Bailouts, Not Bonuses, Are the Real Problem

COMMENTARY Markets and Finance

Bailouts, Not Bonuses, Are the Real Problem

Mar 24, 2009 3 min read

Policy Analyst

As senior fellow in government studies at The Heritage Foundation, Brian Darling...

End the bailouts and Protect Capitalism

Politicians are apoplectic that American International Group (AIG) executives received $165 million in bonuses. AIG's Financial Products unit engaged in credit-default swaps that put the insurance giant on the verge of insolvency before the feds bailed them out. Politicians are steamrolling forward with an initiative to tax their bonuses. Conservatives are outraged by the bonuses, but know that bonuses aren't the problem -- the bailouts are.

Chairman of the House Financial Services Committee and author of the $700 billion Troubled Assets Relief Program (TARP) Barney Frank (D-Mass.) said, "I think the time has come to exercise our ownership rights. We own most of the company, and [we should] say as owner, 'No, I'm not paying you the bonus, you didn't perform.'" Liberals would rather act as managers of AIG than to break it up and privatize profitable units of the company.

Clearly, now is the time to end the bailouts of Wall Street, AIG and the auto industry. As Sen. Jim Inhofe (R-Okla.) said last week:

"Should we be mad at the executives who are involved in this and who ran a once-great company into the ground? Yes. But that's not where the blame game ends. That's not where the buck stops. I know that I will upset some of my colleagues when I remind them, and the American people, that much of the blame should be directed right here, to the members of this body, the U.S. Senate, to the other side of the Capitol in the U.S. House for voting for the original $700 billion bailout."

Another senator advocating a course change on bailouts is Sen. Jeff Sessions (R-Ala.) who spoke on the Senate floor:

"The more we proceed with policies whereby the government owns 80% of the stock of a private insurance company -- having poured $170 billion of our wealth into it -- the more we are inevitably compelled to direct how the company operates, to the point of deciding who their executives should be, what the company's salary scale should be, or what aircraft it can or cannot have or where or what kind of corporate retreat they may have, and whether or not it can pay bonuses."

The Heritage Foundation, my employer, wrote last November of Treasury's bait and switch when then-Secretary Hank Paulson announced that the feds weren't going to buy troubled assets and to "purchases of stock in non-bank financial firms; federal financing for investors in securities backed by consumer debt such as car loans, student loans, and credit cards; and subsidies to mitigate mortgage foreclosures. These possible moves, however, would likely exacerbate rather than ease the current financial problem." The moves by Treasury have done little to give value to troubled assets and free up bank credit for the business world.

Granting bureaucrats unfettered discretion in implementing the TARP program has proven to be a mistake. Conservatives in Congress should use the debate over AIG bonuses to abolish the TARP and forbid future bailouts.

Where's the Budget?

President Obama hasn't yet finished his $3.6 trillion budget, yet the House of Representatives appears poised to pass a budget resolution based on his $3.6 trillion outline. The budget will guide how Congress spends your hard-earned money; it's too important to be debated using an outline and placeholders. For the sake of transparency, Congress should debate the full Obama budget and the implications it will have on our children's future. The American people deserve to see the details before Congress rubberstamps a plan that spends, taxes and borrows too much of your money.

Conservative Cheers

Cheers to Sen. Jim Bunning (R-Ken.), one of the fathers of the Armed Pilots Program, for digging in his heels to save the program from possible elimination or downsizing by the Obama administration. Pilots have expressed deep concern about proposed cuts to the program (and its potential abolition). Bunning told HUMAN EVENTS that "the Armed Pilots program has proven to be the most effective tool in protecting the cockpit from a 9-11 style attack. The program is the first line of deterrence and last line of defense. It would be unwise for the Obama administration to take any action to weaken or possibly even end the program."

Earlier this month, Sen. David Vitter (R-La.) forced a vote on the elimination of Congress's automatic annual pay raises. After some political gamesmanship, the Senate tabled his amendment. Last week, though, senators rethought their opposition and passed Vitter's bill by voice vote. Taxpayers cannot claim victory yet, though -- House leaders seem disinclined to take up the measure.

Brian Darling is director of U.S. Senate Relations at The Heritage Foundation

First Appeared in Human Events