Barney Frank

Congress Moves to Reinflate the Housing Bubble That Caused the Financial Crisis

by Hans Bader on October 19, 2009

in Bailout Watch, Economy, Features, Politics as Usual, Precaution & Risk, Sanctimony, Zeitgeist

Veteran political commentator Michael Barone reports that liberal congressional leaders are pushing policies to “inflate the housing bubble again,” even though “our financial system broke down because we had, thanks to government policies, a housing bubble.”

Congressional leaders are ignoring warnings from experts across the political spectrum, such as conservative Peter Wallison’s October 16 piece in the Wall Street Journal, titled “Barney Frank, Predatory Lender,” and liberal Charles Lane’s recent piece in the Washington Post, “Doubling Down On the Wrong Housing Policy.”  (Wallison, a banking expert, prophetically warned for years about the risky practices of the government-sponsored mortgage giants, Fannie Mae and Freddie Mac, which were at the core of the financial crisis, and later had to be bailed out by taxpayers at a cost of around $200 billion.)

The Obama administration is also busy promoting the junky, risky mortgages that fueled the housing bubble, showing that it has learned nothing from history.

In the Washington Examiner, Meghan Cox Gurdon explains how housing policies affected two sisters, one responsible and one irresponsible.  The financially-irresponsible sister, who was unable to manage her own finances, and had recently defaulted on a small car loan, ended up getting a taxpayer-subsidized mortgage.  Meanwhile, the responsible sister and her husband were unable to obtain a mortgage loan, despite having an “excellent credit rating” and money for a large downpayment.

Obama administration promotes junky, risky mortgages at taxpayer expense, ignoring history’s lessons

by Hans Bader on October 16, 2009 · 5 comments

in Bailout Watch, Legal, Politics as Usual, Precaution & Risk, Sanctimony

George Mason University Professor Ilya Somin explains how the Obama administration is expanding the awful policies that caused the mortgage crisis, like having taxpayers effectively underwrite risky-mortgage loans by bailing out GSEs at a cost of hundreds of billions of dollars.  Now, the administration is stepping up Federal Housing Administration subsidies for risky, junky mortgage loans that are likely to default in large numbers.

(The Obama administration doesn’t seem to have learned history’s lessons overseas, either.  White House Communications Director Anita Dunn cites as her favorite political philosopher the Chinese communist tyrant Mao Zedong. That may explain why it has sometimes pursued left-wing policies overseas.)

President Obama is also pushing for financial regulations that reinforce the worst features of the status quo.  They would increase pressure on lenders to make the risky, low-income loans that helped spawn the financial crisis.  At the same time, they would worsen the credit crunch by shutting down banking operations known as “industrial loan corporations,” that are convenient for consumers.  Earlier, Obama backed a new law that is wiping out many credit-card rewards programs and rebates, and leading to the return of annual fees on some credit cards.

Even though Obama’s proposals would lead to even more junky loans in the future, both he and Senate banking chairman Chris Dodd (D-CT) claim that his proposals would fight the “status quo.”  But they are part of the status quo.  Dodd is famously corrupt, having received sweetheart loans from the reckless, bankrupt subprime lender Countrywide, and having received a massive gift from a crook, Edward Downe, in the form of a luxurious “cottage” in Ireland he received in a “cut rate real estate deal” for hundreds of thousands of dollars less than fair market value.  Obama was the third biggest recipient in Congress of campaign contributions from the government-sponsored mortgage giants Fannie Mae and Freddie Mac, which went broke, costing taxpayers perhaps $200 billion.  (Fannie Mae was a corrupt bully that engaged in massive accounting fraud and used intimidation to fight reform.)

Banks will now be pressured to make even more risky, low-income loans. Obama has sent to Congress his proposal to create a politically-correct entity called the Consumer Financial Protection Agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.”

Government pressure on banks to make low-income loans was a key reason for the mortgage meltdown and the financial crisis. Yet Obama’s disturbing proposal would empower the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.  The Community Reinvestment Act was a key contributor to the financial crisis.

The mortgage crisis was also caused by the reckless government-sponsored mortgage giants (“GSEs”) Fannie Mae and Freddie Mac, and by federal affordable-housing mandates.

