Are We Doing It Right? Not So Much

Let’s see if I have this straight:
The banks are insolvent.
The guys who ran these banks into the ground are still in charge of them.
These “best and brightest” should get a big salary plus bonus on the taxpayer’s tab because if they don’t get the big bucks they will take their talent someplace else.

It seems like there are some pertinent questions that need asking. The first one that comes to mind is, “What exactly is this “talent” that must be retained?” These people have shown a talent for enriching themselves. They have certainly demonstrated a talent for building a house of cards that produces profits during its construction and has its collapse financed by taxpayers. Is this the kind of talent that best serves the interests of a sound financial system? I don’t think so. If these people are our best and brightest we are in deep dodo.

Another question that comes to mind is, “Who is telling us that we need to retain these ‘talented’ people?” Well, just look at that, it’s some of the other talented, best and brightest who have moved from Wall Street to Washington. There’s our former Secretary of the Treasury, Henry Paulson from Goldman Sachs; there’s our current Secretary of the Treasury, Tim Geithner, from Goldman Sachs and Federal Reserve Bank of NY; there’s Director of the White House Economic Council, Larry Summers, stalwart supporter of Milton Friedman’s Free Market theories, who was actively involved in the deregulation of banks which allowed the current meltdown to occur.

When judging the necessity of having these “experts” guide us, it might be helpful to remember two things: First it is generally acknowledged that we haven’t seen anything like this since the Great Depression; second, that means there are no experts because no one has any experience dealing with a situation like this. So using these “experts” amounts to having offenders act as judge and jury in their own cases.

That brings us to the question of whether or not the highly touted compensation cap is effective or just a pacifier to appease the anger of the people. First and foremost, this $500,000 cap does not apply to the previous recipients of bailout money and that includes Citibank and Bank of America. That's a real bummer. And the deferred stock in place of a bonus is nothing more than delayed payment to these people. If taxpayer money saves these companies and they become profitable, the stock value will go up and they can cash out for millions.. Not exactly the “strong” compensation cap that Tim Geithner claimed it is.

Just to add insult to injury, we know that the banking industry has been lobbying aggressively for anti-consumer bills at the same time they have their hands out for government money to avoid bankruptcy. They have spent millions campaigning against bills that would prohibit abusive arbitration practices and even against a bill to hold TARP recipients accountable for how they spend taxpayer funds. Arrogant, self-interested, greedy bankers brought us here and they are only interested in saving themselves while sucking up the last available dollar from anyone naive enough to give it to them.

So… what can we do? According to Simon Johnson, former chief economist for the International Monetary Fund, we need to do the stress test that Secretary Geithner actually outlined in his speech on February 10. As Johnson explained on Bill Moyer’s Journal on February 13:

That's where you go and you check the bank's books, and you say, okay, not only do we use market prices, not pretend prices, not what you wished things were worth, what they're really worth, okay, in the market today. We use that to value your loans and the securities that you have, your assets... And we also assess what will happen to the value of the things you own if there's a severe recession. So you're looking at how the bank's balance sheets will look under stress. And then you say to them, "This is our assessment of the amount of capital you need to cover your losses, and to stay in business, and be able to make loans, through what appears to be a severe recession."

We need to be sure our congressional representatives make this happen.