federal Sentencing Commission, which Congress authorized to promulgate sentencing guidelines for federal crimes. The 8-1 ruling, which united Justices as diverse as Rehnquist and Brennan, documents the Court's historically flexible approach to nondelegation questions:
[O]ur jurisprudence has been driven by a practical understanding that, in our increasingly complex society, replete with ever-changing and more technical problems, Congress simply cannot do its job absent an ability to delegate power under broad general directives.

"The Constitution has never been regarded as denying to the Congress the necessary resources of flexibility and practicality, which will enable it to perform its function." Accordingly, this Court has deemed it "constitutionally sufficient if Congress clearly delineates the general policy, the public agency which is to apply it, and the boundaries of this delegated authority."
Despite the Supreme Court's longstanding flexibility on this issue, Will believes that courts should declare the EESA unconstitutional. This act alone would compel a more activist stance by the judiciary.

Invalidating the legislation, however, would also require courts to defy the will of two presidents, two sessions of Congress, and the Secretaries of Treasury of two administrations -- who have supported the legislation. Democracy does not preclude judicial invalidation of laws that elected officials favor. Will's argument, however, is inconsistent with traditional conservative appeals to judicial deference.

Unexpected Change?

The New York Times does not predict a rock star world tour for President Obama during his upcoming trip to Europe:
Despite his immense popularity around the world, Mr. Obama will confront resentment over American-style capitalism and resistance to his economic prescriptions when he lands in London on Tuesday for the Group of 20 summit meeting of industrial and emerging market nations plus the European Union.

The president will not even try to overcome NATO’s unwillingness to provide more troops in Afghanistan when he goes on later in the week to meet with the military alliance.

He seems unlikely to return home with any more to show for his attempts to open a dialogue with Iran’s leaders, who have, so far, responded with tough words, albeit not tough enough to persuade Russia to support the United States in tougher sanctions against Tehran. And he will be tested in face-to-face meetings by the leaders of China and Russia, who have been pondering the degree to which the power of the United States to dominate global affairs may be ebbing.

Mr. Obama is unlikely to push for specific commitments from other countries on stimulus spending to bolster their own economies, White House officials acknowledged Saturday in a teleconference call, despite the fact that administration officials would like to see European countries, in particular, increase their spending to try to prompt a global economic recovery.

Update: The Washington Post has a similar take.

Saturday, March 28, 2009

Irony Alert: Can Spain Abduct Bush-Era Officials and Prosecute Them for Violating International Law?

The New York Times reports that Spain has launched a criminal investigation to determine whether officials in the Bush administration violated international law by authorizing the torture of detainees at Guantanamo Bay. A source "close to the case" believes that the investigation will likely produce sufficient evidence to arrest the individuals.

Arrest warrants in this setting, however, would have at most a symbolic value. Unless the Obama administration does the unthinkable act of seizing Bush-era officials and placing them in the extradition process, Spain's criminal investigation probably will not lead to an arrest or prosecution. Because the Obama administration has already announced that it will not prosecute Bush-era officials who condoned or engaged in torture, it is highly unlikely that the President would turn over these officials to Spain (or any other country) for prosecution.

Irony Alert: Liberal and Conservative Arguments Support Spain Abducting Bush-Era Officials
Outside of the normal channels for transferring suspects to foreign countries (extradition or deportation), rendition is Spain's only option for removing suspects from the United States to face prosecution. Rendition involves the extrajudicial transfer -- or abduction -- of persons to stand trial in another jurisdiction.

Bush's use of rendition generated a lot of criticism among liberals who argued that it became a tool for outsourcing torture and secreting individuals to prolonged detention in CIA prisons. After the media and members of the Obama administration indicated that President Obama would likely continue using rendition, liberals struggled to distinguish Obama's practices from Bush's.

Many liberals argued that Obama's rendition would not present legal problems because he has ordered interrogators to comply with anti-torture laws and has directed the CIA to close its longterm detention facilities. I have have argued, by contrast, that liberal efforts to distinguish Obama's and Bush's use of rendition "elevate form over substance."

Since liberals and conservatives have defended rendition, I wonder how both political camps would contest Spain's abduction of former governmental officials to face prosecution. We may never get to hear their strained arguments, however, because Spain's criminal investigation is largely symbolic.

WaPo: TownHall Staged With Pro-Obama Persons Asking Questions

Well, this is certainly something that they all do:

[W]hile the online question portion of the White House town hall was open to any member of the public with an Internet connection, the five fully identified questioners called on randomly by the president in the East Room were anything but a diverse lot. They included: a member of the pro-Obama Service Employees International Union, a member of the Democratic National Committee who campaigned for Obama among Hispanics during the primary; a former Democratic candidate for Virginia state delegate who endorsed Obama last fall in an op-ed in the Fredericksburg Free Lance-Star; and a Virginia businessman who was a donor to Obama's campaign in 2008.
Source: Washington Post

Friday, March 27, 2009

GOP Releases Problem-Laden Alternative "Budget" Preview

The GOP has offered an alternative budget blueprint that is short on details and that fails to specify anticipated spending and revenue, which are essential elements of a "budget." Much of of the document simply responds to President Obama's plan in politically charged (and already familiar) language.

According to Politico, some Republicans are upset by the document, which they believe upstages a serious alternative budget currently under production:
“In his egocentric rush to get on camera, Mike Pence threw the rest of the Conference under the bus, specifically Paul Ryan, whose staff has been working night and day for weeks to develop a substantive budget plan," said a GOP aide heavily involved in budget strategy.

"I hope his camera time was gratifying enough to justify erasing the weeks of hard work by dozens of Republicans to put forth serious ideas," the person added.

"It's categorically untrue," said Pence spokesman Matt Lloyd. "Cantor as well as Ryan and the rest of the leadership have been part of this process for weeks. They not only signed off on it, but their staffs helped edit it."

Ryan told POLITICO that he didn't feel thrown under any buses and downplayed the disagreement.

"The problem is that somewhere along the line, someone got the mistaken impression that we were going to roll out a budget alternative today," he said. "What we all signed off on was a preview—the real [alternative] is coming next week."

Still, when he was asked what purpose today's preview served, Ryan directed me to Pence's office: "You've got to ask the conference this question, I can't answer that question."
Highlights from the Blueprint

Politics, Politics, Politics
The blueprint reads like a political document, rather than a budget (or budget preview). In one particular passage, the document rails against a host of traditional recipients of Republican scorn:

Who are the recipients of such largesse? International organizations and foreign aid recipients, including millions for reconstruction in the Hamas-controlled Gaza Strip. Labor union bosses participating in a new “green jobs” program. The National Endowment for the Arts, the Corporation for Public Broadcasting, Americorps, Title X Family Planning, and a host of spending programs that will do nothing to help our economy recover. And even community organizers, such as ACORN, performing “neighborhood stabilization.”
Questionable Statements
As with most political documents, the blueprint distorts the record. For example, it states that: "Democrats propose nearly $1 trillion in new spending on health care reform as a mere “down payment” for additional spending to come." Reality: The Democrats propose $634 billion for healthcare reform over the course of 10 years.

