Lawyer says White House 'Directly Threatened' My Client

"One of my clients was directly threatened by the White House, and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight. That's how hard it is to stand on this side of the fence," attorney Tom Lauria said.

Just Who Is Protecting Whom from the Pitchforks?

Obama's got it wrong. It's the bankers who will pull his and the Democratic Party's chestnuts out of the fire.

image from Now Public
article from Pajamas Media
April 10, 2009
by Eric Florack

America’s bankers lack backbone.

Maybe I’m being unfair to the current crop of bankers. After all, the problem has always existed. It’s just that it has come to a head recently because we have a political power structure in place that clearly plans to take advantage of that perceived weakness. As a rule, financial types are not exactly noted for their bravery. And we all know, as was demonstrated on 9/11, predators tend to attack where they see weakness — particularly if they anticipate some gain for themselves.

So it was recently when we saw a Democratic president of the United States suggesting that his administration was the only thing standing between the bankers and the pitchforks.

To anyone who has been watching the events unfolding recently and understands the causes of those happenings, the statement of the president was absurd on its face. The issue, of course, is that most people today really don’t have much of a grasp of economics. Thus, any Democratic Party propaganda offered to explain away Democratic/big government culpability in the current financial mess will have far more credibility than it would with people who do understand economics. Most Americans might say, “Well, I don’t know this stuff, but he must — it sounds reasonable.” So along comes President Obama trying to push the image of the bankers being the problem. And of course his supporters, who know little to nothing about economic matters, nod in unison like so many bobblehead dolls glued to the dashboard.

But it’s not true.

Very seldom do economic crises occur without government being at or near the root of the problem. So it is with this crisis.

This is not a failure of regulation of any kind, particularly of banking. Nor is it a failure of free markets. Rather, it’s a failure of over-regulation and a lack of free markets. In short, it’s a failure of government. Governmental interference in the market requiried bankers, for example, to make loans to people who couldn’t afford them. Fannie Mae and Freddie Mac — government-created entities — helped to create this artificial boom, and government also caused the bust by way of serious mismanagement.

The scheme got Democrats lots of votes and created a lot of very rich Democratic cronies (including players within the current administration), but eventually all fell apart because the people who benefited in the short term from these government-imposed loan deals couldn’t pay their mortgages. Of course, the people who passed the law forcing the banks to make those loans don’t pay for it; you and I do. And the banks, which were simply following the law, get the blame for the government-mandated mess.

Obama’s efforts at solving the financial crisis are less than successful because you can’t use government to solve a problem created by government. The president would like us to forget this fact because to admit it would mean he would have to confess that government was the problem. That is something a big government Democrat will never do.

Such an admission would also force the Democrats into the uncomfortable position of admitting there was a logical business reason for some folks not getting home loans — a reason that had nothing to do with the rich, racism, or any of the other Democratic Party codewords. Since those same people who got loans they couldn’t afford are among the Democratic Party’s core group of voters, that’s not going to happen.

Clearly, it is in the political interests of the Democrats to make us forget it was government, and not the bankers or anyone else, who created this problem. This effort would doubtless be aided by the perception on the part of the voters that Obama’s not the problem but the solution, which was part of the president’s message in that “pitchfork” line.

It sure doesn’t help that we have so few true fiscal conservatives and free-market thinkers in government right now. If we had more of them (and people of courage to boot), we could see honest discussions of the problems and the solutions. We’d actually see people in government propose the unusual idea that government is the problem and thus can’t be the solution. Then again, given the Democrats’ hold on all three branches of government, one can hardly expect such miracles to occur within those marble halls.

But imagine what would have happened if one or more of the bankers in that meeting with Mr. Obama had had the courage to stand up and remind him of of the facts:

“No, Mr. President. The only thing between the Democrats and the pitchforks is us, the bankers, and that’s the way it always has been. You Democrats used us to buy votes with home loans, requiring us to lend money to people who could not pay it back. You left us holding the bag, Mr. President — you and the rest of the Democrats then in Congress. And you need our cooperation to save your political hide from the people with the pitchforks.”

One can only conclude we’d all be in better shape (both from a financial standpoint as well as from the standpoint of freedom) if the bankers showed that kind of mettle. Trouble is, I fear, such courage is not in them.
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Fed Told Banks to Stay Mum on ‘Stress Test’ Results

Anyone had enough of this BS yet? I know I have. This is an absolute manipulation of the stock market by Geithner.

