The Reynolds "Charity" Empire in Decline

A few years ago I wrote a post entitled, "Is The Breast Cancer Society a Worthy Charity", to which the answer was "No". The comments to that thread are extensive, and include a defense of the organization from Kristina Hixson, which avoided answering any of the tough questions or giving an honest explanation of the organization's operations. She went so far as to post a series of fake endorsements to the thread, trying to bury valid criticism behind fictitious praise.

Oh yes, and she went on to marry the man who ran that "charity", James T. Reynolds II.

Over time, the Reynolds' family of "charities" started to receive press scrutiny. The Tampa Bay Times published an article, "Intricate family connections bind several of America's worst charities". It opens

Carol Smith still gets angry when she remembers the box that arrived by mail for her dying husband.

Cancer Fund of America sent it when he was diagnosed with lung cancer six years ago.

Smith had called the charity for help. "It was filled with paper plates, cups, napkins and kids' toys," the 67-year-old Knoxville, Tenn., resident said.

"My husband looked like somebody slapped him in the face. "I just threw it in the trash."

The story continues,

In the past three years alone, Cancer Fund and its associated charities raised $110 million. The charities paid more than $75 million of that to solicitors. Cancer Fund ranks second on the Times/CIR list of America's worst charities. (Florida's Kids Wish Network placed first.)

Salaries in 2011 topped $8 million — 13 times more than patients received in cash. Nearly $1 million went to Reynolds family members.

The network's programs are overstated at best. Some have been fabricated.

The Federal Government has finally managed to partially shut down the Reynolds empire:

In reality, officials say, millions of dollars raised by four “sham charities” [Cancer Fund of America, Cancer Support Services, Children’s Cancer Fund of America and the Breast Cancer Society] lined the pockets of the groups’ founders and their family members, paying for cars, luxury cruises, and all-expense paid trips to Disney World for charity board members.

The 148-page fraud lawsuit accuses the charities of ripping off donors nationwide to the tune of $187 million from 2008 to 2012 in a scheme one federal official called “egregious” and “appalling.”...

Among the allegations is that [Reynolds' ex-wife, Rose] Perkins gave 10% across-the-board bonuses twice a year to employees [of the Children’s Cancer Fund of America], regardless of performance, and was allowed to set her own salary and bonuses up to a limit without the approval of board members. In 2010, when donations to the Breast Cancer Society were declining, Reynolds II’s salary ballooned from $257,642 to $370,951, according to the complaint.

What can a grifter do, but grift? Even having been shut down, the Breast Cancer Society promises to come back to leach off of the good intentions of people who want to help cancer survivors:

The silver lining in all of this is that the organization has the ability to continue operating our most valued and popular program, the Hope Supply. Our Board will work tirelessly to maintain the Hope Supply program services that have benefitted our many patients for years – initially under the TBCS banner as it transitions under a different organization – all with the goal of seamlessly providing services to you. I take solace in the fact that this wonderful program has the chance to continue operating.

There is a note of honesty, "I have loved leading TBCS...." Why wouldn't James love working in a job that paid him royally for performing little work, despite his indifference to the needs of the people his charity was supposed to help? It's a gravy train he's eager to re-board, so watch out for his next "charity", coming soon to a list of the nation's worst charities near you.

If you want a good measure of James Reynolds II's character, watch him on video.

Detroit Isn't Greece

Remember that movie from a few years ago, where a kid grew increasingly neurotic and agitated about government debt until a psychologist teased out his secret, "I see Greek people... they're everywhere... and they don't even know they're Greek!" Well, neither do I, but had they made that movie the child might have grow up to be Charles Lane.