The blueprint also states that: "The prime focus of their agenda is the establishment of a government-run health insurance plan, designed to “compete” against private health insurance." Reality: Although Obama campaigned on the promise to create a public plan option, he has recently indicated that he might discard the idea. Also, two of the largest labor unions have dropped out of Obama's healthcare reform talks because they believe that the public plan issue is effectively off the table.

Sloppy Analysis
The blueprint also contains some sloppy analysis. It states, for example, that:

Actuaries at the Lewin Group estimated that nearly three in four Americans—119 million individuals—with employer-sponsored health insurance would lose their current coverage. These individuals would lose their coverage not because they made a voluntary choice to accept the government plan, but because their employers would save billions of dollars by ending their current coverage and dumping their employees into the government-run plan.
But the Lewin Group's findings are not based on any specific plan put forth by Obama -- because none exists. Instead, the group utilized plans mapped out by John Edwards and Hillary Clinton during the Democratic primaries. Furthermore, it is unclear to me why saving "billions of dollars" is a bad idea for employers. Perhaps they would pass some of that money to employees or use it to hire more workers (or simply pocket it themselves, which seems like a Republican value).

Fiscally Troubling
The Republican blueprint suffers from the same problem as the Obama budget: It promises to do many things with insufficient funds. I have already written about the skepticism economists have expressed concerning Obama's budget estimates. The Republican blueprint, however, makes a similar mistake by promising to implement "universal" healthcare and other reforms -- while dramatically slashing taxes. Specifically, the document states that:

Republicans propose a simple and fair tax code with a marginal tax rate for income up to $100,000 of 10 percent and 25 percent for any income thereafter, with a generous standard deduction and personal exemption.
The blueprint does not specify how this revenue-reducing proposal would lead to a balanced budget and a reduction in public debt.

Final Thoughts
I am troubled by the spending spree going on in Washington. But I was also bothered by the "cut taxes-and-spend a lot" policies of the Bush administration. For that reason, I look forward to debate among Democrats and Republicans who want to work on realistic solutions to the economic crisis and to refrain from engaging in partisan political grandstanding. Let's hope that members of Congress earn their pay by giving voters the thoughtful options they deserve.

Obama's Pot Comment Has Andy Sullivan In a Lather

I guess Obama can do something to upset Andrew Sullivan after all. During his online townhall meeting, Obama rejected, with a giggle, the notion that legalizing pot would translate into gobs of tax revenue and jobs. Sullivan is not amused.

Sorry, Andy, but I'm with the President on this one. People often strain to fit their desire to smoke pot into politically mainstream policies like access to health care (medicinal marijuana) or economic growth and development (taxing pot). Why not advocate decriminalization on its own merits? If you want to light up a joint, make the case for doing so. But I imagine that most people who smoke pot are not relieving arthritis pain, and they probably do not want to pay a sales tax in order to enjoy their high.

Thursday, March 26, 2009

House Committee Endorses Less Restrictive "Bonus" Measure

The House of Representatives Financial Services Committee has endorsed a measure that would give the Treasury Department the authority to determine whether the public should become outraged over executive bonuses for TARP participants. Actually, the measure would give the Treasury Department the discretion to say whether executive compensation at bailed out banks was too excessive. But I suppose public (and media) outrage would closely track the Treasury Department's position on the issue. Although the measure would give the Treasury Department the authority to determine when executive compensation has gone too far, earlier this year, officials in the department pressured Senator Christopher Dodd to remove language from a provision he sponsored that would have prohibited highly controversial bonus payments made by AIG.

The measure would not apply to participants in the proposed trillion-dollar "toxic assets" purchase plan. Recently, White House economic advisor Christina Romer described potential investors in the plan as the "good guys," and media outlets reported that prospective investors had already warned the government not to limit their ability to compensate executives.

Committee Chair Barney Frank, reflecting arguments from the Obama administration, says that flexibility would encourage wider participation in the program. I guess this means that executives will not be subjected to random drug tests, as some states are considering imposing upon recipients of welfare and unemployment benefits.

Targeting the Poor: Some States Propose Drug Testing for Unemployment, Welfare Benefits

Several states are considering whether to test recipients of unemployment or welfare benefits for drug use. Although the federal government is contemplating giving a second trillion-dollar package to the banking industry, these states are targeting poor and middle-class individuals under the guise of fiscal responsibility.

Craig Blair, a delegate to the West Virginia legislature, has started a website, Not With My Tax Dollars, to politicize the issue. He justifies his position, in part, by arguing that:
We should require random drug testing for every individual receiving welfare, food assistance or unemployment benefits. After all, more and more employers are requiring drug testing. Why not make sure that people who are supposed to be looking for work are already prequalified by being drug free?
Blair is also campaigning for re-election, and his proposal to drug test recipients of public assistance seems specifically designed to exploit the public's economic vulnerability, specifically by linking the issue to anti-tax sentiment. Although Blair says that he favors "less government intrusion on our daily lives," he opposes abortion, believes in expanding drug testing, and supports capital punishment. These positions do not limit, but rather augment, the role of government "in our daily lives" (in very invasive ways).

Why Not Apply the Policy Broadly?
Proponents of the legislation in other states have linked the tests to fiscal soundness and protection of taxpayers. But I have a question for legislators who believe the drug tests will protect taxpayers: Why not sponsor legislation requiring anyone -- including legislators, governors, judges, recipients of small business assistance or "farm aid," pensioners, owners of companies receiving tax abatements, participants in state-sponsored health care for the elderly, students receiving financial assistance or scholarships, and university professors -- who receives state subsidies, financial assistance, or tax dollars to submit to drug screening? In order to avoid the very reasonable claim that they are targeting poor people, they should broaden their proposals.

Wednesday, March 25, 2009

Reliable FactCheck.Org Dissects Obama's Tuesday Night News Conference

FactCheck.Org is a great website for accurate and nonpartisan reporting and information. Here's the organization's take on Obama's recent news conference:

He said his budget projections are based on economic assumptions that “are perfectly consistent with what Blue Chip forecasters out there are saying.” Not true. The average projection by leading private economists is now for substantially less economic growth than the administration’s forecast assumes.

He said he is reducing “nondefense discretionary spending” to less than it was under the past four presidents. Not true. His own forecast for the final budget of his four-year term puts this figure higher than in many years under Reagan, Clinton or either Bush.

He said he was “angry” about “inexcusable” bonuses paid to AIG executives. But he glossed over the fact that his own aides insisted on watering down a Senate-passed amendment that might have prevented payment of such bonuses.