Rees

By Bradley Keoun and Scott Lanman

from Bloomberg

April 10, 2009

April 10 (Bloomberg) -- The U.S. Federal Reserve has told Goldman Sachs Group Inc., Citigroup Inc. and other banks to keep mum on the results of “stress tests” that will gauge their ability to weather the recession, people familiar with the matter said.

The Fed wants to ensure that the report cards don’t leak during earnings conference calls scheduled for this month. Such a scenario might push stock prices lower for banks perceived as weak and interfere with the government’s plan to release the results in an orderly fashion later this month.

“If you allow banks to talk about it, people are just going to assume that the ones that don’t comment about it failed,” said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia.

Regulators are using the tests to determine whether the 19 biggest banks have enough capital to cover loan losses during the next two years if the economy shrinks, unemployment surges and housing prices keep declining. The tests are a linchpin of the plan Treasury Secretary Timothy Geithner announced in February to bolster confidence in the nation’s banks and restore financial-market stability.

Geithner has likened the stress tests to those used by doctors to evaluate a patient’s health. They’re designed to mesh with the administration’s effort to remove distressed mortgage assets from banks’ balance sheets. The Fed is overseeing the administration of the tests, people briefed on the matter say.

Progress Report

President Barack Obama is scheduled to get a progress report on the tests today during a meeting with his economic team. Geithner will attend, along with Federal Reserve Chairman Ben S. Bernanke and Sheila Bair, chairman of the Federal Deposit Insurance Corp.

Goldman Sachs plans to report first-quarter earnings April 14, followed by JPMorgan Chase & Co. on April 16. Citigroup reports April 17, and Morgan Stanley announces April 21. All four banks are based in New York.

Spokesman for the banks declined to comment. [to avoid arrest - my comment]

“No matter what the result, the stress tests are going to move markets,” Camden Fine, president of the Independent Community Bankers of America, said in an interview yesterday. “That’s the tricky part. If they don’t give out enough information or the information is presented in the wrong way, that could cause markets to plunge.”

Silent on ‘Process’

Banks should stay silent because a focus on the tests would be “a harmful distraction” from earnings, said Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable in Washington.

"It is premature for banks to talk about the stress tests,” Talbott said yesterday. “They aren’t finalized yet and there is no framework to evaluate the results.” [if there is no framework to evaluate the results, how did they establish the framwork for the stress tests? - my comment]

Wells Fargo & Co. Chief Financial Officer Howard Atkins declined to discuss the tests yesterday after his bank reported a record first-quarter profit that beat the most optimistic Wall Street estimates.

“We haven’t commented on regulatory matters and we won’t start now,” Atkins said in an interview. “We don’t comment on the process.”

In a separate interview later, Wells Fargo spokeswoman Julia Tunis Bernard declined to say whether the bank had been told by regulators to keep silent. “We don’t comment on our discussions and conversations with regulators and officials,” she said.

Under the Treasury’s plan, banks would have six months after the reviews to raise any new capital they might need. If the money isn’t obtained from private investors, the government will provide the funds from the $700 billion bank-rescue plan.

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Is Silicon Valley a Systemic Risk?

Obama and company are doing whatever they need to in order to have control over all major corporations. I think the banks, etc., should file a lawsuit against the government, with the defendents being Obama, Geithner, Bernanke and a few others. It needs to be done so this issue can make it to the Supreme Court and we can hopefully stop this unconstitutional breach of power.
Rees

Treasury decides to treat venture capitalists like hedge funds.

from The Wall Street Journal
by JAMES FREEMAN
April 9, 2009

The Obama administration wants to regulate venture capital firms to prevent systemic risks. Silicon Valley residents are scratching their heads and asking: What risks? The rest of us should ask why Washington is targeting a jewel of the American economy that had nothing to do with the housing bubble.

The confusion began when Treasury Secretary Timothy Geithner recently told Congress that large venture capital (VC) firms should be forced to register with the Securities and Exchange Commission (SEC), and submit regular reports on their investors and portfolios. Data collected by the SEC would then be shared with a new risk regulator to ensure that VCs aren't "a threat to financial stability."

Since then, venture investors have been trying to solve the mystery of how they could possibly threaten the financial system. Their work involves very little banking. Venture firms raise equity from wealthy investors to buy ownership stakes in small companies. The VCs and the companies in which they invest use little or no debt.