I have three basic problems with people who are inclined to point to units of government and declare, "That's like Greece". First, those making the comparison often seem to have little understanding of the situation in Greece. Second, their comparisons are usually spurious. Third, the gist of their argument usually has nothing to do with Greece or the circumstances that led up to its economic crisis, and usually have a lot more to do with a desire to cut social spending or to attribute some form of blameworthiness to the ordinary people who have profited the least and suffered the most from the mistakes and misconduct of their governments. I'm not seeing Lane as an exception.¹

Greece's economic crisis did not emerge in a vacuum. If any nation in the Euro zone was not aware that Greece was playing games with its finances first to qualify for entry into the Euro and subsequently to nominally meet the limits on the size of its deficits, the ignorance would have to have been willful. Greece's governance was impaired by ineptitude, corruption, and a willingness to turn a blind eye to tax fraud. But the average Greek person was part of a culture that was more entrepreneurial than most - just oriented toward small, family-run businesses as opposed to the version we're used to - and on the whole they were paying a higher share of their income in taxes than a typical U.S. citizen. It's all too easy to shrug off the hardship they are experiencing, first from the economic collapse and second from austerity measures, while ignoring the fact that those who profited the most from the lead-up to the crisis are also typically those most insulated from its consequences.

A comparison between Greece and Detroit perhaps holds true in relation to the perceptions that lead to a mentality of austerity - a notion that the people are at best undeserving and at worst need to suffer. Never mind that most of them are trying to get through their lives under difficult circumstances. The City of Detroit has lost close to two thirds of its population since its peak. It's easy to look at Coleman Young, who chose to transform himself into a cartoon, and forget that he became mayor following a period of crisis and actually did good work during his first term. It's astonishing, how bad things became over his subsequent terms, or the culture of incompetence and entitlement that took over the City's government during his era.

It's easy to forget that when provided with the opportunity to do so, the people of Detroit made the very responsible choice of electing Dennis Archer as mayor - but (one might infer, when confronted with the entrenched corruption and incompetence left beyond by Young as well as the lack of resources and political capital necessary to effect a significant reform of the city and its government) he left office after one term and was succeeded by the young, charismatic,² and (alas) corrupt Kwame Kilpatrick. It's also easy to forget that Kilpatrick was succeeded by Dave Bing, who is much more in the model of Archer, but by some combination of timing, personality and opportunity, more willing to take on the entrenched interests that have impaired the city. As they say, at least in relation to trying to forestall the appointment of an emergency manager and possibly to keep the city out of bankruptcy, too little, too late.

It has been painfully obvious for decades that Detroit needed serious outside intervention. That did not occur for three reasons: first, few people were willing to pay the political price associated with the necessary reforms. Mayor Bing was able to propose consolidating neighborhoods and essentially shutting down the sparsely populated ares of the city because things had degenerated well past the point of sustainability - but the need for those measures were obvious more than twenty years ago. Second, change isn't cheap - and nobody wants to pay for it. For example, there are huge, slowly decaying buildings and structures in Detroit that remain in place, eyesores that stand in the way of brownfield redevelopment, because they're too expensive to remove and nobody in their right mind wants to develop land that sits next to a decaying hulk or contaminated land. The state is unwilling to divert that type of money into Detroit, and it's not even on the federal radar screen. Third, it's very easy to blame the people of Detroit for their own plight, even though things get far more complex when you start looking at individuals. Our nation's approach to its anachronistic large cities³ and the problems of the inner city is largely one of disinterest and neglect - and that's not likely to change as long as the nation, as a whole, perceives the residents of those areas as undeserving of help.

Still, Detroit has its bright spots. If Lane ever actually makes it to the city, he may want to check out Greektown.
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1. For example, Lane waxes poetic about the union-busting powers granted to Detroit's emergency manager then complains, "German chancellor Angela Merkel could only wish for such quasi-dictatorial power over her Greek clients", seemingly unaware that Germany has been a driving force behind the failed austerity measures that have been imposed upon Greece to the extreme detriment of ordinary people; he argues "Greece’s state-owned money pits include a railroad and ports. The political class in Detroit saw fit to own water works and parking garages", as if it's unusual for a municipality to own a water utility or parking structure and as if the comparison between that type of service and owning seaports and railroads has any validity, and in ignorance of the fact that Detroit's water utility produces high quality water and sells its services to other area communities; he suggests that Detroit's pension obligations are somehow analogous to the cause of Greece's economic crisis, never mind that pensions had nothing to do with Greece's crisis and the relative size of Detroit's pension obligations to its tax revenue is far more a creature of its collapsed tax base than of the fact that city employees receive pensions.