He repeated that his budget is projected to cut the federal deficit in half by the end of his term. That’s true, but deficits also are projected to shoot up again later unless big policy changes are made.

Be sure to read the full analysis.

Is It Elitist to Be Frightened That Members of Congress Attended a Britney Spears Concert?

Call me an elitist, but I am horrified by rumors that House Minority Whip Eric Cantor attended a concert held by Britney "Oops, I Did It Again" Spears last night with a "bipartisan" group of Congress members. Wonkette and Huffington post have the gory details.

It's Official: Vermont Governor Jim Douglas Formally Announces His Intent to Veto Same-Sex Marriage Measure, If Passed

The Vermont Senate has voted to legalize same-sex marriage, and the House is expected to do the same thing soon. Republican Governor Jim Douglas, however, stated today that he would veto legislation on the issue (affirming comments made by his spokesperson yesterday) [Editor's Note: The article on the veto threat has been substantially updated and includes far more information than when I first wrote this essay.]

Douglas stated that he will veto legislation authorizing same-sex marriage so that the state con focus on the budget and the economy. His spokesperson made the same argument yesterday.

This argument, however, is just a smokescreen designed to mask his bigotry. Although Governor Douglas claims that the same-sex marriage legislation consumes time that he could use to address the economy, he is spending the weekend engaging in a host of nongovernmental activities, including tree tapping, touring sugar houses, and attending a poster contest banquet. Hopefully, the Vermont media will uncover the contradictions and deceipt in his argument.

Related Reading on Dissenting Justice:

Definite Candidate for Wimp of the Year Award: Vermont Governor Jim Douglas

Gainesville, Florida Voters Reject Anti-GLBT Rights Measure

Voters in Gainesville, Florida rejected Charter Amendment 1, a measure that would have repealed existing ordinances that prohibit discrimination on the basis of sexual orientation and gender identity. Proponents of the measure marketed it as remedial law that would simply conform Gainesville law to standards set by the State of Florida. Gender identity and sexual orientation are not protected categories in Florida civil rights law. Proponents also raised the extreme possibility of opportunistic sexual predators dressing in drag in order to rape women and children in bathrooms. Despite the misleading and dramatic marketing strategy, the measure lost by a vote of 58-42 percent.

Tuesday, March 24, 2009

Definite Candidate for Wimp of the Year Award: Vermont Governor Jim Douglas

Vermont Governor Jim Douglas has jumped ahead of the pack in the race for the "Wimp of the Year" award. Douglas surpassed the competition as a result of his lack of courage on the issue of same-sex marriage.

Currently, Vermont recognizes civil unions, but the state Senate voted to legalize same-sex marriage earlier this week. The House will consider the measure later this week, and most reports indicate that the proposal will likely receive enough votes.

Douglas, however, has threatened to veto any measure that legalizes same-sex marriage. His spokesperson explained the governor's strained position:

Governor Douglas agrees with President Obama that marriage is between a man and a woman. He supports Vermont's current civil union law, which provides equal rights, benefits, and responsibilities to Vermonters in civil unions," said the governor's spokeswoman, Dennise Casey.

The governor "believes this bill is a distraction from the important work the legislature needs to do to pass a responsible budget and get our economy going again," Casey added.
This is an utterly wimpy argument. Douglas is a wimp because he chose to hide behind President Obama rather than articulating his own independent argument on the subject. Douglas is also a wimp because he chose to hide behind the economy in order to justify his position -- as if balancing the budget can excuse discrimination. Douglas' has made one of the most pathetic political arguments I have seen all year. Accordingly, Douglas is a strong contender for Wimp of the Year. Congratulations, Governor Jim Douglas of Vermont!

Why Aren't These Things "Distracting"?
Here are some of the other things that Governor Douglas has done (or has planned for this year) that have not caused economic collapse in Vermont.

Vermont Quarter to get a Makeover: "Governor Jim Douglas has nominated Vermont’s 150 miles of the Appalachian Trail to replace the scene of Camel’s Hump and sap buckets as part of the U.S. Mint’s new America’s Beautiful National Parks Quarter Dollar Coin Program."

Public Appearance Schedule of Governor Jim Douglas:

Friday, March 27, 2009
6:00 p.m. Annual Green-Up Poster Contest Awards Banquet, Capitol Plaza Hotel & Conference Center, Montpelier

Saturday, March 28, 2009
10:00 a.m. Poultney Maple Fest Weekend Tree Tapping, Green Mountain College, Poultney

11:00 a.m.-4:00 p.m. Tour of Sugar Houses for Maple Open House Weekend, Locations to be Announced

6:00 p.m. Vermont Trappers Association Annual Banquet, Montpelier Elks Club, Montpelier

Governor Douglas has time to hang out at a tree tapping, go on a tour of sugar houses and attend a poster contest banquet, but he thinks that debating civil rights is too distracting.

Related Reading on Dissenting Justice:

It's Official: Vermont Governor Jim Douglas Formally Announces His Intent to Veto Same-Sex Marriage Measure, If Passed

Professor Balkin Defends Constitutionality of Bonus Tax

Professor Jack Balkin has summarily rejected most of the prevailing constitutional arguments against the House of Representatives measure that would tax bonuses received by AIG executives and other TARP participants. The five most prevalent arguments include that the tax would violate the: 1. Due Process Clause of the Fifth Amendment; 2. Takings Clause; 3. Ex Post Facto Clause; 4. Contracts Clause; and 5. Bill of Attainder Clause. I agree with Balkin that 2, 3, and 4 are not relevant, but his due process and bill of attainder analysis is too swift.

Due Process
With respect to the due process argument, I agree with Balkin that a reviewing court would likely consider whether the measure is "rationally related to a legitimate government interest." Balkin argues that Congress can legitimately seek to avoid "extraordinary rents" to TARP participants and their employees and to curb "improper incentives and moral hazard in subsidized companies and their employees."

Assuming that these interests are indeed legitimate, the due process problem arises because in February, Congress explicitly exempted AIG's bonus payments from legislation that regulates compensation and bonus practices of TARP recipients. Although the measure would have effectively banned the controversial bonus payments, Congress gave the provision prospective, rather than retroactive application.

I would normally agree with Balkin that courts should not second-guess Congress under ordinary rational basis review. But AIG acted with explicit legal authority when it paid the bonuses. Neither the original version of TARP nor the regulations promulgated by the Treasury Department in the Bush and Obama administrations bans the bonuses. Congress recently enacted a measure that would have banned the bonuses, but it does not apply to AIG. Apparently, the Treasury Department requested that the restrictions not apply retroactively, and Congress agreed.

Now, Congress is trying to direct the Treasury Department to change course and subject the bonuses it only recently voted to exempt from regulation to an almost 100% tax. Even if these facts do not lead 5 or more Supreme Court Justices to conclude that the law violates the Due Process Clause, the issue strikes me as being a bit more complicated than Balkin's analysis suggests.

