Lehigh Valley Congressman Charlie Dent (PA-15) wants Congress to repeal a provision in the stimulus legislation that expressly allows companies like American Insurance Group (AIG) to provide bonuses even after receiving federal bailout money. Dent, you may recall, opposed the stimulus spending bill, which was rushed through Congress in February containing this protection for Wall Street executives. In a news release, Dent notes he is now a co-sponsor of legislation that will strike language allowing these bonuses, which arose as a result of a provision inserted by Senator Christopher Dodd (D-CT), the Chairman of the Senate Banking Committee, at the request of the Treasury Department.
AIG CEO Edward Liddy testified before Congress on Wednesday as members of Congress, and the American public, increasingly express their outrage at the company’s disregard for the taxpayers who have been bailing them out of serious financial straits.
“This highlights a failure by Treasury to provide effective oversight,” Congressman Dent said. “At a time when so many Americans are struggling to make ends meet, it is an insult to see taxpayer dollars line the pockets of well-heeled Wall Street executives. Our federal government has an obligation to be good stewards of federal resources. Unfortunately, some members of Congress and officials at the Treasury Department have valued expediency over responsibility.”
21 comments:
Bernie -
I guess it pays to read a bill before you vote for it (or sign it into law). Thankfully Congressman Dent voted against the stimulus bill.
While I hope the Congressman is successful regarding the millions of dollars in bonuses, I would much rather have Congress look at:
1) Who in the Administration wanted Dodd to insert the language allowing the bonuses.
2) Why BILLIONS of OUR bailout money that went to AIG is being spent on bailing out FOREIGN banks.
3) Why BILLIONS of OUR bailout money was funneled through AIG to Goldman Sachs, even though Sachs previously said they didn't need any bailout money.
4) The wisdom and long-term effects of having the Fed buy $300 BILLION of US bonds, by which we are effectively printing the money to prop up our debt (the same debt that was just greatly increased with the Stimulus, and Omnibus Spending bill).
I think that much of the outrage over the bonuses is fake and merely a smoke-screen to distract people from focusing on those far more costly items.
Bernie
Charlie Dent is wrong. The current head of AIG was put there by those in power. Geithner, who was head of the NY Federal Reserve, had to know about the AIG contracts. If Congressman Dent wants to do something about this he should see to it that Geithner, the man with a plan that has yet to materialize, is fired as the head of Treasury. Senator Grassly, a Republican should leave immediately because of his comment that these folks at AIG should commit suicide.
These men received bonuses based on a contract. If we start to toss contracts out the door, Obama wants to allow judges to re-write loan contracts, we can get set for total chaos.
Republicans acting like Democrats who are running to cover their posteriors, is unseemly. Maybe its time to move to the libertarian party
Chris -
Good points but the only one who can hold Geithner accountable for paying out the bonuses (that Obama specifically allowed in the Stimulus Bill) would be Obama himself.
I'm not holding my breath for that to happen.
Chris, as distasteful as this is because I am as outraged as everyone else about these bonuses, I agree with you on the contract issue. This has far-reaching consequences that can't be taken lightly or in a reactionary fashion - and that's exactly what's happening.
The Banker
Chris/all-
All this posturing about these bonuses is just for show.
At this point, I really can't see much difference in the two parties.
Remember Teddy Roosevelt (a one-time R) thought it perfectly acceptable to rescind contract and property rights...
AIG's relationship with connected Ds and, more importantly, teachers' union pensions means they own Obama. After bailoutapalooza, the sanctity of contracts is gone. We all work for Washington now. Some change we got.
Voting for this bill was pure populism. Charlie Dent is now facilitating the Obama Administration’s ploy of feigning outrage over particulars they themselves had been instrumental in approving. We are supposed to be too stupid to notice.
Good Job? I don’t think so. This will come back to bite Charlie.
Scott Armstrong
Contracts are an important part of our legal and economic system. But we should all remember that contracts can always be renegotiated--it happens all the time in business. AIG could have attempted to do so with its employees. I have not seen any news reports that they attempted to do so (though I freely admit I could have missed a story about it).
Further, had AIG been forced to enter bankruptcy, the contracts could easily have been nullified or modified by the bankruptcy courts. That happens all the time, too.
What really concerns me about the proposal to seize the bonuses or tax them away is the abuse of the rule of law. Anyone remember the phrase ex post facto? It means "after the fact" and is used to describe a law that applies to an action that occurred before the law was passed.
Article I, Section 9 of the Constitution reads, in part, "No Bill of Attainder or ex post facto Law shall be passed." Seems to me that Congress' zeal to recover the bonuses (and I do sympathize greatly with the desire to prevent our tax dollars from being used in this fashion), is unconstitutional. (Not that that has ever stopped Congress in the past.)
Big Chris is pissed about the potential of Mortgage settlements in Court. Of course Judges are now involved in every other loan and have been for many years. Default on your yacht, car, etc. Court can mediate.
On your house, all is fair from the lender. Realtors really hate that. Of course then realtors are an unnecessary ingredient in home buying just a 6% unnecessary middleman.
Anon 1032pm, you're right that other loan types are subject to court action in a bankruptcy - also remember interest rates on those loans are higher, recognizing in part that risk (higher risk = higher interest rate).
If Congress grants bankruptcy judges the ability to modify mortgage loans, mortgage rates will go up and homeownership will be more expensive. Is that what you want?
The Banker
Dear Banker,
We are all impressed with the credibility of banking folks these days. Nice Red Herring. If you don't loan, someone else will. Banks are already sitting on the billions they received and will soon get a well deserved federal kick in the ass to start making responsible loans again.