"I cannot imagine any venture fund being of a size to pose 'systemic risk,' so they either don't understand the nature of the business, or by including this provision they are sharing that their agenda is not the overt one disclosed," says Jack Biddle of Novak Biddle Venture Partners. What Washington needs to understand is that bank-style regulation could destroy the culture that created the microprocessor.

In justifying new SEC registration requirements, Mr. Geithner said that Bernie Madoff's Ponzi scheme demonstrated that investors need more protection. He didn't mention that Madoff's firm was registered with the SEC as an investment adviser and had also been regulated by the SEC for decades as a broker-dealer. Also, Madoff was not running a venture firm.

The entire venture capital industry is smaller than the Madoff fraud. VCs invest a total of $30 billion each year, far less than one-tenth of 1% of U.S. financial transactions. Venture investors -- affluent individuals and institutions -- are putting up equity and know that they can lose it all. SEC regulation could have the same negative impact on them that it had on Madoff's investors: creating an illusion of safety in what is an inherently risky endeavor. Or the regulation could become so severe that it actually does eliminate risk from venture investing, killing the innovative ideas that can only be funded by risk-takers.

The fact that VC money is small potatoes compared to Wall Street money doesn't mean we wouldn't notice if the industry were regulated out of existence. Venture investments helped build Intel, Apple, Google, Amazon and Cisco, to name just a few. Is Mr. Geithner sure that he has a better model?

Since the Treasury secretary lumped venture capital into a category with hedge funds, there's a question of whether something has been lost in translation between Washington and Silicon Valley. Mr. Geithner says that he needs to make sure that private investment firms are not overleveraged. But leverage is such a small factor in the venture world that the trade association for venture capital firms doesn't even collect data on it. Responding to the Treasury plan, the National Venture Capital Association is now seeking more information. Will they discover dangerous levels of debt piled on such shaky foundations? Don't bet on it.

The only people threatened when a start-up goes bust are its small group of employees and investors, and they wouldn't have it any other way. Says Mr. Harrick, "You've got people willing to take risks. In fact, they need to have a tolerance not just for risk, but for the potential of outright failure."

If our economic system is to thrive, venture capital is exactly the place where we have to encourage risk. In pursuit of innovations that will enrich themselves and the world, employees at start-ups accept low pay and reputational risk, while well-heeled investors accept the possibility of losing every nickel of their investment.

Attempts to limit risk pose a systemic threat to American technology. Venture capitalists, mainly veterans of the tech industry, are deeply involved in the companies they back, often helping to recruit each of the key employees at a start-up. This hands-on feature of venture investing means that innovative companies and their backers tend to cluster in areas like Silicon Valley. If the VCs move offshore, that's probably where the next generation of companies will be born.

Even if one wishes to be paranoid about systemic risks, it's hard to imagine how tiny tech companies could be ground zero in a future credit bubble. The politicians aren't driving capital into this business. Fannie Mae and Freddie Mac don't provide cheap financing to VCs. Major credit-ratings agencies don't grade start-ups, so there will be no government-distorted judgments of creditworthiness. Neither VCs nor the companies they fund issue bonds or CDOs or CLOs. There's no Technology Community Reinvestment Act. Moral hazard? Not in Silicon Valley. No tech-company founders or VCs could possibly believe they are too big to fail.

Washington-created failure is what riles Cypress Semiconductor CEO T.J. Rodgers. In a recent email, he notes that this isn't the best moment in history to add another burden to America's tech industry. Very few start-ups have gone public in recent years, thanks in part to the multimillion-dollar compliance costs imposed by the Sarbanes-Oxley law in 2002, the last time Congress sought to re-regulate corporate finance.

Says Mr. Rodgers, "First, Sarbanes-Oxley mandated byzantine corporate bureaucracy to 'protect' investors. Then, the SEC damaged the Silicon Valley economy by forcing companies to count stock options twice, both as dilution and as expense. As a result, Silicon Valley, for decades the bright spot of the American economy, produced only one [initial public offering] in all of 2008.

Now, Geithner wants to regulate venture capital firms to protect us some more. It's like watching children deface an economic work of art."

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A crisis Obama won't waste

April 8, 2009
By Dick Morris & Eileen Mc Gann
from The Jewish World Review.com

This economic crisis is too useful for Obama to want it to end. When Rahm Emanuel — and later Hillary Clinton — spoke of never letting a good crisis "go to waste," many people were shocked. But now Obama seems to embody the corollary: that the crisis should continue until he has thoroughly milked it to reshape American politics, society and the economy. Like Faust, he seems to wish that this "given moment" will "endure forever." Unlike Faust, however, he will not lose his "life and soul" to such a wish. He'll sacrifice ours instead.