Bill of Attainder
Balkin's analysis of the bill of attainder issue is too abstracted and divorced from the factual context in which the tax proposal arises. Balkin dismisses the bill of attainder argument because the law does not "single out" individuals and it applies retrospectively and prospectively:
First, the tax defines the class to which it applies to an abstractly defined group rather than naming particular individuals. It applies to persons working for enterprises that have received emergency government subsidy; it is not aimed at particular companies or specific employees. Second, the tax is for a regulatory purpose, as described above, and not for a punitive purpose. Preventing misuse of government funds, limiting bad incentives, and avoiding moral hazard are regulatory purposes, not punitive purposes. The fact that isolated members of Congress may have expressed an impermissible punitive or retributive purpose does not mean that the tax violates the Constitution if the text of the bill on its face has an overtly regulatory purpose. Third, the tax is both prospective and retrospective in its targets, which is consistent with a regulatory as opposed to a punitive purpose.
If the factors Balkin lists are the only ones a court would consider in a bill of attainder analysis, I would argue that they could weigh against the tax, and not necessarily for it. Balkin's argument that the tax does not target AIG recipients and that it applies to an "abstractly defined group" requires us to suspend reality. Even though the House measure is written in general terms, the motivation behind the measure is very clear: The House seeks to "punish" AIG and its executives by recouping almost 100% of the bonus payments.

Balkin's argument would legitimize the type of formalistic arguments that litigants often make when they want to avoid the impact of and impulse for their actions. Formalism has been invoked to justify gross violations of due process and equality (such as segregation and unequal application of the criminal law). Balkin's abstracted analysis of the bill of attainder provision comes dangerously close to legitimizing the very type of formalistic arguments that routinely mask and excuse injurious and unfair governmental action.

Monday, March 23, 2009

Richard Bernstein of Bank of America-Merrill Lynch Says: Sell Financial Stocks

Richard Bernstein, the Chief Investment Strategist of Bank of America Securities-Merrill Lynch has some pretty eye-catching advice. He urges investors to take profits from today's 12-point rally in the financial sector.

Treasury Secretary Tim Geithner's plan for public/private collaboration in the purchase of mortgage-related investments from banks and other financial institutions sent the market soaring. Bernstein, however, says that the surge will not last, and that consolidation in the sector is the only way of stabilizing it and ensuring a recovery:
Removing devalued loans and securities from banks’ balance sheets is a short-term solution that will delay the problem’s ultimate solution, which is bank takeovers, Bernstein said. The government won’t be able to inflate the prices banks receive for selling bad assets indefinitely, he added.

“The history of bubbles shows quite well that financial sector consolidation is inevitable,” Bernstein, Bank of America’s chief investment strategist, wrote in a research note. “Financial stocks will be attractive when the government tries to speed up that inevitable process. However, to the contrary, the government continues to attempt to stymie that inevitable consolidation.”
Since 2007, Bank of America has acquired Countrywide, Merrill Lynch, ABN AMRO North America, and La Salle Bank. Apparently, it might want gobble up some more banks -- in the name of efficiency, of course.

Clearly, Dodd Has Made Enemies: New Article "Strains" to Link Dodd to "AIG-Controlled" Company

Today's "most shocking yet misleading article title" award goes to Kevin Rennie, a Republican writer for the Hartford Courant and former Connecticut State Senator. Rennie's article, "Dodd's Wife a Former Director of Bermuda-Based IPC Holdings, an AIG Controlled Company" implies that Dodd may have had secret motivations for protecting AIG from the stringent bonus requirements he drafted and offered as an amendment to the stimulus package.

Neither TARP, which Bush and Paulson introduced, nor the related regulations promulgated by the Bush and Obama administrations ban executive bonuses -- i.e., they do not prohibit AIG's payment of the bonuses. Conservatives and other anti-Dodd commentators, however, have falsely argued that Dodd created a loophole to permit AIG's payment of the controversial bonuses. Although Factcheck.Org and several bloggers have described the actual events surrounding Dodd's amendment, distorted accounts continue to emerge.

In a nutshell, the original law and subsequent regulations do not prohibit bonus payments by AIG. Dodd proposed and the Senate passed an amendment that would have banned most bonus payments by TARP recipients; the measure would have applied retroactively to AIG. The Obama administration pressured Dodd to make his amendment prospective rather than retroactive; Dodd capitulated to the administration's demands, and Congress passed the modified version of Dodd's amendment.

Instead of blaming Obama, Bush, and Congress, commentators point the finger at Dodd, even though his amendment is the only legal provision that seriously regulates compensation and bonuses for TARP recipients. It is also worth mentioning that Dodd alone cannot legislate a loophole for AIG; only Congress can! But this elementary civics issue escapes Dodd's critics.

Rennie's Misleading Article
Rennie's article suggests many levels of potentially sinister behavior by Dodd. The title declares that Dodd's wife was the director of an "AIG-controlled" company. Based on this fact alone, Rennie concludes that "Dodd is likely more familiar with the complicated workings of AIG than he was letting on last week." Rennie's "analysis" is just as bogus as the silly House measure that imposes retroactive civil liability upon AIG executives who have already received the controversial bonus payments.

First, Rennie uses the loaded term "controlled" to describe the relationship between AIG and the firm for which Dodd's wife served as an "outside" director (she was not a principal of the company). But closer scrutiny simply reveals that AIG held a 20% stake in the company. This minority stake does not give AIG control, and the article does not even state whether the shares carried voting privileges or not.

Also, Rennie's article states that AIG sold its stake in the company in 2006. Thus, the weak factual basis for Rennie's suggestion of a relationship between Senator Dodd -- via his wife -- and AIG no longer exists. Rennie states that a "subsidiary" of AIG "managed" the company, but that is all he provides about the relationship. Assuming Rennie's version of the "facts," Dodd's wife served as an "outside" director of a company from 2001-2004, and AIG had a 20% stake in the company from 2001-2006, a maximum overlap of 4 years, which ended 5 years ago. That's a pretty thin reed for implying an improper relationship. Rennie cannot contain his partisanship.

PS: I have no particular fondness for Dodd, but I lived in Connecticut for 3 years (during law school). Perhaps, I have a close connection to him as well.

Surprise, Surprise: Potential Participants in Toxic Assets Plan Ask Government to Stay Away From Executive Compensation

Today, Treasury Secretary Tim Geithner will begin marketing his plan to encourage private investors to partner with the government and purchase nearly $1 trillion in "troubled" mortgage-backed assets from financial institutions. The government's plan rests on the assumption that the troubled assets actually have value, but because the market cannot accurately measure their value, the assets are causing a credit collapse. After the assets are removed from companies' balance sheets, credit will flow once again. Also, once the market realizes the value of the assets, the government (i.e., taxpayers) and private investors will enjoy profits from their investments.

