Don't Pay Them Now and We Won't Get Paid Later

The Obama Administration seems to think it can reduce executive pay at these bailed-out banks without any consequences.

First, there is this absurd assumption that people will just stay in their existing jobs after having had their salaries slashed by 90%. This isn't like they are part of some family business and have loyalties that are above pay. They also have a lifestyle that is predicated on those high salary levels. These people are paid those big salaries because they are the educated cream of the business world. That's how they got to where they are; and, that is why they got paid what they did. They are valuable business commodities and I don't think they can't just move on to another corporation; and, not necessarily in the banking community. And, don't think they would be just restricted to the U.S. job market.

Secondly, saving a few million on salaries in comparison to the billions that were given out in bailout money is just dumb math. It will literally take decades to return the billions owed to the taxpayers if Obama thinks that slashing salaries is the mechanism to do that.

Thirdly, if enough of the brains behind the banking industry leave these companies, these banks will flounder. Logic says that if you want the bailout money repaid and repaid quickly, you want the best and brightest to help to achieve that goal. By forcing key employees to go elsewhere, the banks will be left with people who have limited experience and little knowledge of the business. That is a formula for failure. I guess Obama seems to think that a multi-billion dollar bank with complex domestic and international transactions can be run with the equivalent of mail room staff. Today's banking is not simply managing loans, and checking and savings accounts!

Personally, I don't think we'll ever get our money back from these banks. They will probably remain in debt to the taxpayers until they go out of business. But, then, maybe that is the real intention of these pay cuts.

From Bailout To Buyout

The New York Times is now reporting that the Obama Administration wants those banks who were given bailout money to convert the amount of their loans into common stock (See Full Story). If this happens, the banks become, in most cases, majority owned and controllable by our Federal government. In effect, our government has decided to become a "corporate raider" and elected to no longer be creditor as was originally intended and as authorized by Congress. Anyway you shake it, it is the nationalization of our banking system in an end-around fashion. While it might be less heavy-handed and less obvious than Chavez's "eminent domain" kind of seizure of strategic businesses in Venezuela, it is still a form of nationalization and socialization of a key industry in our country.

This is more than just the simple helping back to health of a failing industry. Instead, this is a power-play that is intended to control all businesses in America. That's because all companies and all businesses, at some point in time, need credit from our banks to conduct their business and to expand. If our government is "the bank" by virtue of its majority ownership, that bank can impose strict demands on any business wanting a loan. Those "impositions" can include restrictions on pay and executive compensation. It could mandate "green-only" business operations. Businesses could be told that they won't be given a loan unless or until they cease their overseas operations. Furthermore, just focusing on the bank itself, with the government effectively owning that bank, they can decide who runs that bank; who the board of directors are; and, what business operations that bank can or can't get into.

To me, this is a subversion of any concept of our system of capitalism and the first steps creating a French-like revolution towards a socialist society. Apparently, this has been Obama's plan from the very beginning. Anyone who can't see this is just a fool; and, apparently, there are just too many fools in this country who are willing to let him get away with it.

Geithner Makes Jello

For all the hype by Barack Obama at his news conference of last night and by numerous Democrats and Administration personnel over the last few days, the Geithner plan fell way short of being specific about anything (See Full Story). It is the plan that isn't. Maybe $200 billion? Maybe 1/2 trillion? Maybe, a trillion or more? He doesn't seem to know. Like jello, there's nothing to get your hands around and the stock market followed the release of his plan with a 300 point downdraft. He was supposed to release this plan yesterday. He needed a whole extra day to say what little he said today?

Obviously, a guy that can't do his taxes right shouldn't be in charge of saving this country from its credit problems. (I know that was a cheap shot....but, he well deserves it after this performance!) This is another one of Barack Obama's bad choices. It started with Biden. Then, Richardson. For sure, Daschle. And, the bad choices to run this government just keep showing up. Pre-election, you only have to look at his choices of Reverend Wright and William Ayers to know the this President of ours has demonstrated failure in judging character.

It's Not What Happened But What Didn't Happen

If you listen to our brilliant politicians in Washington, they seem to portray the 1/3 trillion dollars that was spent, last year, as a waste of money. They say that's because, somehow, they expected our economy to have just turned around and, magically, we would be instantly out of the recession.

But, they're missing both the purpose and the effect of what all that original bailout money did. Bottom line... it saved our banking system from collapse. Last year only 26 banks failed and had to be taken over by the Fed. Without the credit bailout and the increases in FDIC insurance coverage, that number could have been at least 10 times, or even a hundred times greater as bank after bank would have failed after having been run on by depositors seeking to withdraw their money. That's what happened in the Great Depression. Let's not forget that the banks were saddled with the cost of covering millions of defaulted home loans which totally reduced their asset values and their ability to raise cash.

Sometimes its what you don't see that is a positive fact. I think this is a true case in point. Sadly, some of our politicians are using the amount of the first bailout to justify spending 3 to 4 times that amount in spending by saying that the bank bailout did nothing. But, it did do something. And, unlike today's spending package, that original banking bailout was specifically targeted. What didn't happen was the secondary belief that banks would start lending again.

Granted, there was a lot of waste in what was done last year. Some now say as much as $78 billion. But anytime there is a necessity to act immediately, this is what happens. To think there won't be waste in this newest and rushed stimulus package is just being naive. There will be waste and a lot of it and that waste will make last year's look like child's play. I need only point to Boston's "Big Dig" project that was supposed to be $2.8 billion (as planned) and wound up costing $22 billion. My guess is that all these shovel-ready projects will turn out much the same way and won't be able to be completed in the 19 month time frame without billions of more dollars in cost overruns being spent and without the typical delays. There's generally two phrases that you never hear associated with any government projects: (1) on time and (2) on budget. I'm not sure, but I think wasteful spending is specified somewhere in our Constitution and it's not exclusive to any one political party. Remember, this is a government that has, in the past, wasted $50,000 for toilet seats and had as much as 10% fraud in their managing of Medicare.