Let them eat French Toast

I have a question.   It emerged after reading the two paragraphs below while waiting for French Toast "delux" in a diner.  There was nothing else to do but read the Washington Post  (Apr. 4, 2009)

"The Obama administration is engineering its new bailout initiatives in a way that it believes will allow firms benefiting from the programs to avoid restrictions imposed by Congress, including limits on lavish executive pay, according to government officials.

"Administration officials have concluded that this approach is vital for persuading firms to participate in programs funded by the $700 billion financial rescue package."

So here's my question, when did it become necessary to persuade people to accept a bailout?

Isn't a bailout, by definition, the rescue of these firms to avoid their financial collapse?

After all, we hear that the financial and industrial giants will sink into oblivion unless  we keep the trillions flowing.  But this adds a new wrinkle.  Maybe they don't need the money?  Maybe this is like that season of "Dallas" that ended up being nothing more than a dream.  Maybe we're being scammed.

The political stupidity of this move is simply stunning.  There isn't a faction left, other than the principals, who have any sympathy for the Wall Street geniuses who were so totally incompetent that they've nearly ruined the nation's economy.

The incompetence was transferred to the White House, apparently, in the form of Secretary of the Treasury Tim Geithner.  In January, this wonder worker of the New York Federal Reserve introduced himself by defending banks in front of his boss.   He is, no doubt, one of the key movers behind this.  Why wouldn't he ask the same question I asked if he's so smart?

The article had a fascinating conjecture provoking sequence deeper into the article  See if it jumps out at you:

"The federal watchdog agency overseeing the bailout is looking into the matter, trying to determine whether the Treasury's actions are legal.

"Of the two major restrictions imposed by Congress in the bailout legislation, the limit on executive pay has been the most politically explosive issue.

"Obama himself has called for these limits. "We've got to make certain that taxpayer funds are not subsidizing excessive compensation packages on Wall Street," he said earlier this year.

"But officials at the Treasury and the Fed said they worry harsh pay limits will undermine critical bailout programs by discouraging financial firms from participating. Although many of these companies could survive without government help, they might lack money to ramp up lending, which officials consider critical to turning the economy around."  Washington Post (Apr 4, 2009)

So now we've got two questions.  Since it's Treasury mentioned above,  we know what we already knew, it's Geithner.  But now we have to wonder, who's on first?   Obama's against it.   Geithner's for it.  Is this the policy difference and political faux pas that gets Geithner fired or will he survive yet another day.

But forget all that bonus business.

How can people who really need  a "bailout" turnit down unless they get their $20 million dollar bonus for incompetency at everything (except selecting members of their board of directors)?

The CEO's have no bonuses.   Then let them eat french toast.

END

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Michael links to it, but here are some excerpts:

Congress drafted the restrictions amid its highly contentious consideration of the $700 billion rescue legislation last fall. At the time, lawmakers were aiming to reform the lavish pay practices on Wall Street. Congress also wanted the government to gain the right to buy stock in companies so that taxpayers would benefit if the firms recovered.

The requirements were honored in an initial program injecting public money directly into banks. That effort was developed by the Bush administration and continued by Obama's team. The initiative is on track to account for the bulk of the money spent from the rescue package. All the major banks already submit to executive-compensation provisions and have surrendered ownership stakes as part of this program.

Yet as the Treasury has readied other programs, it has increasingly turned to creating the special entities. Legal experts said the Treasury's plan to bypass the restrictions may be unlawful.

"They are basically trying to launder the money to avoid complying with the plain language of the law," said David Zaring, a former Justice Department attorney who defended the government from lawsuits involving related legal issues. "They are trying to create a loophole to ignore Congress, and I think the courts will think that it's ridiculous."

The federal watchdog agency overseeing the bailout is looking into the matter, trying to determine whether the Treasury's actions are legal.

Of the two major restrictions imposed by Congress in the bailout legislation, the limit on executive pay has been the most politically explosive issue.

carol

Of interest too is the organization of "special vehicles" as intermediaries between Treasury and TARP recipients to attempt to get round the meaning of the lawas passed by Congress last year. Like someone spreading a lie by saying it doesn't matter what you said it is, it is what I choose to call it that counts, as if changing the name on something makes it different. Bankers' magical alchemy a transformation found many places. So, here, ridiculously, it is not Treasury giving money, but the intermediary which receives the money from Treasury. I think this is a typical hall mark of the Wall Street crowd, when blocked, make something new and say it isn't covered by what is doing the blocking.

It is probably a good thing to have elected officials like Edolphus Townes bringing this stuff into the light of day

The more congress (the Treasury and Fed) give money to the banks the more they say they need therefore they can't be expected to use what they got to ease credit.

carol

I personally think that Obama has come in a terrible time at the lead of the USA. Some of the economical recession is due to poor management of the former president, and Obama is forced to act. I don't know if this whole deal is a scam as you say, but it's the bankers who in the end turn up with more money... again! From where I'm standing, capitalism needs a profound change.

French Open 2009