Politically-Correct Retention Bonuses

Glenn Beck reported a story last night regarding some $210MM in retention bonuses being paid to employees of Fannie Mae and Freddie Mac, the two GSE's which are now government-owned, having lost tens of billions of dollars through the purchase and securitization of too-risky mortgages. The GSE's were, in fact, key players, along with their Congressional patrons, in causing the financial services meltdown of last year, Wonderboy's recent exclusive blaming of private firms to the contrary.

Curious about this, as these bonuses drew very little public media attention, versus, say, the recent, smaller AIG retention bonuses, I Googled the subject.

There are several results for the search, most prominently this one in the NY Times. It reads, in part,

"Fannie Mae and Freddie Mac, the two troubled companies at the heart of the nation’s mortgage market, are set to pay their employees “retention bonuses” totaling $210 million, despite calls from lawmakers to cancel the payments.

The bonuses, which were made public on Friday, were defended by the companies’ federal regulator, James B. Lockhart, who said he intended to let them proceed.

In a letter sent last week to Senator Charles E. Grassley, an Iowa Republican, Mr. Lockhart disclosed that 7,600 Fannie and Freddie workers were scheduled to receive payouts aimed at retaining those “employees most critical to keep and difficult to replace.” Under the plan, 213 employees will receive retention bonuses worth more than $100,000 this year, and one Freddie Mac executive will receive $1.3 million.

Mr. Lockhart’s defense of Fannie and Freddie’s bonuses has made him a lightning rod for legislative criticisms. It is also beginning to draw questions about why President Obama has not replaced the regulator, who was appointed by President Bush. The law creating Mr. Lockhart’s office, the Federal Housing Finance Agency, established him as the lead regulator until his successor is named by the president and confirmed by Congress.

By failing to name a successor, say observers, the White House is implicitly backing Mr. Lockhart’s stance on the Fannie Mae and Freddie Mac bonuses, which stands in stark contrast to President Obama’s criticisms of the A.I.G. payments.

“This is a de facto White House endorsement of these payments, which is a little odd considering that everyone spent days talking about how they were shocked by the bonuses given to A.I.G.,” said Karen Shaw Petrou, a managing partner at Federal Financial Analytics, a consulting firm in Washington and a longtime observer of the companies. “It’s also a tempest in a teapot. We should worry less about $210 million in bonuses, and more about the fact that these companies are sitting atop $5 trillion of risks, and if they stumble, the American economy could disappear.” "

Is this for real? It's just unbelievable, after all the media coverage the smaller AIG payments received.

After Wonderboy incited public ire and lynch mobs over the reasonable payments to employees cleaning up the AIG-FP mess, he now goes silent over Congressionally-backed GSEs paying even more to their employees. And, to my knowledge, none of the Fannie or Freddie people got fired for their mistakes. Frank Raines got a huge payout for essentially ruining Fannie and bribing Congress to let him get huge bonuses.

But Raines is ethnically similar to Wonderboy, and backed his campaign, so, you know, it's okay.

That's the way things work in our new, post-partisan political world down in Foggy Bottom.

Wonderboy- The Innocent Abroad

Karl Rove expressed it so well on Bill O'Reilly's program last night. The insightful conservative political analyst and brilliant Bush campaign manager noted that European leaders always love a weak, ineffectual US President.

Their worst nightmare is a US leader capable of and determined to unilaterally pursue America's interests.

Instead, observed Rove, the Europeans stonewalled our First Rookie on sending troops to Afghanistan and joining America in over-spending on economic stimulus.

When he wasn't getting slow-rolled by his G-2o colleagues, Wonderboy was busy apologizing for America's imagined- by him- past sins, and for almost anything his predecessor did.

The depth and breadth of this president's stupidity and bad judgement are staggering. As Rove asked, what must European leaders think of a US President who, rather than focus on his own agenda, spends most of his time reminding everyone he won the election, and that he disagrees with his predecessor's largely-successful policies?

Basically, we witnessed the American Weakness tour by the First Rookie. He coupled this with an embarrassing olive branch to the globe's worst terrorist sponsors, e.g., North Korea, by announcing a willingness to cut our nuclear arsenal deeply. One British observer commented that our president has learned nothing from the nearly-fatal inter-war disarmament of the 1920s and '30s by America, Britain and France. Only those countries interested in disarming did so. Japan and Germany did not.

