Open Letter to President Obama

Dear Mr. President:

During your Inauguration speech you invited all Americans to participate in the massive undertaking of reviving our failed economy and healing our wounded national spirit.  l am not a financial expert, and am in no position to hire the unemployed or extend badly needed credit to distressed businesses, state and local governments, or families facing foreclosure.  Nor am I much of a cheerleader.  However, I am an observer of human nature and events, and I have decided to contribute to this undertaking by revealing truths about some issues that may be hindering your recovery efforts.  I will do so in a series of open letters, of which this is the first installment.

Let me start by addressing the first massive infusion of public “bailout” funds to certain investment banks and other financial institutions.  Congress directed the Treasury Department to purchase “troubled” (i.e., worthless) assets from those financial institutions, and earmarked billions of dollars for that purpose, in order to enable those institutions to perform their traditional roles as market makers and lenders.  But, as it turned out, Treasury didn’t buy “troubled” assets with that money.  Instead, the taxpayer funds were given directly to the faltering financial institutions whose risky (and, ultimately, disastrous) investment policies–motivated by an unending thirst for more wealth–were in large part responsible for the market crisis. Apparently, this unilateral action by Treasury was based on the theory that the the failing financial institutions whose reckless policies resulted in huge losses could be trusted to make the most appropriate use of public funds to undo the damage they had caused??!!!

This scenario is disturbing on a number of levels.  First, and perhaps most ironic, Mr. Paulson and the newly confirmed Treasury Secretary are reputed to be extremely bright and competent, so I can’t imagine they didn’t realize that the CEO’s and CFO’s of these financial institutions were the same persons who nodded in approval when their firms bought those worthless assets and sold them to their clients.  Do they believe that just because a Wall Street bigshot gets paid millions of dollars a year, wears $2,000 suits, owns multiple homes and flies around in corporate jets he (or she) can be trusted to run a financial institution in a responsible way?  Weren’t those Treasury officials around during Enron and World Com?  How can anyone be surprised that Merill Lynch’s former CEO spent over $1 million to have his office renovated soon after pleading for taxpayer funds to keep his firm from going bankrupt, or that Citigroup (another recipient of bailout funds) was about to buy a $50 million corporate jet?

On another level, Treasury’s conduct would seem to violate the common legal rule that a person who receives property belonging to another for the purpose of making a particular disposition of that property cannot unilaterally decide to dispose of the property contrary to the owner’s instructions.  If you gave your real estate agent 1.5 million to buy a house for you in Chicago, but she unilaterally decided that it would be a wiser use of your money to buy shares in an IPO, which promptly lost all of its value, you would be demanding her arrest in about 3 seconds. But it seems that the folks at Treasury who made the unilateral decision to disregard the statutory mandates for TARP have not only managed to avoid arrest , but are continuing to lead your economic recovery planning efforts.

On yet still another level, we learned earlier this week that, in addition to new corporate jets and swanky office redos, these poster boys of corporate irresponsibility rewarded their loyal employees, and in some cases themselves, with huge bonuses and executive compensation packages. At a Thursday photo op you called those bonuses “shameful” and “irresponsible.” That public statement was a good first step…but hopefully it will not be your last word on these matters.  If our nation’s economic crisis were, by analogy, compared to a state of war, then those reprehensible actions would be equivalent to providing aid to the enemy.  There is no doubt in my mind that most Americans would like to see the persons mentioned above suffer immediate, severe and public consequences for their actions, including prosecution for any violations of criminal law.

Though I hope otherwise, I fear that our current federal criminal laws might not cover the above actions by government officials and financial institution officers.  If I am  correct, that could explain why taxpayer funds are so often squandered by government agencies, contractors and vendors.  There’s very little downside to playing fast and loose with public funds if the players don’t have to fear prosecution.  If prosecution is not possible under our current laws, you might want to seek appropriate changes to the U.S. criminal code, because unless you do something radical to change the pigs-feeding-at-the-trough culture that surrounds the expenditure of federal funds I don’t foresee a positive outlook for your recovery plans in the near future.

Finally, in light of what happened with the first bailout fund, I will end this installment by stating my fervent hope that the bailout package now before Congress will include the following conditions and limitations:  (1) The Board of Directors of any financial institution that applies for taxpayer funds must be required to immediately fire for cause any officer who used funds from the first bailout to pay bonuses or increase executive compensation in any manner; (2) Such Board of Directors also must agree not to hire any person fired by another company because of the first condition (which will prevent a company from circumventing that condition by “firing” a wrongdoer but then arranging with another applicant to hire each others’ fired employees); and, since the alleged reason for the bailout is to encourage banks to extend credit, (3) The Boards of Directors must agree to use a designated portion of the taxpayer funds (to be specified by Treasury and not left to the firm’s discretion) for the sole purpose of extending loans under terms dictated by Treasury.

I’ll say goodbye, Mr. President, until my next installment.  In the meantime, we’ll all be watching your progress in these matters.

Respectfully,

Unabashed Truthteller.