But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury secretary, tax cheat Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”

Worse, Obama’s plan is “largely the product of extensive conversations” with two lawmakers responsible for the corrupt status quo, Chris Dodd and Barney Frank, and it expands the reach of regulations that have been used by left-wing groups to extort pay-offs from banks.

Obama Financial Regulations Make Things Worse, Promote Risky Loans, Destroy Banking and Lending Options

by Hans Bader on September 15, 2009

in Deregulate to Stimulate, Legal, Politics as Usual, Precaution & Risk, Sanctimony

President Obama is now pushing financial regulations that reinforce the worst features of the status quo.  They would actually increase regulatory pressure on lenders to make the risky, low-income loans that helped spawn the financial crisis.  At the same time, they would worsen the credit crunch by shutting down banking operations in retail outlets like Target, known as “industrial loan corporations,” that are convenient for consumers.  Earlier, Obama backed a new law that is wiping out many credit-card rewards programs and rebates, and leading to the return of annual fees on some credit cards.

Even though Obama’s proposals would lead to even more junky loans in the future, both he and Senate banking chairman Chris Dodd (D-CT) claim that his proposals would fight the “status quo.”  But they are part of the status quo.  Dodd is famously corrupt, having received sweetheart loans from the reckless, bankrupt subprime lender Countrywide, and having received a massive gift from a crook, Edward Downe, in the form of a luxurious “cottage” in Ireland he purchased in a “cut rate real estate deal” for hundreds of thousands of dollars less than fair market value.  Obama was the third biggest recipient in Congress of campaign contributions from the government-sponsored mortgage giants Fannie Mae and Freddie Mac, which went broke, costing taxpayers perhaps $200 billion.  (Fannie Mae was a corrupt bully that engaged in massive accounting fraud and used intimidation to fight reform).

Banks will now be pressured to make even more risky, low-income loans. Obama has sent to Congress his proposal to create a politically-correct entity called the Consumer Financial Protection Agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.”

Government pressure on banks to make low-income loans was a key reason for the mortgage meltdown and the financial crisis. Yet Obama’s disturbing proposal would empower the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.  The Community Reinvestment Act was a key contributor to the financial crisis.

The mortgage crisis was also caused by the reckless government-sponsored mortgage giants Fannie Mae and Freddie Mac, and by federal affordable-housing mandates.

But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, tax cheat Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”

Worse, Obama’s plan is “largely the product of extensive conversations” with two lawmakers responsible for the corrupt status quo, Chris Dodd and Barney Frank, and it expands the reach of regulations that have been used by left-wing groups to extort pay-offs from banks

Bonus pay bill: CBO predicts huge costs to private sector, broad swaths of employees affected

by John Berlau on July 31, 2009

in Bailout Watch, Deregulate to Stimulate, Nanny State, Personal Liberty, Politics as Usual, Precaution & Risk, Regulation, Zeitgeist

After the nonpartisan Congressional Budget Office (CBO) calculated the enormous costs of an all-encompassing health care scheme with a bloated public option, members of Congress from both parties asked for more due diligence before rubber stamping the plan.

 Yet today, the U.S. House of Representatives may rush through another piece of poorly designed command-and-control legislation that the CBO just yesterday said could have its own tremendous costs.  Though advertised as giving shareholders more “say” over CEO pay, the “Corporate and Financial Institution Compensation Fairness Act of 2009 [H.R. 3269],” would give the government the power to ban performance bonuses for a wide variety of employees – including even office assistants and clerks – at a wide variety of firms.

 

On Thursday, July 30, the CBO Cost Estimate for the bill, sponsored by House Financial Services Chairman Barney Frank (D-Mass.), found that its mandates would place untold costs on the private sector that could reach upwards of $139 million a year. The CBO report starkly states: “The requirements of H.R. 3269 would impose several private-sector mandates … on publicly traded companies, financial institutions, institutional investment managers, and national securities exchanges and associations.” CBO adds that “because the cost of some of the mandates would depend on federal regulations yet to be established,” the total cost of the mandates may exceed the $139 million a year that under the Unfunded Mandates Reform Act, requires special scrutiny for its effects on the private sector.