First came the "stimulus package." With only about $185 billion of its $800 billion in spending to be spent in 2009, Obama clearly never intended the spending to be about stimulus but wanted the need for a stimulus to trigger the spending he wanted anyway.

Then came the Troubled Asset Relief Program (TARP) funding, often forced down banks' throats. Now comes word that even as banks want to return the money, the Treasury is making them keep it. One source at a TARP bank reports that Treasury Secretary Timothy Geithner is insisting that banks go through their "stress test" before refunding the TARP money. As Stuart Varney speculates, in The Wall Street Journal, Obama wants the banks to keep the money so he can enforce his regulations on them.

Now comes Geithner's plea for extra regulatory powers and Obama's concession to global economic regulation at the G-20 summit. Both moves are game-changers for any major American business. Geithner wants the power to take over any business — presumably in any field — whose failure would imperil the national economy. Today it's banks, brokerage houses, car companies and insurance firms. Tomorrow? Who knows?

And Obama agreed to agree on international "high standards" for the regulation of all "systemically important" companies to be promulgated by the new global Financial Stability Board (FSB). The United States, occupying one of 20 chairs on the FSB board (21 if we count the EU), will come to a consensus with other central bankers from the G-20 nations on what these regulations should say. Then the Securities and Exchange Commission, the Federal Reserve and the other regulatory arms of the U.S. government will impose them on our economy.

(Some have objected that Congress needs to be consulted, but as long as the agreements are "voluntary" and the U.S. agencies are merely "asked" to impose the regulations, no further grant of congressional authority is needed. But, of course, there will be nothing voluntary about the administration's demand that the agencies implement the coming FSB directives, no matter how intrusive they may be.)

And, finally, there is Obama's delegation of a total overhaul of the tax code to a commission headed by Paul Volcker with a mandate to report back in December of this year.

So with the tax code totally changing, Europe about to formulate regulations for our economy, the U.S. government empowered to take over any large company, the deficit and spending reaching unbelievable levels and the feds insisting on continued control of banks, what businessman in his right mind is going to invest in anything? How could even the most foolish optimist pull the trigger on a business investment without knowing the tax consequences, the regulatory framework and the policy of the banks on lending?

But Obama knows all this. He knows that his steps will delay economic recovery. But he wants these changes, not as means to an end, but as the end itself. And he is determined to get them passed and set in stone while the rubric of "crisis" justifies his doing so.

He is not unlike a leader who takes his country into war, knowing that by "wagging the dog" he can reinforce his power.

But ultimately, does Obama care if he is reelected? Doesn't he know that he needs a good economy to extend his mandate to eight years? Yes, of course he does. But he probably figures that he can turn the economy around as Election Day 2012 draws nearer and reap all the credit then. In the meantime, no good crisis should ever go to waste.

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Taxes, Death and wait a minute...more taxes!

Marriage is until Death do we part - Taxes follow the White Light!

from The Real World

April 05, 2009

It appears that Democrat pols in Congress are doing their very best to bring back the onerous death tax on the estates of those who have passed into the great beyond. For most people who own property, be it their own home or the family farm, the vacation cabin or a rental property, that means you.

Thus after a lifetime devoted to working, earning, saving and investing, when you reach your expiration date, the government is going to take one last bite out of your backside on your way out the door. (What does that mean if government controls health care and denies your life saving surgery in order to accelerate access to your estate? But I digress.)

So here is how the tax man will be knocking at your door over the course of your existence.

1. Federal income tax on every penny you earn;

2. State income tax on same in most states;

3. Sales tax on almost everything you buy from first to last;

4. Car tax, gas tax, airport tax, hotel tax, and so on;

5. Fees and licenses of every kind imaginable;

6. Oops, don't forget property taxes!

Thus after paying taxes of all varieties throughout life, the government decides to once again tax what you have left over and managed to save and invest. Seems fair, doesn't it? Work, earn, pay taxes, pay the cost of living for yourself and your family, save what you can, invest what little might be left over after all of that expense and thereafter, in the end, pay taxes on the money leftover upon which you have already paid taxes. Earn a lot, keep a little. Great.

Government is not the solution, it is without a doubt the problem. Even into the hereafter.