Gee, do you think that's a valid example for today? Or do we expect China, Russia and North Korea to rush to the negotiating table with their own offers to disarm?

We'd better hope that Congress still has some latent, middle-of-the-road, non-partisan sense of self-preservation and defeats any of this idiot's arms control treaties.

Doesn't It Make You Proud?

What's with Wonderboy and his wife? Far from his promise of making America respected and liked throughout the world, as if that mattered, he and his partner have committed serious foreign relations faux pas.

I missed the details on the first go-round of the First Rookie's insult to Great Britain's Gordon Brown when he presented the PM with a gift of non-working DVDs. But, thanks to his repeat performance with the Queen of England last week, I caught up on that first gaffe.

Can you believe the classlessness of this moron? He gave the Queen an iPod filled with, evidently, his own bizarre concept of need-to-have music.

How appropriate. Why not toss in a few gift cards for Old Navy or Starbucks while he was at it?

By the way, the Queen already has an iPod. Maybe she can regift Wonderboy's to somebody else?

Then there was the British Monarch's look of distress as our President's wife manhandled the Queen. You can just imagine Queen Elizabelth feeling that she'd been pawed at by hired help.

It just makes you proud to be an American, doesn't it?

The Freakonomics of Congressional Politics

University of Chicago economist and John Bates Clarke medal-winner Steve Levitt's 2005 bestseller, "Freakonomics," examined many everyday situations from an economist's perspective. So popular and influential was Levitt's book that a recent Wall Street Journal review of yet another economist's book in the same vein, this one dealing with parenting, bemoaned the flood of wanna-be imitators in the wake of Levitt's original work.


There's one topic Levitt omitted from his four-year old work, his treatment of which I would love to read. That is, of course, the economics of Congressional office-holding.


I'm not a PhD in economics, but given how much of it I studied to earn my two business degrees, I might qualify for a minor in it. In any case, in Levitt's absence, let me try to begin reasoning why people run for US Senate and House seats and, more to the point, continue to run and sit.


It seems logical that there are three possible reasons for someone running for a Congressional seat:


1. They have a burning desire to work on and/or influence the resolution to one or a few key issues.


2. They have an ego the size of Texas, and believe they should be the Representative or Senator entrusted with the job of working on all federal issues for their district or state.


3. They expect to make a healthy, risk-adjusted financial return on the time and money they spend running for and holding the seat in question.


The first reason, while quaint, doesn't seem to be true, for long, anyway, anymore. The second reason doesn't rule out the third. Or even the first.


Let's face it- we all pretty much suspect, either explicitly, or implicitly, that it's the third reason that drives most of our US Representatives and Senators most of the time.


How would you determine this? Well, ideally, you'd possess perfect information on answers to the following types of questions:


1. Is the percentage and/or scalar increase in net worth of a Representative or Senator positively related to their time in office?


2. What is the average net return to Representatives and Senators of holding their seat, expressed as the change in their net worth over time, or their income stream, as a function of the stream of payments over time to get and remain elected?


3. Is the average net return to a Representative and Senator better than that of a similarly-aged, educated and IQ'd person in their district or state?


4. Adjusted for education, intellect, and other relevant factors, how does the average growth in net worth for Congressional officeholders compare with the general population?


I'm sure there are more questions that would provide evidence for the hypothesis underpinning my third reason for running for a Congressional seat. But these give a general idea as to how you'd go about quantifying the value and financial impact of holding a Congressional seat.


Just sitting here, reflecting on a conversation about this topic earlier this week, I find it pretty hard to believe most Representatives and Senators don't expect graft, corruption and various second-career lobbying income to more than repay them for the rising expenses of running for and remaining in office.


How could a US Representative possibly afford to spend, every two years, such significant sums of money, if s/he didn't expect to recoup that ongoing expense in some way? Surely, it's not coming from their Congressional salary. Probably not even from their lush, uniquely-federal pension and benefits plans.


No, it has to be something else.


As I mused in this recent post,

"Having seen today's full-time, professional political class in action at the federal level, I believe the Founders would prevent that through term limits, limits on the amount of time during the year in which Congress could be in session, or draconian limits on Congressional pay, with the removal of a pension, in order to reinforce the nature of the offices as service to the citizenry, rather than a lifetime career."

Sometime in the last century, Congress passed itself a pension plan. As a friend of mine opined, they probably justified it with reasoning something like this,

'We have to provide a pension, and competitive pay, so we can (continue) to attract the best people to serve (i.e., make a career out of serving) in Congress.'