 

As CEI has repeatedly stated, regulatory costs should be seen as a tax. And this tax on publicly traded companies – that would frustrate the incentive pay necessary to foster growth in entrepreneurial firms– may put a damper on the recent gains of the stock market and slow an economic recovery.

 

Here is a summary, but by no means all-inclusive list, of destructive provisions of the bill

 

  1. Broad powers to ban a broad array of bonuses for a broad set of employees at a broad definition of “financial services” firms.

 

Section 4 of HR 3269 establishes direct control of bonus pay for all employees of “financial institutions.” Federal regulators could ban what they deem “unreasonable incentives” that lead to “undue risks” for any employee, including a bank teller or a secretary.

 

This mandate would cover a variety of firms, not necessarily financial. The bill defines “financial institutions” to include banks, credit unions, broker dealers, investment advisers as well as well as any other entity that “federal regulators, jointly, by rule, determine should be treated as a covered financial institution for purposes of this section.”

 

These provisions would also likely coincide with sections of HR 3126, establishing a Consumer Financial Protection Agency that would regulate the pay of all employees involved in consumer credit, regardless of industry. This could include cashiers who take credit card applications. The two bills constitute and unprecedented government intrusion into private sector payments.

 

The connection between pay structure and “systemic risk” is tenuous. If financial products pose risk to the system, those products themselves are what should be under more scrutiny. Limiting incentive pay could itself likely lessen financial stability by reducing firms’ ability to reward long-term performance

 

 

 

  1. Why mandate costly say-on-pay mechanisms that shareholders have voted down at many firms?

 

The bill mandates what is called “say on pay” – the annual nonbonding affirmation of pay for top executives at all public companies. What the bill’s supporters overlook is that shareholders now have the freedom to establish say-on-pay at the firms they own, yet they have mostly rejected these schemes to regulate pay when they were placed the proxy ballot.

 

Only a few firms’ shareholders have approved say-on-pay resolutions when they have been on the ballot. Say-on-pay has been rejected by shareholders at companies from Disney to Abbot Labs. This means that most investors thought the process was a waste of time and company resources.

 

Active shareholders have other, more effective ways to align pay with performance, such as through their votes on the structure of compensation plans. So why should Congress impose on them a pay mechanism they don’t want. If Congress has to impose say-on-pay, it should go with a substitute measure by Rep. Scott Garrett, R-N.J., to allow shareholders to opt-out or have pay approval every three years rather than annually.

 

Bottom line: The bill threatens to curtail incentive pay that is crucial to growth and innovation.

 

The American public is justifiable upset at executives of bailed out firms taking bonuses. But they understand incentive pay is needed for everyone from mid-level employees to CEOs for firms to be successful. The heightened concern about Apple Inc. CEO Steve Jobs’ health demonstrates that investors know what a crucial skill set it take to run a top company. Just as the American public is not envious of actors and athletes that make high salaries because of their talents, they recognize that talents should be rewarded in the corporate boardroom too. This bill would limit shareholder choices, reduce incentives for a variety of employees, and put a damper on innovation and economic growth.

Obama Backs Corrupt Status Quo in Financial Rules Overhaul

by Hans Bader on June 23, 2009 · 1 comment

in Bailout Watch, Economy, Legal, Politics as Usual, Regulation, Sanctimony

The mortgage crisis was caused largely by the reckless government-sponsored mortgage giants Fannie Mae and Freddie Mac, and by federal affordable-housing mandates. But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, tax cheat Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.” Worse, Obama’s plan is “largely the product of extensive conversations” with two lawmakers responsible for the corrupt status quo, Chris Dodd and Barney Frank, and it expands the reach of regulations that have been used by left-wing groups to extort pay-offs from banks.

(Fannie Mae engaged in massive fraud and political bullying to thwart reform. It and Freddie Mac lost so much money gambling on the housing market that they were taken over by the Federal Housing Finance Agency, which took them over in the name of ending their risky practices, but instead actually increased their purchases of risky mortgage loans in an effort to artificially prop up the housing market. Obama made Freddie Mac lose $30 billion more after the takeover in order to write off mortgage loans to delinquent mortgage borrowers.)