2. I did not personally find Kilpatrick to be appealing - I would label his style and swagger as appalling - but I can't deny that many others thought he was charming and liked his bravado.

3. Many cities that were once important, even crucial, hubs for trade are now largely irrelevant. Many of the industries that were once consolidated in major cities have shifted to other states, and even to other nations, with little to take their place. Detroit has lost 60% of its population, leaving behind a tax base insufficient to support its infrastructure, but without enough jobs or opportunities for the people who remain behind. As huge numbers of capable workers have left the city, a disproportionate number of those left behind have marginal jobs skills, physical or mental illness, drug addiction, or some combination thereof - with a predictable effect on the community, its schools, and its attractiveness to employers.

Fake Presidential Scandals, Then and Now

Paul Krugman suggests an explanation for why the Clinton-era fake scandals kept on going, while similar efforts to build fake scandals involving the Obama Administration seem to be fizzling:

Maybe the news media have actually learned something; maybe they’re effectively disciplined, this time around, by the blogosphere. Anyway, the narrative of a scandal-ridden presidency seems to be evaporating as we speak.

I don't credit the media or blogosphere. I think there are two important distinctions, one relating to the Presidents themselves and the other relating to the scandals.

First, the Clintons had a history of engaging in activity that, although never determined to be anything but lawful, didn't always pass the smell test. The remarkable success of Hillary Clinton's one-type foray into commodities trading, for example, continues to strike me as the sort of investment opportunity that would not have been made available to her were she not the governor's wife. At the same time many of the accusations made against the Clintons were truly unfair, and one of Mike Huckabee's most tragic decisions as governor may have its roots in his acceptance of a ridiculous conspiracy theory.

I don't want to discount the role of public perception, or the media's role in building and perpetuating public perception. But in no small part Clinton himself fed the public perception that was willing to play fast and loose with the facts - his claim that he never broke the drug laws of the United States, that he did not have 'sexual relations' with 'that woman', "it depends on what the definition of 'is' is", etc. - so while "slick Willie" may have been something of a caricature Clinton himself kept throwing fuel on the fire.

In contrast, although various efforts have been made to suggest that Obama is guilty by association for his relationship with Tony Rezko, or "pals around with terrorists" because of his relationship with William Ayers, the overall picture is pretty clear: President Obama has spent his adult life conspicuously avoiding anything that smacks of corruption. While certain right-wing partisans nonetheless scream from the top of their lungs that the Obama Administration is "the most corrupt ever", the facts say pretty much the opposite.

In fairness, that distinction could affect the media - covering a fake Clinton scandal was likely to turn up a colorful character or two, a colorful statement from the President, and perhaps just enough smoke to justify the coverage. Some of the allegation were so absurd ("Clinton murdered Vince Foster") that, even if not taken seriously, they were frequently referenced by those who most hated Clinton (and thus did not particularly care if the allegation was credible) and his supporters (who could use that type of allegation to depict Clinton's attackers, sometimes quite accurately, as loonies). There's no excitement in chasing a typical fake Obama scandals. The only person who can maintain enthusiasm about trying to concoct a direct connection between the actions of some low-level IRS agents and the President seems to be Darrell Issa.

Second, as I just intimated, the Obama scandals are largely boring. The Republicans got quite a bit of mileage out of Benghazi because it involved conspicuous violence and some tragic deaths, but they've run out of "revelations" so the media and public are losing interest. Ken Starr knew how to build a rolling scandal - "Nothing to Whitewater? Then how about we look under these other stones to see what we find." That only works, though, if you find stones that you can turn over, and that scandal seems to be fresh out of stones.