The New York Times reports that some potential investors fear that the government will regulate the compensation of executives who participate in the plan. Given the outrage over AIG, their concern is legitimate:

[S]ome executives at private equity firms and hedge funds, who were briefed on the plan Sunday afternoon, are anxious about the recent uproar over millions of dollars in bonus payments made to executives of the American International Group.

Some of them have told administration officials that they would participate only if the government guaranteed that it would not set compensation limits on the firms, according to people briefed on the conversations. The executives also expressed worries about whether disclosure and governance rules could be added retroactively to the program by Congress, these people said.
Obama administration officials tried to allay those fears on the Sunday news circuit:

Administration officials took to the airwaves Sunday to reassure investors that the public would distinguish between companies like A.I.G., which are taking government bailout money, and private investment groups that, under this latest plan, would be helping the government take troubled assets off the books of some of the country’s biggest banks.

“What we’re talking about now are private firms that are kind of doing us a favor, right, coming into this market to help us buy these toxic assets off banks’ balance sheets,” Christina D. Romer, the White House’s chief economist, said in an interview on “Fox News Sunday.”

“I think they understand that the president realizes they’re in a different category,” she said, adding, “They are firms that are being the good guys here.”
Nice try, but . . .
The "good guys" language undermines the government's position that the bailout is policy - not handouts to wrongdoers. It also conflicts with the government's previous opposition to meaningful limits on executive compensation. If the new investors are "good guys," while TARP participants are "bad guys," then the government has a good reason to regulate compensation for the latter.

Finally, I suspect that many of the "good guys" will come from the "bad guys'" industry. The world of sophisticated financial investors is tiny. The people with knowledge, resources, and professional credentials to manage and organize the proposed purchase of troubled assets will undoubtedly have worked in institutions that hold these same assets; they could even have work experience designing and marketing the very securities that have spread so much risk across the market. For this reason, some type of disclosure process seems relevant.

Also on Dissenting Justice:

Tangled Webs: Goldman Sachs, AIG and the Feds

Professor Balkin Defends Constitutionality of Bonus Tax

Richard Bernstein of Bank of America-Merrill Lynch Says: Sell Financial Stocks

A Sound Position: President Obama Questions the Constitutionality of the AIG Bonus Tax

During his interview on 60 Minutes, President Obama questioned the legality of the AIG bonus tax that recently passed in the House of Representatives. Earlier, several members of his administration publicly opposed the measure, which strongly suggested that the President would not endorse it as well.

Although President Obama has strongly voiced his disagreement with Wall Street excess -- including the bonuses -- he has not matched these words with actions. The President declined to include provisions that prohibit bonus payments by TARP participants in the regulations that he and Geithner promoted in February. Furthermore, it has become abundantly clear that the Obama administration pressured Senator Chris Dodd to delete language in his amendment to the stimulus package that prohibits the payment of bonuses by TARP participants, which would have given the measure retroactive application.

Prohibiting Bonuses by TARP Participants
I have argued here and elsewhere that the House tax measure conflicts with fundamental principles of our legal system. The tax singles out a group of individuals and imposes a penalty upon them for already completed activity that was and which remains legal. The bonus tax is also one of the clearest examples of legislation that derives from anger and rage -- rather than calm deliberation. Congressional shenanigans are not the answer to corporate shenanigans.

If the public wants the government to prevent TARP participants from paying bonuses, then that discussion should take place openly. If the President believes that this is not a good idea, he should use his famed communication skills to educate the public -- rather than joining the circus of feigned outrage.

In the corporate sector, bonuses are merely an extension of one's salary; they operate as deferred compensation. Many lay people, however, view them as "perks" or mere handouts. This view probably explains much of the populist fervor.

Legislation Under Fire
The public has every right to demand limits on the use of tax revenue, and it would be perfectly legal to prohibit bonus payments by TARP participants before the actual payments take place. The House measure, however, is a blatant example of opportunistic, emotion-driven, and likely unlawful legislation. It is cut from the same cloth as the dreadful Terri Schiavo statute that shamelessly attempted to undo nearly a decade of litigation in Florida which allowed Schiavo to refuse medical treatment and die with dignity -- a basic constitutional right.

When lawmakers ignore the law and side with the passions of the moment, they often produce unsound and illegal legislation. President Obama has taken the correct position on the legality of the bonus tax. Nevertheless, in an effort to maintain his populist credentials, Obama has done a poor job educating the public about his perspective on bonus payments. Hopefully, he will start discussing that matter soon, so that any legislative response to the subject will rest on solid policy, rather than artificial outrage.

Saturday, March 21, 2009

Tangled Webs: Goldman Sachs, AIG and the Feds

Goldman Sachs Chief Financial Officer David Viniar held a conference call with journalists yesterday in an effort to calm a growing storm over the company's relationship with AIG. Goldman, like other investment banks, invested in and marketed "mortgage-backed securities," which AIG "insured" with "credit-default swaps."

The implosion in mortgage-related financial instruments, however, caused AIG to suffer enormous losses. The company ultimately required a massive governmental bailout because it lacked the resources to cover other companies' investment risk.

Goldman, AIG and TARP
After refusing to do so for many months, AIG recently released the names of companies it paid using TARP assistance. According to the disclosure, AIG has paid Goldman $12.9 billion.

Seeking to mute speculation that the federal government bailed out AIG in order to funnel billions of dollars in TARP assistance to Goldman, Viniar insists that even if AIG had entered into bankruptcy, Goldman would not have suffered financially. Viniar says that Goldman hedged its market exposure through agreements with third parties and had already received $7.5 billion in collateral from AIG prior to the company's insolvency.

But Viniar's comments raise other concerns. First, even though Goldman hedged its risks using third parties and had received collateral from AIG, it is possible that it would have received less money in a bankruptcy proceeding. Second, the close relationship between financial regulators and Goldman will undoubtedly create a wall of suspicion around the company, regardless of whether it benefited from the bailout. This suspicion will only grow deeper if it turns out that the government's decision to keep AIG alive helped Goldman, just as its decision to let Lehman Bros. implode necessarily helped Goldman because it removed one of the company's chief competitors from the market.

Bankruptcy versus Bailout
AIG avoided bankruptcy because of the federal bailout. If AIG had entered into bankruptcy, it is unclear whether Goldman would have recovered the same amount of money. For example, the government financed AIG's purchase of $5.6 billion in securities related to its agreements with Goldman. At the time of the purchase, however, the market value of the securities was 1/2 less than the contract price. Had AIG been in bankruptcy, it is highly unlikely that a judge would have allowed AIG to pay Goldman a price that greatly exceeded market value.