Death, Taxes And A Very Bad Budget

from INVESTOR'S BUSINESS DAILY

Budget: Hidden in a footnote deep in the budget is a resurrection of the death tax. If you think this only affects rich people handing down their silver spoons to spoiled children, you're sadly mistaken.

Part of the Bush tax cuts was a provision that would wind down the estate tax from its existing 55% to 45% in 2009 and then to zero in 2010.The estate tax had taken the majority of a dead person's estate valued at over $3.5 million for an individual or $7 million for a couple.

Like the rest of the tax cuts, it was temporary. The estate tax repeal, unless made permanent, would rise like Dracula from the grave in 2011 to once again wreak havoc with those seeking to pass on their success to their heirs.

For the Obama administration, a year without an estate tax is a terrible thing to waste.

If you actually read the budget, which few do, particularly congressmen, you find this footnote on Page 127: "(T)he estate tax is maintained at its 2009 parameters."

The first Bush tax cut has been, in effect, repealed — part of the age of "fairness" we now all inhabit.

We are determined to keep or raise the capital gains tax, for example, even though to do so would lose revenues. As President Obama said when it was explained to him, we should still do it in the name of fairness.

It is the same with what many call the death tax. You can't take it with you, but the government can take it from you in the name of fairness and spreading the wealth, your wealth, around.

Some say the death tax only affects the very, very rich. But that's not the point. It's still their money.

What exactly is fair about a tax that taxes everything twice? Those who make good have already paid taxes in many forms accumulating that wealth.

Why should they be taxed because they worked hard, became successful, and want to pass on the fruits of their labor to their children?

While dubbed the "Paris Hilton" tax, the death tax hurts everybody.

"By and large, the death tax is borne by people who own small businesses, who haven't had the benefit of big corporate lawyers and big corporate accounting offices to prepare them for paying this tax," says William Beach, a senior fellow in economics at the Heritage Foundation.

"People who aren't wealthy, who may have built up value in land over generations and many family farms find themselves in situations where they've got to sell the farms in order to pay the taxes," says House Minority Leader John Boehner, R-Ohio.

In an economy that is starved for capital, the death tax is dangerous. Even Obama's top economic adviser, Larry Summers, said in a study he co-authored in 1980: "The evidence presented indicates that intergenerational transfers account for the vast majority of aggregate U.S. capital formation."

Two of President Clinton's chief economic advisers, Joseph Stiglitz and Alicia Munnell, have written extensively on the impact of the death tax on capital formation.

The Joint Economic Committee has calculated that the death tax has reduced the stock of capital by $847 billion, money that can't be used to expand or start businesses or hire more people.

A new study by the American Family Business Foundation, written by economist Douglas Holtz-Eakin, finds that the death tax is responsible for lowering overall employment by 1.5 million jobs. It takes capital out of the productive hands of entrepreneurs' descendants and heirs and into the unproductive hands of government.

The death tax is about class envy, every bit as much as was the famous luxury tax of the 1990s, meant to punish yacht buyers. Remember that one?

It only succeeded in punishing yacht builders and the workers they employed, not yacht owners, and when the damage to jobs was surveyed, it had to be repealed.

As has been said, families shouldn't be required to visit the undertaker and the tax collector on the same day.

We doubt that those who said give us liberty or give us death meant death to be a taxable event

Click to read the IDB article

Geithner Needs More Power - Voids The Constitution

U.S. May Oust CEOs at Banks Needing ‘Exceptional’ Aid

By Jesse Westbrook
April 5, 2009

(Bloomberg) -- Treasury Secretary Timothy Geithner said he’s prepared to oust the senior management and boards of directors at banks that require “exceptional” assistance from the U.S. government.

“If in the future, banks need exceptional assistance in order to get through this, then we will make sure that assistance comes,” while ensuring taxpayers are protected, Geithner said today in an interview on the CBS “Face the Nation” program. “Where that requires a change in management and the board, then we will do that.”

Geithner noted that American International Group Inc., Fannie Mae and Freddie Mac had their chief executives removed after it became clear the companies couldn’t survive without government rescues. The Treasury is reviewing how much capital the biggest U.S. financial companies need in order to endure a severe economic downturn.

“Where we’ve had to do exceptional things,” the government has replaced management and boards of directors, Geithner said.

Geithner’s pledge comes as signs emerge that the world economy may be stabilizing. Confidence among U.S. consumers climbed last month from the lowest level on record, according to the Conference Board. U.K. house prices rose in March for the first time since October 2007, while Chinese manufacturing increased, reports last week showed.

