Punish and Perish or Trust and Thrive?

It’s quite an understatement to assert that people around the nation right now are a little upset about this whole $700 billion bailout.  The land of opportunity has recently been revealed to be the land of plunder, greed, and risk.  I can’t help but question our reaction to this most dire of circumstances.  What’s more important to taxpayers on the whole, punishing those who put us in this situation or getting out of it in a manner that benefits us and not the golden parachute crowd?

Let’s Get the Record Straight

Let’s be clear here, I’d like to punch Dick Fuld in the face as much as the next guy.  But it’s a little surprising to me that all of a sudden we’re so hell bent on putting our congressmen and congresswomen to work tanning the backside of these CEOs.  In a crisis, most people look to protect themselves and their loved ones first and foremost.  Given that generalization, I think we should be look to protect ourselves before we tar and feather wall street.  Let’s make no mistake here, we are in the midst of a crisis.

Consequences of Inaction

If we do nothing to grease the gears of the commercial paper market (take note here that I care more about the short term debt market than I do the housing market, as can be seen in the picture up top) we are screwed.  I regret that I don’t have a more intelligent means of articulating our situation other than to say we’re screwed.  If someone in Ohio loses their house I can still go to work, buy groceries, and watch TV here in Oregon.  But if a bank in Maine won’t float a loan to a bank in North Carolina on the commercial paper market, I can’t even use my ATM card.  It’s that big of a deal.  The dealings of these CEOs and their companies have penetrated every aspect of our day to day lives.  For an everyday, angry taxpayer to think that right now that we can get the upper hand on these guys by simply denying their company a bailout is extremely naive.  Dick Fuld (I like picking on him) made somewhere between $300 and $500 million at Lehman.  If we tank the bailout, and subsequently a lot of companies, guys like Fuld could flee the country and live overseas for the rest of their life quite comfortably while we turn to bartering for wood and clothes here in the US.  So yes, I’m angry.  But I’m not deluded into thinking that I can have the upper hand by pinching the purse strings.  They already have money themselves, it’s the money they promised us and others that they don’t have.

Trust

While it is certainly not in our best interest to buy these corrupt CEOs more summer homes with our $700 billion, it’s also not in our interest to sign over $700 billion to a rescue plan and think everything is done and dusted while we merrily pickup pitch forks and torches and head for the nearest investment bank offices.  This bailout could be one of the biggest boons to our economy for generations but it’s not guaranteed.  We have the chance to take over assets (and more excitedly buy preferred stock) at bargain prices.  Many pundits are afraid we’ll over value the toxic mortgages and provide wall street with another helicopter to tool around in.  Others think in our quest for vengeance we’ll under value the assets and tank the banks anyway.  If both the extremes are possible, why can’t we strike the balance?

True, it’s not a trivial matter to buy bad mortgages at a bargain price and hold them to some form of maturity that sees a profit but when has anything worth doing been easy?  First and foremost, we need our congress to execute the oversight built into this new saving act to put the money in the hands of people who can correctly value our purchases.  Like it or not, these people will most likely come from wall street not because there is some entrenched cronyism that is ready to take our $700 billion and hand it to anyone in Manhattan with a suit, but rather because there isn’t another sector of this great nation that has someone skilled, experienced, and willing enough to do the job.  So while all the eggs in the wall street basket look bad, we need to pick a good one.  This will require lots of input from many different sources, sources that might otherwise be caught up in litigation involving wall street CEOs.

This is what I want to trust in.  I don’t trust in the Bush administration’s ability to execute the bailout in any way, shape, or form.  I do trust that it is possible to benefit from this bailout as do some financial oracles.  We need to put ourselves back into a position of influence/power.  Denying banks money won’t get us anything save possibly a smug feeling of universal justice (which doesn’t exist: see Darfur).  Forcing preferred stock purchases on banks or forcing low priced mortgage purchases can put us in a very enviable position.

Blinded by Rage

Another problem I have with swift punishment for CEOs is that history shows us that knee jerk reactions to financial/political scandals don’t really work out on the side of justice.  Take two recent examples, President Clinton’s impeachment and Senator McCain’s Keating hearings.  We were so damn angry that Clinton got a hummer from an intern that we didn’t pay any attention to the Gramm-Leach-Bailey Act of 1999.  This 200 some odd page act, slipped in along with over 11,000 pages of budget, probably didn’t seem like a big deal at the time but now it’s being herald as one of the biggest enablers of the current crisis.  But thank God we spent so much time scolding Clinton for a personal misjudgment that only barely managed to eclipse his monumental progress as president (*cough* $100 billion surplus *cough*).

To top it off, the Lincoln Savings and Loan seizure and subsequent prosecution of Keating for his hand in the matter was a landmark event at the time.  Five, count ‘em five, senators were brought up on charges of being bought and paid for.  Let’s be clear here, we’re not talking a little scandal, these guys were considered at the time to have complete disgraced the nation and compromised our most sacred democratic principles.  As is common knowledge now, Senator John McCain was a participant and one of the Keating Five that was accused of these heinous acts.  Despite public hearings, first hand testimonies, and a paper trail John McCain is running for PRESIDENT OF THE UNITED STATES!  I don’t mean to discourage anyone from believing that there can be justice in the world but, clearly, nailing people for shady financial and political dealings doesn’t stick like it used to.  So while I mentioned before that anything worth doing is probably tough, it’s also worth doing right.

What I Want My Trust to Get Me

After our $700 billion has been put into play and is maturing slowly but surely, I want us to be free to enact tighter regulation of the financial industry we just plundered (for lack of a less piratey term).  These new regulations will of course come at the same time as the countless fraud and criminal trials of wall street bankers comes to a close.  We need to practice the calm of our soon to be president (check the polls for non believers), we need to be thoughtful, deliberate, and exercise good judgement.  All of these qualities are hard to express if we walk the streets calling for blood.  Punishing these hapless CEOs in the present feels like a crime of passion rather than a righteous vindication of our democratic power.  Protect ouselves now, punish the wicked later. At the same time we should get a wake up call and remember that CEO self interest coupled with regulatory neglegence is a formula for quick returns and long suffering, unfortunately those who experience the returns often skip the suffering.  But be sure not to forget the punishing part…it’s essential to a healthy economy and democracy.