Worse, Obama’s proposed regulatory blueprint actually increases the pressure on banks to make risky mortgage loans to low-income borrowers, by ratcheting up enforcement of regulations mandating such lending under the Community Reinvestment Act, which was a key contributor to the financial crisis. His financial regulation overhaul would create a new bureaucratic agency, the Consumer Financial Protection Agency, to enforce the Act without regard for banks’ financial safety and soundness.

Obama’s proposed financial rules also let the government take over financial institutions even if they are not broke. That gives the government the ability to seize institutions in ways that favor special interest groups, either by bailing them out at taxpayer expense, or effectively giving their valuable assets away to politically-connected buyers. The administration’s white paper advocates a “regime” that would allow takeovers not only of banks, but also of “nonbank financial firms.” Under it, the government would receive “broad powers to take action with respect to the financial firm,” including “the authority to take control of the operations of the firm or to sell or transfer all or any part of the assets of the firm.”

That could really harm taxpayers. Take a look at what happened at AIG, which was bailed out at a cost of $170 billion. Billions of tax dollars were spent on payments to AIG customers like Goldman Sachs, the wealthy investment bank, which received more money than it ever expected to receive or had any right to receive from AIG. Goldman Sachs is now reporting record profits. Goldman Sachs is one of the biggest donors to the Democratic Party and liberal politicians.

Chrysler is another example of a wasteful federal takeover: after effectively taking over the company and giving it billions of taxpayer dollars that will likely never be repaid, the federal government gave most of the company to the United Auto Workers Union. Meanwhile, it ripped off the pension funds that were legally entitled to be paid back before the UAW received any money.

The government can take even a poorly-run institution and make it run worse. The government took over IndyMac bank, and then used its control to give mortgage bailouts at taxpayer expense. “FDIC Chairwoman Sheila Bair, whom Obama held over because of the liberal policies she pursued in the latter half of the Bush administration (such as strong backing of the Community Reinvestment Act), . . . disregarded taxpayer interests upon seizing the large thrift Indymac and other banks and created a ‘model’ mortgage modification program for thousands of borrowers that wrote off principal on the loans and reduced interest payments to well below market rates. Initial results show a redefault rate in programs like these of more than 50 percent, but Bair and Obama show no signs of stopping this flawed experiment with taxpayer dollars.”

Obama’s proposals would force banks to make even MORE risky loans to low-income people. Even liberal newspapers like the Village Voice have admitted that “affordable housing” mandates are a key reason for the housing crisis and the massive number of defaulting borrowers.

But Obama plans to create a new “Consumer Financial Protection Agency” to stringently enforce Community Reinvestment Act regulations that require banks to make loans to low-income borrowers. Banks make pay-offs to left-wing “fair housing” groups to avoid charges that they have violated the CRA. Obama once represented ACORN, which pressures banks to make risky loans. Obama’s white paper complains that existing agencies do not enforce low-income lending requirements zealously enough because they have a “primary mission . . . to ensure that financial institutions act prudently.” (Pg. 54).

Obama’s demand for more low-income loans ignores the lessons of history. The current mortgage crisis came about in large part because of Clinton-era government pressure on lenders to make risky loans in order to make homeownership more affordable for lower-income Americans and those with a poor credit history, the DC Examiner notes. “Those steps encouraged riskier mortgage lending by minimizing the role of credit histories in lending decisions, loosening required debt-to-equity ratios to allow borrowers to make small or even no down payments at all, and encouraging lenders to use floating or adjustable interest-rate mortgages, including those with low ‘teasers.’”

The liberal Village Voice previously chronicled how Clinton Administration housing secretary Andrew Cuomo helped spawn the mortgage crisis through his pressure on lenders to promote affordable housing and diversity. “Andrew Cuomo, the youngest Housing and Urban Development secretary in history, made a series of decisions between 1997 and 2001 that gave birth to the country’s current crisis. He took actions that—in combination with many other factors—helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments. He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down . . . Three to four million families are now facing foreclosure, and Cuomo is one of the reasons why.” (See Wayne Barrett, “Andrew Cuomo and Fannie and Freddie: How the Youngest Housing and Urban Development Secretary in History Gave Birth to the Mortgage Crisis,” Village Voice, August 5, 2008).