Compensation Limits

The Treasury secretary pledged to enforce congressional legislation that limits pay at companies receiving government loans. Geithner said the Obama administration has no intention of letting banks get around the rules.

“Our obligation is to apply the laws that Congress just passed,” he said. “We want the American taxpayer’s assistance going to generate greater lending, not providing excess compensation.”

Treasury last month proposed a public-private partnership to spur investors to buy -- and banks to sell -- the illiquid real estate assets clogging lenders’ books. The program relies on financing from the Federal Reserve and debt guarantees from the Federal Deposit Insurance Corp., and it could use up to $100 billion from the government’s bank-rescue fund.

Geithner, responding to a question about whether rules approved by the Financial Accounting Standards Board last week may deter banks from participating, said Treasury will make sure companies do what’s needed to clean up their balance sheets.

‘Do What’s Necessary’

“We will do what’s necessary to make sure our banking system emerges out of this stronger,” he said. He declined to say whether Treasury will force banks to sell assets.

Norwalk, Connecticut-based FASB voted on April 2 to let banks use “significant” judgment in gauging how much securities are worth. Richard Dietrich, an accounting professor at Ohio State University, said the change may discourage financial companies from selling securities because it may allow them to avoid writing down the value of their holdings.

Geithner, who accompanied President Barack Obama to London last week for the meeting of the Group of 20 policy makers, also said the administration will “keep acting as forcefully as we can” to pull the nation out of a recession.

At the summit, the world leaders called for tougher oversight of hedge funds, executive pay, credit-rating firms and derivatives trading. They also boosted funding for the International Monetary Fund, increasing its resources to $1 trillion.

‘Turning Point’

Obama called the event “historic” and predicted it will be a “turning point” for economic recovery across the world.

Geithner is pushing for an overhaul of financial rules that calls for putting big hedge funds and private-equity funds under stricter federal supervision, as well as regulating derivatives markets. He’s also seeking new powers for the government to seize and wind down nonbank financial companies whose size poses threats to the stability of the financial system.

The World Bank is warning of an “unemployment crisis,” and the U.S. lost 663,000 jobs in March, the Labor Department said April 3. The jobless rate jumped to 8.5 percent, the highest level since 1983.

To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net. Last Updated: April 5, 2009 13:11 EDT
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Fannie, Freddie Set to Pay $210 Million in Retention Bonuses

Hey Barney Frank:

Are you going to get all self-righteous and demand that the names of all the recipients be released just like you did for AIG? Oh wait! That's right. You'll probably won't since Fannie and Freddie have been your babies that you've gone out of your way to protect. What was I thinking?
Rees

from The Wall Street Journal
April 3, 2009

In a compensation program that has drawn angry protests from politicians, Fannie Mae and Freddie Mac expect to pay about $210 million in retention bonuses to 7,600 employees over 18 months, according to a letter from the mortgage companies' regulator to Sen. Charles Grassley.

The maximum retention bonus for any individual executive under the plan will total $1.5 million during the 18 months ending in early 2010, according to the letter, which provides previously undisclosed details about the bonuses. The regulator, James Lockhart, director of the Federal Housing Finance Agency, said in a letter to the Iowa Republican senator that ...

A Presidential Wake-Up Call

from Newsweek
By Eleanor Clift
March 21, 2009

The AIG mess should be a warning to Obama that even popular presidents can squander good will.

Who would have thought 55 days into this administration we would be asking the question, what did he know and when did he know it? Word that a provision in the stimulus bill gave the green light for AIG to hand out bonuses using taxpayer money sent the media bloodhounds hot on the trail of whoever is the culprit. For a time, it looked like Senate Banking chairman Chris Dodd would take the fall, but after 24 hours of twisting in the wind, Dodd said the change that exempted past agreements to pay bonuses was made at the request of the administration.

President Obama likes to remind voters that he inherited a mess, and that's true, but this one is of his own making. And until he comes up with a satisfactory explanation of who did what, when, and why, his credibility will suffer. Forty-eight hours ago, I didn't think Treasury Secretary Tim Geithner was in trouble, but if the transaction with Dodd turns out to have Geithner's fingerprints on it, his job could be in jeopardy. The deadly chain of events may have started innocently enough, with Treasury Department lawyers raising questions about the government retroactively curtailing private-sector contracts, but did Dodd, who authored the restrictive language, capitulate to some Treasury flunky, or did someone more senior lean on him?
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