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One of the few sustainable things that have come out of Washington over the past week is Michelle Obama's garden. The new First Lady has dedicated 1,100 square feet on the South Lawn of the White House to grow organic vegetables and fruits, including arugula, other greens, berries and herbs. I give Michelle's garden an enthusiastic two thumbs up. Growing your own vegetables is healthy, self-reliant and delicious, and is something that most Americans with a patch of dirt can aspire to. No land? Creative apartment dwellers have made do with window boxes in a sunny place, at least to grow herbs and smaller plantings.
Michelle's garden resonates with me because it represents a small, affirmative step that an individual or a family can take to put things right in the midst of chaos. In many ways, sustainability begins at the personal level with the desire to be accountable and to build a more positive future. With any luck, a commitment to sustainability begins to ripple outward, affecting one's family, one's work and, with time, larger institutions.
Unfortunately, I'm not nearly as pleased this week about Michelle's husband -- or, at least, about some of his hires. I'm referring here, to the Obama administration's handling of the infamous AIG bonuses and the TARP program generally.
On the AIG situation, the president has talked a good game. In January, he called the $18.1 billion in 2008 Wall Street bonuses "shameful." On March 16, he termed the latest round of AIG bonuses -- the infamous $165 million, now estimated at over $218 million -- an "outrage", and directed his Treasury Secretary to "pursue every single legal avenue to block these bonuses and make the American taxpayers whole." Speaking on 60 Minutes on March 22, the president sympathized with public frustration: "Because ... if you go to North Dakota, or you go to Iowa, or you go to Arkansas…folks would be thrilled to be making 75,000 dollars a year -- without a bonus."
As my dad used to say, though, "Talk is cheap." Unfortunately, the Obama administration's management of TARP and AIG has continued the Bush administration's practice of releasing billions in taxpayer funds to financial institutions with what appears to be limited oversight and little interest in assuring accountability for how the monies are spent. The U.S. Treasury is the 80 percent equity owner of AIG and its sole source of credit, and yet refused to stop the issuance of employee retention bonuses because the strategy might be, in the words of Treasury Secretary Tim Geithner, "legally difficult." Hint to the folks at Treasury: Standard business practice is to stop the payments, escrow the disputed amounts if needed, renegotiate with AIG and then (if necessary) look for legal justification.
In the bad to worse department, TARP has paid face value for contracts collateralized at the 56 percent level (another hint for the folks at Treasury: Standard accounting practice values assets at the lower of book value or the value of the relevant collateral), and has allowed TARP recipients to double-dip by not deducting from their original TARP payouts additional TARP amounts received via AIG.
I support the bailout -- I believe that it was necessary for the U.S. government to step in to prevent failure of the financial system. At the same time, I believe that TARP should be overseen carefully, with full regard for restoring accountability on Wall Street and for the respectful and responsible use of taxpayer dollars. To work, TARP needs to be seen as putting things right in the midst of chaos. In other words, TARP needs to be administered sustainably. Unlike Michelle's garden, it hasn't been.
Leanne Tobias is founder and principal of Malachite LLC, an advisory firm that specializes in the development, leasing, management, financing and certification of sustainable or green real estate on a global basis. Comment online, or write to Leanne about your green real estate thoughts and experiences at greenstimulus@malachitellc.com. She'll share the best of reader feedback in future posts.
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Bank of America, AIG, Citi, Goldman Sach's
The odd part of all this is that those AIG bonuses had to be paid. They were legal employment contracts. The congress generally doesn't have (and shouldn't have) the right to rip of legal contracts.
What should have happened is that AIG should have gone Chapter 11. Then a judge could rip up those employment contracts and written new ones without bonuses. However, President Obama was left like an "Emperor Without Clothes" with AIG. He listened to his corrupt advisors who left him looking like an idiot.
Friends of mine in the financial industry said that it wouldn't be a problem to have Bank of America (or Citi, for that matter) go chapter 11. Other well run banks would have swept in and bought their good assets for 30 cents on the dollar.
The public is buying the Federal Reserve and Treasury's propaganda that these organizations are "too big to fail". They are not too big to go Chapter 11 which allows for restructing - including selling off good assets and getting rid of the criminals that are currently running these companies.