In drafting his financial regulation proposals, Obama has turned to Barney Frank and Chris Dodd, lawmakers who are among those most culpable in spawning the financial crisis. The New York Times reports that “the plan is largely the product of extensive conversations between senior administration officials and top Democratic lawmakers — primarily Representative Barney Frank of Massachusetts and Senator Christopher J. Dodd of Connecticut.” Frank and Dodd were the lawmakers who defeated reform proposals to rein in the government-sponsored mortgage giants, Fannie Mae and Freddie Mac, which later had to be bailed out for hundreds of billions of dollars. Fannie Mae killed reform proposals by paying off liberal lawmakers and bullying critics. Dodd recently attracted criticism for financial and ethical lapses.

Liberal lawmakers have long pressured financial institutions to promote risky low-income loans, to a degree that even Fannie Mae and Freddie Mac eventually found unreasonable. For example, the New York Times reported that “a high-ranking Democrat telephoned executives and screamed at them to purchase more loans from low-income borrowers, according to a Congressional source.” The executives of Fannie Mae and Freddie Mac “eventually yielded to those pressures, effectively wagering that if things got too bad, the government would bail them out.”

As a Washington Post story shows, the high-risk loans that led to the mortgage crisis were often the product of regulatory pressure. Even after banking officials “warned that subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development helped fuel more of that risky lending. Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more ‘affordable’ loans made to these borrowers.”

Barney Frank Asked about Executive Pay Curbs; Throws Tantrum

by Ivan Osorio on June 11, 2009

in Bailout Watch, Deregulate to Stimulate, Economy

Rep. Barney Frank (D-Mass.) appears to be working in tandem with the Obama administration on making executive pay subject to shareholder votes. That seems fair enough; shareholders deserve some say over companies in which they have a stake. However, as CNBC “Squawk on the Street” host Mark Haines noted in an interview wiht Rep. Frank this morning, the nature of such ownership complicates things.

As Haines noted, many public company shares are in the hands of large institutions — he mentioned mutual funds specifically — not “mom and pop” owners saving for their retirement. Those funds invest their assets on behalf of somebody else, namely individual investors, who are removed from corporate shareholder decision making by virtue of going through sucn an intermediary. What was surprising to Haines making this point was Rep. Frank’s reaction. He did not address this specific point, got agitated, and ended the interview.

This begs the question: What role does Barney Frank  envision for institutional investors in corporate decision making? One large category of institutional investor comprises union pension funds, which, as Diana Furchtgott-Roth of the Hudson Institute notes, are seriously underfunded, in part due to union bosses using those funds to advance political causes that do nothing to increase shareholder value. The fact that the unions that control these funds are major donors to Democratic politicians make that question awkward, but especially worth asking.

Video below. The interesting part begins at 4:50. (Thanks to Margaret Griffis for the CNBC video.)

A Bounty on Your 401(K)

by Hans Bader on April 6, 2009

in Bailout Watch, Economy, Legal, Personal Liberty, Politics as Usual, Regulation, Stimulus to Nowhere

The Obama Administration’s mortgage bailout for irresponsible borrowers (including wealthy borrowers with modest mortgage payments) provides a bounty for reckless sub-prime mortgage lenders like Countrywide to rip off your retirement plan. Countrywide sold its junky mortgages on Wall Street, where they ended up being owned by mutual funds that probably are in your 401(K). But it continued to service the mortgages and make money doing so.

Now, the Obama Administration is offering Countrywide $1000 to cut each of those mortgages — which it doesn’t even own — and $1000 a year for subsequent years in which it continues to service those reduced mortgages. So Countrywide is busy modifying thousands of mortgages it services, which aren’t even its property anymore — even though binding contracts say it can’t do that. When investor Bill Frey stood up to Countrywide earlier and sued it, he was demonized by Congressman Barney Frank, who spawned the mortgage crisis by blocking needed reforms and promoting risky loans in the name of “affordable housing.” Now, a bill pending in Congress would abrogate those binding contracts to enrich Countrywide at the expense of America’s savers. (The bill is being pushed by liberal Congressional leaders with the support of the left-wing groups ACORN and the National Community Reinvestment Coalition).