Also, a bankruptcy judge could invalidate (as a "voidable preference") the transfer of collateral or money from AIG to Goldman if the transfer took place within 90 days of the filing of the bankruptcy petition. Bankruptcy law disfavors payments to creditors on the eve of bankruptcy because they tend to benefit more powerful creditors and frustrate the underlying policies of bankruptcy law, which include the distribution of the debtor's assets to all creditors in proportion to the debt owed them. Early payments to an individual creditor could drain the debtor's resources and make them unavailable for a proportional distribution. It is unclear whether Goldman could have recovered from third-parties the same amount of money it obtained from AIG, but it is definitely debatable whether it could have extracted the same amount from AIG had the company entered into bankruptcy.

Tangled Web
Viniar's conference call will likely lead to greater scrutiny of Goldman's relationship to AIG because many influential politicians and banking industry executives have connections to Goldman and to the Treasury Department -- the federal agency that administers TARP.

Henry Paulson, Secretary of Treasury during the Bush administration, is a former Chairman of Goldman Sachs. Paulson was responsible for administering TARP, and he had a large role in structuring the legislation.

Robert Rubin, Secretary of Treasury during the Clinton administration, was a Co-Chairman of Goldman (along with Stephen Friedman -- see below) before he earned a Cabinet post. Although Rubin does not have a formal position in the Obama administration, he has served as an informal economic advisor to the President. Also, current Secretary of Treasury Tim Geithner worked as an assistant to Rubin (and later to Lawrence Summers -- former Secretary of Treasury and current head of Obama's National Economic Council) when he headed the agency. Paulson was also a partner at Goldman when Rubin was Co-Chairman.

Mark Patterson, Geithner's Chief of Staff, is a former lobbyist for Goldman. Obama waived his anti-lobbying rules in order to secure the job for Patterson.

Tim Geithner, current Secretary of Treasury, served as the President of the Federal Reserve Bank of New York until his current position. In that capacity, he helped to structure the federal bailout of AIG. Geithner, unlike many of the other individuals listed in this article, never worked at Goldman, but he worked for Rubin during the Clinton administration and for Summers, who replaced Rubin. Summers heads Obama's National Economic Council.

Stephen Friedman, the current Chairman of the Federal Reserve Bank of New York, was the Co-Chairman of Goldman with Rubin, and he has held several other executive positions at the company. In his current position, Friedman presumably will have a significant role in the ongoing federal bailout of AIG. Friedman also sits on the board of directors of Goldman.

Update: After discussing this issue with a friend of mine, I have an additional comment. Assume that the AIG bailout was a wise policy decision that coincidentally benefited Goldman. This still does not explain the differential treatment of Lehman Bros.

Although I mention the disparate treatment of Lehman Bros. in the original essay, I primarily discuss why bailing out AIG helps Goldman. But allowing Lehman Bros. to collapse helped Goldman tremendously, because it eliminated one of its main competitors. The deeper story may lurk behind this issue.

Ayatollah Ali Khamenei Rejects Obama's Video Greeting to Iran, Says No "Change," No Deal

Ayatollah Ali Khamenei has rejected President Obama's videotaped overture to the country. President Obama released the message on Nowruz - Iran's new year celebration. In his message, the President stated that:
[I]n this season of new beginnings I would like to speak clearly to Iran's leaders. We have serious differences that have grown over time. My administration is now committed to diplomacy that addresses the full range of issues before us, and to pursuing constructive ties among the United States, Iran and the international community. This process will not be advanced by threats. We seek instead engagement that is honest and grounded in mutual respect.

You, too, have a choice. The United States wants the Islamic Republic of Iran to take its rightful place in the community of nations. You have that right -- but it comes with real responsibilities, and that place cannot be reached through terror or arms, but rather through peaceful actions that demonstrate the true greatness of the Iranian people and civilization. And the measure of that greatness is not the capacity to destroy, it is your demonstrated ability to build and create.
Iran's Supreme Leader Ayatollah Ali Khamenei has responded to the video with great skepticism. According to an Associated Press report:
In his most direct assessment of Obama and prospects for better ties, Khamenei said there will be no change between the two countries unless the American president puts an end to U.S. hostility toward Iran and brings "real changes" in foreign policy.

"They chant the slogan of change but no change is seen in practice. We haven't seen any change," Khamenei said in a speech before a crowd of tens of thousands in the northeastern holy city of Mashhad. . . .

"He (Obama) insulted the Islamic Republic of Iran from the first day. If you are right that change has come, where is that change? What is the sign of that change? Make it clear for us what has changed."

Still, Khamenei left the door open to better ties with America, saying "should you change, our behavior will change too."
I cannot say that this surprises me.

Friday, March 20, 2009

President Obama Is Not Rushing Behind Bonus Tax Plan

This New York Times story is consistent with Senator Dodd's portrayal of the White House's reticent position on the regulation of bonuses:

The White House stopped short on Friday of endorsing legislation to severely tax bonuses paid to executives of companies that accepted taxpayer bailout funds.

Administration officials said instead that President Obama would assess the potential effect of the bill that emerged from Congress on efforts to stabilize the financial system.

At the same time, as Wall Street executives anxiously pondered the ramifications of the measure quickly passed by the House this week, some Senate Republicans began to voice opposition to the legislation, saying it was hasty and abusive.

For the record, I have deep legal concerns with the bonus tax. The retroactive application after AIG has made the payments, the clear targeting of AIG executives, the absolute hysteria over the issue, and resistance by Congress and the President to measures that would have prevented the bonus payments make this law highly suspicious from a legal standpoint.

After I wrote this blog entry, the Wall Street Journal published a similar report.

Senator Dodd Continues to Suffer Fallout For Something He Did Not Do

There are many reasons to criticize Senator Dodd's relationship with the banking industry. But criticizing him for creating a loophole that permits the payment of AIG's bonuses is utterly misguided.

The Associated Press reports that Dodd is battling the appearance of impropriety with respect to AIG's payment of bonuses to its executives. Many commentators have wrongfully argued that Dodd sponsored an amendment to the stimulus package that created a loophole for AIG to award the bonuses, which many people believe are excessive. This argument, however, is a falsehood.

Neither the original TARP legislation -- which passed during the Bush administration -- or the subsequent Treasury Department regulations prohibit AIG from paying the bonuses. Therefore, federal law authorized payment of the bonuses with or without Dodd's alleged assistance.

The controversy over Dodd results because several misleading reports blame Dodd -- rather than Congress and the Treasury Department -- for failing to prohibit the bonuses. Many bloggers and media sources (myself included) have attempted to portray the facts surrounding Dodd's amendment to the stimulus package. Now FactCheck.Org has joined the fray.

For those of you who remain confused, please check out the analysis on FactCheck. It demonstrates (citing many links) that:

* Dodd proposed an amendment to the stimulus package that would have prohibited payment of bonuses by TARP participants and that would have applied retroactively to companies like AIG;

* The pre-existing statute and relevant regulations do not prohibit the bonuses;

* Dodd's amendment passed in the Senate;

* Officials in the Treasury Department pressured Dodd to delete language giving his amendment retroactive application, and they, along with White House Senior Advisor David Axelrod, publicly expressed their disagreement with the provision;

* The retroactivity clause was deleted from the final version of the amendment because Dodd conceded to pressure from the Executive Branch.