Consider, however, the recent demise of former Senate Minority Leader Tom Daschle's aspirations to be Wonderboy's healthcare czar. Daschle forgot to report and pay taxes on hundreds of thousands of dollars of gifts in the form of a car and driver, courtesy of one-time cable mogul and liberal Democratic fundraiser Leo Hendry. It was even reported in the press that Hendry rather crudely put forth his own slate of candidates for hire, including, of course, himself, should his political stooge, Daschle, make it into the West Wing.

Daschle has been lucratively perched in some Washington law firm as a lobbyist, since his ouster from the Senate a few years ago.

See how it works? Coming from hopelessly-poor South Dakota, Daschle didn't even bother to return "home." He quickly settled into the D.C. lobbying landscape and promptly turned his former Senate seat into gold by using his access to former colleagues on the Hill.

I'd love to see Steve Levitt tackle this question. The answer would be, to paraphrase Mastercard, "priceless."

The UAW's Potential Loss At GM

Yesterday's Wall Street Journal ran an article focused on UAW head Ron Gettelfinger's dilemma regarding GM.

In particular, the piece's author, Kris Maher, noted,

"Accepting more concessions could also hurt the union's ability to grow at healthy companies. The UAW has been unable to organize U.S. workers at plants run by foreign auto makers. Accepting more cuts to GM wages and benefits would make organizing elsewhere even more difficult because the union would have little of value to offer nonunion workers, says John Russo, co-director of the Center for Working-Class Studies at Youngstown State University."

This is a rather nuanced but important point. Especially with card check legislation on tap in Congress.

With little to show for decades of representing auto workers, now that the flagship US unionized car maker is essentially dead, Gettelfinger has, indeed, run out of good options.

Outside of bankruptcy, as Holman Jenkins noted in the same issue of the Journal, bondholders can hang tough, betting on Wonderboy's hesitancy to let a court strip the UAW of benefits which the Democratic Party is expected to guarantee.

In bankruptcy, of course, Gettelfinger's union loses its last vestige of pretense at providing anything for workers.

Tough choices, indeed. Maybe Ron should have retired last year.

Congressional Poll

I've written and mused about who runs for the US Senate or House, and why.

Enough of my views. What's yours?

Even though my readership on this blog is small, I'm curious as to which of the responses in the poll at the right best describes your own views.

What Would The Founding Fathers Say About Today's Communications Technology?

My business partner and I recently found ourselves pondering the question that is the title of today's post.

Considering a collection of men including Ben Franklin, Thomas Jefferson and George Washington, one cannot help but believe they would be thrilled at the immense scope of instant, broadly-distributed online communications options available today.

Imagine Franklin twittering. Or Jefferson's daily political blog. What would Sam Adams and Tom Paine have done with freely-available blogging capabilities?

Surely, the founding fathers of the American experiment would be pleased to see such freedom of expression available so ubiquitously.

However, at the same time, I would hazard to guess that they would have tweaked the design of government a bit, in light of such freely-available tools to incite passions in the citizenry.

For example, consider this post from just a year ago. It has probably become the most-searched and -read post on this blog.

If Franklin & Co. were writing the Constitution today, amidst our modern communications technologies, I think that, if they opted for direct election of Senators, they would condition nomination for that office to those who had served in statewide or other elected federal posts, i.e., US Representative, for at least 6-8 years.

Their original intent was clearly to represent the States, not the people, per se, in the Senate. Today's one-issue wonders, such as Patty Murray (a/k/a the mom in tennis shoes) from Washington, or Wonderboy from Illinois, would not have been elected because they would not have met qualifications for the office.

I think the founders would also, were they alive today, impose term limits. They never envisioned a professional political class. In their day, Congress didn't even meet for most of the year. It was a part-time job, and its members had to return home to actually make their living.

Having seen today's full-time, professional political class in action at the federal level, I believe the Founders would prevent that through term limits, limits on the amount of time during the year in which Congress could be in session, or draconian limits on Congressional pay, with the removal of a pension, in order to reinforce the nature of the offices as service to the citizenry, rather than a lifetime career.

With such opinion-shaping power available via free online blogs, inexpensive websites, and the interlinking of cell phones and the internet, I believe the Framers would have sought to provide more buffers for parts of the federal government from the increased influences of immediate, broadscale public opinion on the deliberations of Congress.