You may also have been ripped off if your mutual funds bought shares of the mortgage giant Freddie Mac, which the Obama Administration forced to incur $30 billion in losses to cut the principal and interest on the mortgages of delinquent and at-risk borrowers. My retirement plan contained shares of the mutual fund Legg Mason Value Trust, which owned a ton of shares in Freddie Mac.

Bailed-out mortgage borrowers are now defaulting by the thousand on their new, taxpayer-subsidized loans, which isn’t surprising, given that many of them ran up so much non-mortgage-related debt that they can’t afford even the small, reduced mortgages they received courtesy of the taxpayer.

Mortgage servicers have an incentive to modify mortgages at taxpayer expense to make them lower than necessary even if a responsible borrower could easily afford them. Why? because no borrower is going to refinance to get rid of a low mortgage. But many of them will refinance later on to pay off a high mortgage. So mortgage services will use taxpayer bailout money to cut interest and principal on mortgages that a responsible borrower could easily afford, in order to keep borrowers from paying off their mortgage.

The bill to allow mortgage servicers to abrogate the contractual rights of investors is backed by ACORN. ACORN, a beneficiary of the economy-shrinking $800 billion stimulus package, helped spawn the mortgage crisis by promoting “liar loans.” It has also engaged in extensive financial fraud and vote fraud. The Obama Administration has chosen ACORN to help conduct the 2010 census, which will be used to reallocate seats in Congress.

Obama’s $250 billion bailout for irresponsible borrowers is yet another breach of his campaign promise to enact a “net spending cut,” which seems to be just as forgotten as his broken promise not to raise taxes “in any form” on anyone making less than $250,000 a year.

Losing talent in these perilous times

by Fran Smith on March 26, 2009

in Bailout Watch, Economy, International, Nanny State

We’re beginning to see the talent exodus from TARP-funded financial institutions.  Yesterday in an op-ed Jake DeSantis of AIG-Financial Products wrote his “resignation letter” saying why he was leaving AIG.  One major reason was the raging mob calling for the heads of those who received retention payments, now called bonuses, and the tepid defense that AIG’s $1-per-year chairman gave before Rep. Barney Frank’s rabid committee.

Today we learned from the Wall Street Journal that several top managers at Banque AIG in France are leaving, which experts say could cause defaults in $234 billion of derivative transactions.  That’s because Banque AIG has to get French banking regulators to approve their replacements.  If the regulators instead put in their own manager that could lead to defaults, since under the derivative contracts, such an appointment would mean a change in control and could null the contracts.

On top of that, two top Merrill Lynch strategists are leaving Banc of America Securities-Merrill Lynch research unit.

Retention payments to try to keep good managers in these trying times — to help resusitate ailing and failing financial firms — seem like a good idea, but not in the face of mob frenzy whipped up by policymakers and so-called community groups like ACORN, which has been leading protests and bus tours to point out “bonus” recipients’ homes.

An earlier post had speculated that London’s financial center could grow in power with U.S. financial talent being driven out.  But that was before vandals attacked the Edinburgh home of the former head of the Royal Bank of Scotland, where they broke windows in his house and his car.  Is London still safe from the anti-capitalist mobs that have threatened chaos at the G-20 meetings next week?  Don’t bet on it.  They too have been stoked up by policymakers’ — and world leaders’ — anti-capitalist rhetoric.

A Cynical Poison-Pill Bill

by Hans Bader on March 19, 2009 · 2 comments

in Bailout Watch, Economy, Politics as Usual, Sanctimony, Stimulus to Nowhere

Yesterday, liberal lawmakers, after publicly blasting the multi-million dollar AIG bonuses as undeserved and excessive, privately voted down GOP proposals to limit them. (AIG is a major donor to liberal politicians, such as Obama, who received more than $100,000, and Chris Dodd (D-CT), who received $280,000. AIG’s contributions over the last 6 years have gone mostly to Democrats).