See also:

Senator Dodd Fights Back: Says Obama Administration Pressured Him to Change a Provision He Sponsored That Would Have Banned AIG's Bonus Payments

'Blame Dodd' Attacks Ignore Facts

Oops. . .

Oy vey. . . .
President Barack Obama has apologized to the chairman of the Special Olympics for his late-night talk show quip equating his bowling skills to those of athletes with disabilities.

Appearing on "The Tonight Show" Thursday, the president told host Jay Leno he'd been practicing at the White House's bowling alley but wasn't happy with his score of 129. Then he remarked: "It was like the Special Olympics or something."

The audience laughed, but the White House quickly recognized the blunder. The Special Olympics, founded in 1968, is a global nonprofit organization serving 200 million individuals with intellectual disabilities.

On his way back to Washington on Air Force One, Obama called the chairman of the Special Olympics, Tim Shriver, to say he was sorry - even before the taped program aired late Thursday night.

"He expressed his disappointment and he apologized in a way that was very moving. He expressed that he did not intend to humiliate this population," Shriver said Friday on ABC's "Good Morning America." Obama, Shriver said, wants to have some Special Olympic athletes visit the White House to bowl or play basketball.

The Onion Nails It: "U.S. Troops In Iraq Excited To Finally Return To Afghanistan"

The Onion continues to prove that satire is relevant social commentary:
Members of the U.S. Armed Forces were reportedly overcome with feelings of joy, nostalgia, and optimism this week after learning they would soon be withdrawn from Iraq and allowed to finally return home to Afghanistan.

"I never thought this day would come," said Cpl. Douglas Robinson, who hasn't seen the barren hills and smoking craters of his beloved Kabul in nearly six years. "Being away from those you left behind, for this long, it definitely starts to take a toll on you."

The amber waves of blowing sand and rubble. Added Robinson, "I can't believe I'm going home again."

In 2003, thousands of American soldiers were unexpectedly uprooted from Afghanistan and sent off to fight in a long and bloody war overseas. After serving multiple tours of duty in Iraq, the vast majority of these troops said they couldn't wait to get back and have their lives return to normal.

Wednesday, March 18, 2009

Senator Dodd Fights Back: Says Obama Administration Pressured Him to Change a Provision He Sponsored That Would Have Banned AIG's Bonus Payments

Yesterday, a few bloggers reported that Senator Christopher Dodd inserted an amendment to the bailout that strengthened the constraints on executive compensation for companies that receive TARP assistance, but which did not apply retroactively. That story -- as other bloggers and the media suggested earlier today -- is not completely true.

Dodd has set the record straight on the issue, and his account parallels media descriptions of the proposed amendment that were first published in February. Dodd certainly introduced an amendment to the stimulus package which would have toughened restrictions on executive pay, but the measure would have applied retroactively.

After Dodd proposed his amendment, White House and Treasury Department officials publicly stated their disagreement with the measure. The Treasury Department had previously issued a weaker regulation that was made even weaker because it only applied prospectively to companies that had not received any TARP assistance.

Dodd's amendment, however, passed in the Senate. But when the final bill emerged from the conference committee, the language making Dodd's amendment retroactive had vanished.

Dodd now confirms that the Obama administration pressured him to delete the retroactivity clause while negotiators worked on the final version. Dodd says that he feared losing the executive compensation provision altogether, and this made him compromise with the Treasury Department (which undoubtedly spoke for the President).

The Huffington Post has the full story. Here is a clip:
The Treasury Department demanded that Sen. Chris Dodd insert exemptions into the stimulus bill that allowed bailout recipients to receive bonuses, the Connecticut Democrat said on Wednesday.

According to Dodd, officials at Treasury expressed concern that if the government were to prohibit payouts, it risked being sued by companies like AIG, which had contracts stipulating that bonuses were to be paid.

At the urging of Treasury officials, Dodd modified a clause he had previously inserted into the stimulus that prohibited bonuses from being issued by bailed-out companies. An exemption was added to allow bonuses that applied to in-place contracts.

Feds Converts Value of AIG Bonuses Into a Short-Term Loan: Geithner Says He Will Deduct $165 Million from AIG's Next TARP Installment

Treasury Secretary Tim Geithner has announced that the government will deduct the amount of the controversial bonuses AIG has paid its executives from the company's next TARP installment -- a sum of $30 billion. That deducted amount only represents approximately .55% of the money AIG is slated to receive from the government.

Geithner's decision looks more like a "short-term" loan than a solution to the controversy. AIG has borrowed and will continue to borrow TARP funds. The government has decided to take back the dollar value of the bonuses at the time of the next installment -- which is the same thing as a decision to accelerate AIG's "loan" repayment schedule in the amount of $165 million.

My Guess: The President wants this thing to go away -- NOW. This decision could help put the matter to rest, but nothing is certain with this story.

The Printing Press Is Rolling: Federal Reserve Will Purchase $1 Trillion in Securities to Boost Market

I guess China isn't moving quickly enough:
Saying that the recession continues to deepen, the Federal Reserve announced Wednesday that it would pump an extra $1 trillion into the mortgage market and longer-term Treasury securities in order to revive the economy.

“Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending,” the Fed said, adding that it would “employ all available tools to promote economic recovery and to preserve price stability.”

As expected, the Fed kept its benchmark interest rate at virtually zero. But in a surprise, it dramatically increased the amount of money it will create out of thin air to thaw out the still-frozen credit markets that have cramped lending to consumers and businesses alike.
Source: New York Times

More Outrage: Obama Administration Knew About the Bonuses Months Ago

In addition to blocking legislation that would have prevented AIG's bonus payments, the Obama administration actually knew about the pending bonuses months ago from SEC filings and letters from lawmakers demanding action. Great.

Here is the latest, courtesy of the Associated Press (via Yahoo News):
For months, the Obama administration and members of Congress have known that insurance giant AIG was getting ready to pay huge bonuses while living off government bailouts. It wasn't until the money was flowing and news was trickling out to the public that official Washington rose up in anger and vowed to yank the money back.

Why the sudden furor, just weeks after Barack Obama's team paid out $30 billion in additional aid to the company? So far, the administration has been unable to match its actions to Obama's tough rhetoric on executive compensation. And Congress has been unable or unwilling to restrict bonuses for bailout recipients, despite some lawmakers' repeated efforts to do so.

The situation has the White House and Treasury Secretary Timothy Geithner on the defensive. The administration was caught off guard Tuesday trying to explain why Geithner had waited until last Wednesday to call AIG chief executive Edward M. Liddy and demand that the bonus payments be restructured.