I think President Obama should find some new advisors. People who are not beholden to banking and Wall Street interests. Obama has to start thinking for himself, unless he wants to continue to be the "Emporer With No Clothes". His current cabal, including Geithner, Lawrence Summers and Ben Bernanke are all about preserving the banking / Wall Street's control over us. And if you think they are worried about Joe the Plumber, you've got another thing coming. They are all about preserving Bank of America, AIG, Citi, Goldman Sach's of this world who want to keep control of the financial system and set its rules to their advantage.
Response from Leanne Tobias
It's scary out there when the libertarians begin to make sense, at least some of the time. As my column indicates, I do have concerns about the 'heads Wall Street wins, tails taxpayers lose' aspects of TARP, especially about its sloppy administration to date. And I agree with my reader that the plumber and the small business owner need more help from Washington than they've received so far.
Sadly, the lax administration of TARP produces poor all-around consequences. The Treasury Department's failure to stop the AIG bonuses (to cite the most highly-publicized example) helped neither AIG nor the TARP effort generally. Now we're stuck with Congress's 90% TARP bonus taxation bill-- the legislative branch's well-meaning but Howitzer-like effort to deal with the debacle. Had Treasury stopped the bonuses in the first place and helped AIG to craft another approach to compensating its employees, we'd all be the better for it. With any luck, both Treasury officials and TARP recipients will heed the lesson. (And the other aspects of lax TARP administration are on a scale of far greater magnitude than the AIG bonuses and even more important.)
Unlike my reader, though, I'm not outraged about the AIG bailout generally nor about the systemic bailout aspects of TARP, because I don't share my reader's optimism that had we "allowed AIG and Bank of America to fail, we'd probably be on our way to recovery." I think that we'd be even deeper in the soup had we allowed Bank of America, AIG and other major financial institutions to fail.
The large financial institutions play an important role in community, regional, national and global economies, and I continue to support a more moderate reform and recovery approach, rather than a let 'em collapse approach. Admittedly, the problem with-- or the strength in-- being a moderate is that it is necessary to rely on honesty, vigilant oversight, strong management and fine-tuning. My hope is that the federal officials responsible for TARP will tighten program administration to operate more responsibly, respectfully and sustainably.
Taxpayer bailout to government insiders
President Obama was "shocked" to find out the bonuses had been guaranteed in the bill that he signed. Then it took him five days to respond so "he knew what he was talking about". Perhaps if President Obama took five days to understand the bill he was about to sign, he would probably not have signed it.
This is the problem with these "bailouts". We find out that billions of taxpayer's money is going towards large banks and financial companies that represent the "financial cartel" that actually runs this country, while the taxpayers and the politicians helplessly stand by gasping in shock.
Of course, President Obama and many of the Democrats and Republicans have received millions in campaign contributions from the companies that are benefiting most from the TARP bailout - and that should not be a shock at all. At times I can't tell if Goldman Sachs is the "for profit" arm of the government, as their executives seem to trade places inside the government and then back to Goldman Sachs and back (of course, there are other financial institutions who are also "in bed" with the government, like Freddie Mac and Fannie Mae.
Now the Federal Reserve is asking for "Tarp-like" powers to become permanent. Mr. Geithner will be able to deem any company as "too big to fail" and immediately take it over and commit taxpayer funds to it's bailout - without presidential or congressional approval. This plan is the most shocking of all. The Federal Reserve is now some sort of financial police that can stage "financial home invasions" with impunity while the taxpayer pays the bill.
Unfortunately Leanne, you can't have it both ways. You can't have bailouts and then hold your breath and hope that everyone is honest and plays by the rules. The people who got us into this place are extremely dishonest and disingenuous.
That's why libertarians like myself place little trust in the federal government and the Federal Reserve "banking cartel". We'd rather return the money to the street so that Joe the Plumber can afford to put his child through school or Josephine the Small Business Owner can afford to offer health care to her employees.
Had we allowed AIG and Bank of America to fail, we'd probably be on our way to recovery right now, instead of wallowing in a depression. And we would have avoided borrowing / printing trillions of dollars. I'm glad your outraged about the bonuses, but you should be more outraged about the AIG bailout.
Even your esteemed Mr. Krugman appears to be singing the libertarian tune right now - and few people would have believed he would change his mind a few months ago - so please Mr. Krugman and I and continue to write your articles.