Today, however, they are pushing legislation to impose a 90 percent tax on bonuses, not just at AIG, but also at other, healthy banks that received federal funds (which did so under pressure at the Treasury Department’s urging so that less healthy banks that really needed the money would not be stigmatized by receiving it). The legislation just passed the House by a 328-to-93 vote.

They are doing this for transparently political reasons. If conservatives vote against the proposal, liberals can turn it into a campaign issue, and neutralize their own political damage from having previously protected the AIG bonuses. (The Senate Banking Committee Chairman, Chris Dodd (D-CT) inserted language into the stimulus bill protecting the AIG bonuses, then lied about it. He says he stuck in the language at the request of the Obama Administration. Dodd has attracted ethical controversy for receiving a sweetheart deal from the sub-prime mortgage lender Countrywide, which helped spawn the mortgage crisis).

And if it passes, liberal lawmakers can use it to threaten further restrictions on employee compensation in the business world, such as in conservative-leaning industrial sectors that have given them few campaign contributions in the past.

House Banking Chairman Barney Frank (D-Mass.) wants to extend compensation limits to “all financial institutions,” regardless of whether they receive public funds, and perhaps “all U.S. companies.” Given the strong liberal majorities that current hold sway in Congress, the mere threat of that happening will probably trigger big campaign contributions by companies and businessmen seeking to buy him off and avert his wrath. (Frank helped spawn the mortgage crisis by blocking reform at Fannie Mae & Freddie Mac, which are now being bailed out at a cost of more than $200 billion, and by pushing risky loans in the name of “affordable housing“).

Congressman Jerry McNerney (D-Cal.) has argued for a 90 percent tax rate on all high-income households in the U.S. Even this rate would be insufficient to pay for all the new spending proposed by the Obama Administration, given the $8 trillion in spending commitments incurred as a result of all the bailouts, which will shrink the economy, and benefit even illegal aliens, people who lied on their loan applications, and high-income homeowners with modest, conventional mortgages.

$8 Trillion in Bailouts; Undeserving Rich Benefit

by Hans Bader on March 8, 2009 · 8 comments

in Bailout Watch, Economy, Employment, Labor, Politics as Usual, Precaution & Risk, Sanctimony, Stimulus to Nowhere

Federal bailouts and related spending proposed by the Obama Administration now total 8 trillion dollars, according to the American Institute for Economic Research.

To pay for exploding federal spending, Obama’s Congressional allies are mulling huge tax increases. Rep. Jerry McNerney (D-Cal.) wants a 90 percent tax rate. Obama has spent more in his first 50 days, by far, than George Bush spent on the entire Iraq War. That includes a pork-filled $800 billion stimulus package that deceptively repealed welfare reform, and that the Congressional Budget Office admits will cut the size of America’s economy in the long run by exploding the national debt.

The bailouts and new spending will benefit many undeserving people who are well-to-do. The Treasury Department’s recently announced mortgage bailout will bail out irresponsible mortgage borrowers with big homes, high incomes and normal mortgage payments, covering mortgages up to $729,750.

People are suffering across much of the country, but not here in Washington, D.C., where the White House is throwing lavish parties and well-to-do residents are being enriched at taxpayer expense by Obama’s expansion of government. The expected hiring of up to 250,000 new bureaucrats by the Obama Administration is helping to prop up home values in Washington’s inner suburbs, while siphoning money out of less fortunate regions of the country. The bureaucrats’ pay will likely be much better than that of the far-more-numerous private sector employees whose jobs are being lost as a result of Obama’s deficit spending, which will crowd out private investment. Expensive restaurants and sellers of luxury goods in Washington, D.C. still seem to have plenty of business. My spend-thrift liberal neighbors, who have a second mortgage, are spending as conspicuously and prodigiously as ever.

The $800 billion stimulus package also subsidizes groups that helped spawn the mortgage crisis, like ACORN, which promoted “liar loans” and engaged in financial fraud and vote fraud.

An ally of ACORN, the Congressman Barney Frank, (D-Massachusetts) helped spawn the mortgage crisis by blocking needed reforms of the bankrupt government-sponsored mortgage giants, Fannie Mae and Freddie Mac, and backing “affordable housing” mandates that resulted in risky mortgage loans. But now this hypocrite wants a one-sided inquisition into who caused the crisis!

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