Publicly, the White House expressed confidence in Geithner — but still made it clear he was the one responsible for how the matter was handled.
Is Geithner going under the bus? For the record, I think that AIG is not "guilty" of anything -- except for spending money that the government gave it. The government's decision to hand the company a blank check is more blameworthy.

See also:

Misdirected Outrage: Public Should Bash the Feds for Giving AIG a "Blank Check"

Sincere or False Outrage? The Obama Administration Smacks Down AIG

Misdirected Outrage: Public Should Bash the Feds for Giving AIG a "Blank Check"

The moralistic grandstanding from all sides of the political spectrum over AIG is nauseating to say the least. After hearing members of Congress propose some very questionable "legal" measures to recoup the $160 million in bonuses AIG paid some of its executives, I am convinced that AIG is the new Saddam Hussein. It is the leader of a financial "axis of evil." As with Iraq, the U.S. needs a smokescreen to mask its own bad decisions and complicity surrounding AIG and other financial institutions and to justify improper remedies for those mistakes. Get ready for a new round of "shock and awe."

Saddam Hussein, Iraq and the U.S.
Long before Bush I's Iraq War, the U.S. covertly (and perhaps illegally) supplied Hussein with weapons and intelligence data -- not because he was such a good guy, but because the government wanted to sponsor his eight-year bloody war against U.S. nemesis (and former regional buddy) Iran. Later, Hussein's own corruption and destabilizing behavior created an excuse for the U.S. to turn against its friend and to engage in imperialistic military action.

The "weapons of mass destruction" mantra became the rallying cry of the war machine. Absent from the political discourse, however, was any sustained conversation about the shady role the U.S. played in empowering Hussein, including tacitly supporting his prior use of banned chemical weapons. The construction of Hussein as an evil dictator with horrible weapons (presumably directed at the U.S.) allowed the government to conceal its own role in making him a supposedly dangerous individual.

Outrage Over Bonuses Masks Government's Role As AIG's Enabler
The Government Failed to Enact Reasonable Regulations to Protect the Investing Public. The U.S. propped up AIG long before the bailout. During the housing boom, AIG made billions of dollars insuring companies' investment risks with instruments known as "credit default swaps." The government, however, failed to regulate these instruments as "insurance," but instead treated them as securities.

Federal law requires insurance companies (and commercial banks) to maintain a certain level of "reserves" proportional to their outstanding risk portfolio. These reserve requirements protect the companies and the public by making sure that the companies can actually cover the risks they insure. These requirements, however, do not apply to investment instruments -- even if the investment instruments effectively operate as insurance and are issued by insurance companies.

AIG made enormous profits during the housing boom because mortgage-related financial instruments proved valuable as housing prices soared, home lending was robust and easy, and home values were skyrocketing. But AIG insured many extremely risky mortgage-backed securities that were formed by bundling subprime and other risky mortgage instruments. When the housing/lending party ended and homeowners started defaulting on their loans, AIG had to cover the losses of those companies with investments it insured.

AIG began losing billions of dollars, but it did not have the reserves to cover its outstanding risk portfolio. To save AIG -- and companies with investments it insured -- the government stepped in to salvage it. To date, AIG has received $170 billion in bailout assistance.

The Government Failed to Place Necessary Constraints on the Use of TARP Funds. During debates over the appropriateness of the bailout, many members of Congress stressed the need for accountability, transparency, and assistance to homeowners. But Congress passed legislation that gave the Treasury Department wide discretion to determine how companies used the money.

In January, some Democrats and Republicans in Congress threatened to block the release of the second $350 billion installment of TARP funds because they wanted more specifics concerning and restraints on the use of the funds. In response, President-Elect Obama marched to Capitol Hill and promised to veto such action. Congress released the funds after the President's veto threat -- an action that would have politically damaged the Democrats.

After his inauguration, President Obama came up with his own plan to create transparency in the use of TARP funds and to prevent wasteful practices among participants in the program. Most industry experts and news media, however, described Obama's regulations as being absolutely toothless. For example, it did not apply retroactively to companies that had already received TARP assistance.

Senator Dodd -- himself a recipient of millions of dollars in campaign donations from the financial sector -- proposed an amendment to the stimulus package that would have done much more than Obama's regulations to constrain the use of TARP funds. Specifically, Dodd's amendment would have severely restrained the ability of TARP recipients to pay executive bonuses, and it would have applied retroactively to companies like AIG that had already received TARP funds.

After the measure passed in the Senate, President Obama, Treasury Secretary Geithner and Economic Policy Advisor Larry Summers expressed disagreement with the provision, which exceeded the constraints in the regulation that Obama and Geithner had already created. At the time, The Hill published an in-depth report on the Obama administration's disagreement with Dodd's effort to constrain use of TARP funds.

Obama's Senior Advior David Axelrod stated that the administration would have a "dialogue" with Dodd in order to "come up with a good approach," an odd position to take given that the measure had already passed in the Senate. Perhaps Axelrod's statement was an indication of things to occur because the bill that emerged from the conference committee did not contain the retroactivity portion of Dodd's amendment and specifically stated that the bonus and salary restrictions did not apply to any employee contract that predated the passage of the statute.

Dodd denies agreeing to the change regarding retroactivity -- even though he voted for the stimulus package. Whether he did or not, it is clear that the Obama administration negotiated limitations on regulations that would have prevented payment of the very bonuses that Obama now finds so outrageous.

Public Will Be Duped Yet Again
The government, including some of its most outraged leaders, failed to regulate credit default swaps, and it resisted efforts to place stronger conditions upon the receipt and use of TARP funds. Now that AIG has become a political embarrassment for its enabler, the enabler is outraged. Regime change -- or at least "sanctions" -- will definitely follow.

Despite the trail of events that show governmental complicity in AIG's profitable-then-costly behavior, the government is skillfully exploiting populist opposition to corporate excess in order to mask its own actions that enabled AIG to transfer money from taxpayers to its executives and to avoid the consequences of its own financial recklessness.

Similarly, the Bush Administration manipulated the country's fear of terrorism and anger over the 9/11 attacks in order to justify waging a war against Hussein whom the U.S. had previously fed arms and other assistance so that Iraq could battle Iran, which had fallen into disfavor with the U.S.

Rather than scrutinizing the government's wrongful conduct, the public is once again falling for the rhetoric and smokescreen. Instead of focusing on AIG, voters should direct their attention to AIG's enabler: the U.S. government. The government essentially gave AIG a blank check. That action should anger the public more than AIG's subsequent use of the money.

Update: Glenn Greenwald is covering the Treasury Department's attempt to blame Dodd when actually the Obama administration demanded that Congress drop the retroactivity clause. Apparently, the New York Times is digging into the matter as well. The administration's "outrage" could potentially become an embarrassment itself.
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