House Hearings Exclude Bailout’s Biggest Culprits Print
Commentary/Politics - Editorials
Written by Kathleen McCarthy   
Wednesday, 08 October 2008 03:11

Now that the $700 billion bailout is a fait accompli, it has never been more important to keep vigilant, and to vote in November. It is difficult not to become utterly discouraged knowing that the huge majority of our legislators approved a $700-billion bailout, ignoring unprecedented opposition to the bill, HR 3997, by the huge majority of Americans. But crumbling into a feeling of helpless apathy in the face of this civic betrayal is precisely what we cannot allow ourselves to do, because this is just the beginning of a terrible tide of usurpation of power, assets, and ultimately liberties in this country.

There is so much happening concurrently that it is hard to prioritize what deserves Americans' attention and focus. The Senate, which almost unanimously supported the bailout out of the gate (including McCain and Obama), added $125 billion in earmarks to the $700-billion bailout, raising the total amount of the legislation passed October 3 to $825 billion. The earmarks were cherry-picked provisions from myriad other bills that had not yet passed in an effort to entice those congressmen who initially voted against the bill to approve it upon reconsideration, which they did. In other words, they were bribed.

Congress has been thoroughly disingenuous. For example, the tax revisions claimed as cuts are already in place and don't expire until 2011, so the bill simply extends these tax breaks. These earmarks in no way impact the economic crisis, but once again serve special interests. The only remedy for this is to vote these individuals out of office in November wherever possible.

This week, the House Oversight & Government Reform Committee began a series of five hearings on the government intervention in the financial services industry. (These hearings can be viewed on C-SPAN throughout the week.) By week's end, testimony will be heard from various experts, including executives (past and present) from Lehman Brothers and AIG. What is unbelievable is that these hearings do not include Fannie Mae and Freddie Mac! Somehow, these two government-backed institutions are outside the scope of purview by this overwhelmingly Democratic committee. Fannie Mae and Freddie Mac are considered the two primary culprits of the current economic crisis, overseeing half the county's mortgages to the tune of $5 trillion in bad debt. What possible justification/rationale could there be for this glaring exclusion? It is absurd to posit that any meaningful investigation could occur in the absence of these two government-backed organizations' participation, first and foremost, let alone as an afterthought in the process.

It is important to connect some dots here by exploring certain key relationships. Recall that Treasury Secretary Henry Paulson curiously denied Lehman Brothers bailout relief, while giving AIG an $85-billion loan from taxpayers for an 80-percent ownership position in AIG. (Note: After loaning AIG $85 billion for 80-percent ownership, taxpayers are unwittingly paying the former head of AIG Financial Products Division a monthly retainer of $1 million after being fired from his position by his peers for nonperformance in 2007. This is but one example of how the $85-billion loan is being used by AIG management.) Furthermore, Secretary Paulson also authorized $100 billion each to bail out Fannie Mae and Freddie Mac - all this over and above the $700 billion approved.

Secretary Paulson was the former CEO of Goldman Sachs prior to his current position with the treasury. He enjoyed a $33-million financial boon as Goldman's leader, and was intimately involved in the proliferation of new financial-investment products, such as derivatives, during his tenure. Goldman's largest trading partner was AIG. AIG's downfall was its excessive participation in the riskiest of derivatives, Credit Default Swaps (CDS). CDS function as insurance against commercial paper devaluation should its issuers default, but without regulation, oversight, or transparency of any kind that characterize the insurance industry. The estimated bad debt due to these CDS is $60 trillion! This is greater than the entire annual world economic activity! AIG is a major player in CDS transactions, and according to Robert Willumstad (former AIG CEO 2008), Goldman Sachs was "a counterparty with AIG in CDS worth $20 billion." It should come as no surprise that Goldman is now in line for part of the $700-billion bailout money. What is surprising is the arbitration, or lack thereof, relative to the allocation of the bailout funds. Finally, it's generally agreed that Lehman's loss is definitely Goldman's gain.

The bailout bill gives Secretary Paulson carte blanche in choosing who will benefit and who will not. And contrary to what legislators would have us believe, there is still no oversight, no regulation, and no enforcement in the bill that just gave away $700 billion to whomever Paulson deems worthy of it. Any such provisions have been left to future congresses. This is arguably civic treason.

But if our leadership is at all sincere about exposing underlying malfeasance, then they had better get some experts to begin asking the questions because they are ill-equipped. Whether due to time limits, legal constraints, lack of understanding of subject matter, types and/or redundancy of inquiries, etc., the committee is out of its league. The corporate witnesses (such as Robert Fuld of Lehman Brothers and William Sullivan of AIG), in their attitudes and responses, are obstructionists, running circles around these House committee members. Such hearings are normally a colossal wastes of time for all their efficacy in resolving issues, and more for show than anything else.

That said, this week's hearings are helping to confirm that the current economic mess was foreseen, deliberate in its execution, and allowed to continue with sense of entitlement that a taxpayer-funded bailout would occur (recall the savings-and-loan bailout of the late '80s) with no consequences, criminal or otherwise, for the perpetrators. In the final analysis, favored institutions will get larger and wealthier as a result, and favored Wall Street participants will salvage and/or protect much of their considerable personal wealth at taxpayer expense. The "complexity" of this fiasco is really not that complex. It is deliberately made to confuse and distract in an effort to hide gross incompetence and widespread fraud on the part of many parties, including both sides of the aisle, who also have plenty to answer for.