Washington Fiddles While America Burns

12/15/2008 12:01 am EST

Focus: MARKETS

Terry Savage

Author, The Savage Truth on Money

All it took was two days in Washington, DC for me to finally understand why the original financial bailout bill was handled so ineptly—and why the latest debate about the auto bailout is more about style than substance. 

(The Senate voted it down late Thursday, although President Bush may allocate funds to the struggling Big Three from the financial system bailout program.)

When it comes to Congressional hearings, you simply have to see it to believe it.

I was on Capitol Hill at the invitation of the Aspen Institute to speak to Congressional staffers at a day-long seminar about the future of saving and investing in America. So I decided to attend several hearings related to financial matters just to get up to speed. 

No matter how often you watch C-Span, it can’t replace the experience of actually being there and observing not only the Representatives and the witnesses they’re grilling, but also the activity going on all around the room. 

Having made their point, the Congressmen and women come and go, with subordinates moving nameplates around the semicircular tiered tables to reflect their presence or absence. It’s kind of like a game of musical chairs, but without the music.

Taking the heat in the front row of this particular hearing were the deposed heads of Fannie Mae and Freddie Mac. Squaring off against them were angry Congressmen and women, demanding answers about how these smart men could have made so many bad decisions.
 
It was like the Mad Hatter’s tea party from “Alice in Wonderland,” with everyone talking in riddles. The very same representatives who had demanded “affordable housing” and “community reinvestment” were now angrily asking why all those subprime loans had gone bad.

Rep. Henry Waxman, a Democrat from Los Angeles, who had no complaints when California homebuyers were receiving easy loans to purchase homes that were ever-rising in price, now complained that “their actions could cost taxpayers hundreds of billions of dollars.”
 
And then, when former Fannie Mae head Franklin Raines was asked what he regretted most, he said: “I wished we had a regulatory bill enacted earlier.” Former Freddie Mac chief executive officer Richard Syron agreed, saying he “wished I’d been more effective in working towards stronger regulation.” 

This, despite the fact that these two agencies, Freddie and Fannie, were among the biggest lobbyists and campaign contributors to stave off that very same regulation! And how could Congress cast stones, knowing that much-needed regulatory bills had stalled because of their own bickering for the past four years? All that was missing was the Queen of Hearts shouting, “Off with their heads!”

It got curiouser and curiouser, as Alice would have said. When it was noted that the heads of these agencies received more in bonuses than salaries, they replied that the bonuses were based on “profitability.” Yet the former CEOs blamed Wall Street greed, and not their own bad judgment, for the losses.

The next day a different House committee was grilling assistant Treasury Secretary Neel Kashkari about the disposition of the $700 billion TARP (Troubled Assets Relief Program). The young, well-dressed former Wall Streeter tried desperately to respond to their furious accusations. 

But he could not explain why the program had changed from its original intent of buying bad assets to investing in banks’ equity. And he couldn’t give a convincing demonstration that he knew what happened to the original $350 billion that has already been distributed to the banks.

Among the highlights: California Rep. Maxine Waters demanding to know why they had given billions to Bank of America, but hadn’t bothered to call the bank to ask why they’d pulled the line of credit from a Chicago window company, that was denying earned benefits to laid-off employees. And then there was Congressman Dennis J. Kucinich of Ohio, demanding to know why Treasury hadn’t come up with an overall “master industrial policy” for the nation in the past 68 days since the rescue bill was passed.

It all gave the word “clueless” new meaning. Too bad so many people’s lives and livelihoods are at stake.

There should be a sign on the door of Congress that reads: “Your Tax Dollars at Work.” Or . . . “at Play.”

But wait: We elected them! Where do we point the finger of blame? Can’t we do any better than this?

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