The Good The Bad and The Ugly

When I first heard on Friday about the spending bill being put before the Senate, I felt a sense of disgust. Once again our elected officials are blatantly ignoring the needs of their constituencies for the sake of pork barrel spending. The current bill includes more than 5,000 pet projects, the most ridiculous of which have already been exposed by the major news organizations.

As I read more about the bill however, I realized that it has its good side. The main purpose of the measure, known as an omnibus bill, is to pay for vital programs in areas such as veterans, health and education. That’s the stuff we need. As much as I hate to admit it, a flawed government is still better than no government.

However, the ugly part of the situation is the most outrageous. This is the mindset of the Congress, which views profligate spending as a virtue to be praised. Senator Richard Durbin of Illinois reminded all of us that the individual spending bills were given bipartisan support by the Senate Appropriations Committee. Isn’t that wonderful?
Both parties agree that irresponsibly raising the national debt to reward campaign contributors is an admirable end.

As the New York Times reported yesterday, there is more of this behavior yet to come. The next major bill to come before Congress is a $600 billion measure that will pay for the operations of the Pentagon for the next year. Since no one in Congress would vote against keeping the Pentagon in business, there are plans being made to attach other wasteful spending projects to this measure.

Included in those measures is one provision to raise the federal debt limit by $1.8 trillion. What sense does it make to have a debt limit if Congress is just going to raise it every year to cover their own irresponsibility? Think about what would happen if the average homeowner was allowed to do that on an annual basis. In some sense, that’s exactly what did happen, and look where we are now.

I have to wonder if Congress is aware or at the very least cares about the ugly image it displays to the general voting public. Their approval numbers don't seem to mean much to them. They are mortgaging our future for the sake of the few and flipping the rest of us the bird at the same time. They only reasons they do it are because no one holds them accountable and because they are so insulated from the plight of the average citizen that they listen only to those who throw the most money at them.

Let’s hope that changes before the well runs dry, before the credibility of the United States turns into a impudent joke at a Russian vodka party.

*Source information for this article is from The New York Times December 13th edition

President Obama, Are You Listening?

In an announcement I loved reading this morning out of Great Britain, Chancellor of the Exchequer Alistair Darling proclaimed a 50% tax on all bank bonuses over 25,000 pounds, translating into $40,800. That low limit effectively captures the vast majority of bonuses that will be paid.

I found it very curious that within a half hour of that announcement, a member of the board of Goldman Sachs, William George, was quoted as saying that his firm is taking a “very hard look” at whether to pay people less because of public outrage over bonuses. My educated guess says they will do one of two things: One, they will impose a temporary restraint until the outrage dies down; Two, they will decide that their pay policy can’t be changed because it will result in a “talent exodus,” a matter which I have addressed before.

Indeed, the reaction of the US financial community supported the latter conclusion. “We don’t think it is at all likely that Treasury-IRS would impose a 50 percent tax on banker bonuses,” said David Schmidt, a senior consultant for New York-based compensation firm James F. Reda & Associates. “This pay cut would likely cause an exodus of talent.” I have stated repeatedly in the previous columns that while it may be true that there would be a temporary exodus of talent, the attitude that that talent cannot be replaced is utterly ridiculous.

The only voice quoted that agreed with the idea of a US bonus tax is the one I respect the most. Clyde Prestowitz, whose book, Three Billion New Capitalists, was a warning shot across the economic bow of the country when we still believed that what has happened could not happen, called the bonus tax “a great idea that is justified by the taxpayer supported bailouts.” He added, “There’s a lot of pain and agony out there because of their malfeasance.”

His statements are confirmed by a Bloomberg National Poll released today that almost two thirds of Americans rate bankers lower than Congressmen, lawyers and insurance companies. With polls released in the past few months showing favorable ratings of Congress hovering in the teens, I suspect that the true number of people who give bankers that low a rating is closer to 80%. Bloomberg’s study only polled 1000 adults, hardly enough to produce a completely accurate reading.

Is President Obama listening? Is Tim Geithner? Mr. Geithner recently paid lip service to the “irresponsibly high bonuses” being paid on Wall St. this year, but no further action is currently being contemplated, and it’s obvious that the people paid to watch the banking system also expect nothing to be done.

I suggest that Mr. Prestowitz is correct. It is time to follow the lead of the British and impose a bonus tax of at least 50%. This would accomplish two important objectives: First, it would show that those elected to govern are listening to the will of the people who elected them. Second, it would send a clear signal to Wall St. that their actions are wrong and completely out of touch with economic reality. This is something the majority of Americans already seem to know.

Finally, it is worth remembering that last year, in the immediate wake of the banking crisis that started this economic turmoil, British bankers apologized for their irresponsibility. American bankers had the nerve to blame “excessive regulation” for the crisis. It’s time to remind them that the fallout from their willful transgressions is far from forgiven.

**The source of all quotes in this article is Bloomberg.com