The party is over, and Reagan is long gone. Praise the Lord.
Anonymous -
I have heard that the banks are lending more right now than ever before. But they're just not willing to (again) make loans to the non-qualified applicants that the government (still) wants them to lend to.
It would seem that government doesn't learn from it's mistakes.
Anon 2:15am, a fundamental principle of interest rates is "higher risk, higher rate/return." If you give bankruptcy judges the ability to modify mortgage loans, that will mean more risk tot he lender and thus higher rates for "responsible loans" to use your phrase.
Sorry, but basic economic principles will still apply.
The Banker
What is worse, authoring legislation to protect certain bonuses or opposing legislation that would have put tighter restrictions on such excessive bonuses?
HR384 (Tarp Reform and Accountability Act would have put restrictions on cash give away and also provide more oversight on how the remaining $700B is to be used. Charlie Dent along with 155 Rep and 18 Dems voted against this bill.
I applaud all those including Dent and Dodd who have finally realized the consequences of their actions light of the AIG bonus scandal.
This whole thing is nothing but a distraction and the media drumming it up to make money. It's one case of much waste.
By your argument, I should be receiving a higher rate of return on the money I invest in these risky banks…right. The difference is the Govt (taxpayer) are the insurer.
Common sense still applies. Why would any lending institution bait and switch a loan knowing full well the borrower would not have the ability to pay the loan even in good times. Economic principle is no excuse for greed and quick gains. In the Banking industry, short term gains outweighed the long term consequences. It is no secret Banking bonuses were give out base on how many loans were sold regardless how risky they were. Then deregulation legislation back in Dec 2000 allowed the faulty loans to be bundled and sold again. If we are going to bail out the banking industry and the investor, how can we forget the average Joe.
Renegotiating loans is no different than bailing out the lenders…some of who already MADOFF with the money and ran.
You're mixing things up - what happened was not responsible (not sure why you appear to think I'm arguing against that) and was wrong. Bankers, Congress (going back to Clinton changing the CRA back in the early 1990's), people who knowingly borrowed more money than they could afford to pay back, etc. were all to blame, there is plenty to go around.
As a community banker (which is much much different than the banker you're describing) I was against the bailouts (banks, car mfrs, etc.) It was ill-conceived, poorly put together, rushed into, and will only prolong the problem. This includes the crap done by the Bush Administration as well as this gang of idiots Obama surrounded himself with. Paulson was horrendous and Geithner has the potential to be worse.
What I'm saying is that if what you advocate happens, in a free market mortgage interest rates will go up.
Let me ask a question based on your 1st paragraph - if you were to buy bank stocks today, given all the risk wouldn't you only do it if you felt you'd get a great return? Risk/Reward will always apply.
The Banker
Banker,
I appreciate your candid dialogue. Some of my comments were merely to balance out the partisan twist to show there is plenty of blame to go around on this bonus thing (Sept, Jan, and Feb votes). As far as those that bit off more then they could chew, we cannot bail them out.
I am heavily invested in the market today with my 401K. Like many, I have to ride it out. If I had plenty of extra money, I would be investing. Shares I was looking at went from $2.50 to ~$6 in two days. Yes I would expect a higher return on today’s investment. However, I would not put the money in a company I knew was doomed for failure or in a banks case, someone I knew could not repay. Uncle Sam will not be there to bail me out like he did the banks.
Personally, I’d prefer to get a smaller positive return on my investment than to take a loss. I guess I have not figured out why a bank under these circumstances would take a huge loss on a loan instead of a modest gain.
I think we agree more than disagree.
Anonymous 10:32PM
Where did you ever get the idea that I would support wrong doing. Keep in mind that Realtors are governed by a Code of Ethics, something that is in short supply today. Those who hide being the Anonymous label do not want to know about ethics.
I am well aware of the fact that when it comes to matters of foreclosures that judges have the ability to make changes, that in and of itself does not make it right. What I am saying is that contractual law is important in that it puts the terms and conditions on paper causing the parties to live up to that agreement. Certainly there can be changes and down the road the parties might have to agree to alterations in the oontract but that should not involve a judge. Once we get judges determining price and conditions we are lost forever.
As to realtors being a 6% problem, keep in mind that you do not have to use a realtor though most people, whether buyer or seller, opt to do so. Listing, showing and selling the home is the easy part. It is the paper work and all the other things that go on behind the scene that make up 95% of each deal. Many people who think that it is an easy job, just drive folks around and show them houses, usually end up leaving the my profession. Keep in mind that things like commission and length of contract term can be negotiated. That's a freebie and unlike an attorney I will not charge you for that one.
Brad Moulton: Thanks for pointing out the fact that TR was not a conservative and did exactly what you said because he was a Progressive
Alan Earnshaw: Right on with that pesky old Constitution and the ex post fasto also known as a Bill of Attainder law. This idea of taxing the bonuses is unconstitutional
Scott Armstrong; You are on the money with the comment that this will come back to bite Dent and rightly so. He has had mixed votes on this instead of following the Constitution and doing the right thing. He is directly responsible for laying this burden on the shoulders of the next several generations. Shame on him. He will never get my vote again.
I see that Charlie Dent voted 'aye' for HR.1586. A Republican voting for a 90% tax rate? Hmmm.
I guess the Constitution is an inconvenience to Congressman Dent. Polls are more important.
If Charlie is so concerned about taxpayer money maybe he can give back his congressional pay raise, give back his congressional pension increase, give back his pension as a state legislator and stop receiving lifetime health benefits from Harrisburg.
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