The IRS non-scandal is boring. Complaining that the President was spying on Americans only goes so far when half of the Republican Party is asserting that the present NSA program is a vindication of Bush, and various fire-breathing Republicans (including Michele Bachmann, Steven King, Jeff Flake and Ted Cruz) as well as various Republican "older statesmen" (including Orrin Hatch, Lindsey Graham and Saxby Chambliss) knew exactly what was happening and did not lift a finger to stop the programs. While you do see somewhat comical statements from people like Jim Sensenbrenner ("Whodathunk the USA PATRIOT Act could be used to support this type of monitoring?") the Republicans are at a disadvantage - their most prominent spokespersons knew about the monitoring, did nothing to stop it, and even now have no intention of doing anything to significantly curtail it. "It's horrible that the Obama Administration did this thing that we knew about, didn't stop, and are allowing to continue."

Further, although it's easy enough to engage in fiery rhetoric about how the programs "were illegal" when you actually start looking into the law the discussion becomes rather arcane and the Administration's position starts to look like it was narrowly tailored to fit within established law and precedent. It's the sort of argument that only a lawyer could love, in part because it's somewhat arcane, and in part because if you're not a lawyer or a close follower of the Supreme Court you're unlikely to have the context to participate in a debate and (because you are likely to find it boring) even if you can find a media account that attempts to explain the background in understandable terms you're unlikely to read it. So it devolves into a series of exchanges in which each side pounds the table for a while, with anti-monitoring activists refusing to acknowledge the legal framework for the monitoring, and Administration defenders asserting the lawful nature of the program while avoiding the implications of such programs, until people lose interest.

There's a media angle to that, as well, in that the media wants to generate readers and viewers, and you don't draw an audience by boring them. But that's less a matter of having learned from past mistakes and becoming more disciplined, and more a matter of being less concerned with the story than with its appeal to the masses. A responsible media might bore us a bit with the legal stuff, then engage in a debate over the margins of privacy, how we can protect and value privacy in the modern era, and how to balance privacy and security. If you looked hard enough you could find that sort of discussion back in the Clinton era and you can find it now - but it's not the sort of information the mainstream media actively promotes so you can expect to have to work to find it.

AIG Suing the Government... Have Pity On the Orphan

Even if willing to excuse the incompetents, those who didn't want the criminals who helped take down the economy to avoid any consequence have been reminding us for years that the statute of limitations was running:

In the meantime, the statute of limitations, generally five years for securities fraud and most other federal offenses, is running out, precluding the possibility of bringing many new suits dating from the bubble years.

The result is a public perception that the big banks and their leaders will never have to answer fully for the crisis. The shameless pursuit of Wall Street campaign donations by both political parties strengthens this perception, and further undermines confidence in the rule of law. There may be more civil fraud suits related to the financial crisis, producing settlements and fines. But to date, those cases have rarely named top executives and the banks have rarely admitted wrongdoing. And the fines, even those in the hundreds of millions of dollars, have been small compared with bank profits and banker bonuses.

After all these years, what is still needed are cases with convictions and settlements severe enough to deter future bad behavior. If institutions operating at the heart of the economy really cannot be held to account, the solution should be to break them up, not give them and their leaders a pass.

In an editorial that reminds me of the joke about the lawyer defending his client, accused of murdering his parents, "How can you say such awful things about this poor orphan," David Boies makes the case for AIG's suing the federal government for having the audacity to bail it out:

Objections to AIG shareholders having their day in court to contest the terms of the government's takeover of their company are based on ignorance of the law and the facts.

Opening your argument by pounding the table? Not a good sign.

David Boies is the lead attorney representing Starr International in a shareholder lawsuit against the government. Starr's chairman is Maurice "Hank" Greenberg, AIG's former chief executive.

One statement I do not expect to be hearing from Boies,

This suit was not commenced at an earlier date because it was complex, not because my client has done anything wrong or has anything to hide, and my client happily waives the statute of limitations for any criminal charges or civil claims arising from his own conduct. Pure as the driven snow, he is.

Most of Boies' arguments, no offense to the man, strike me as the leavings of a ruminant. I am to believe that private investors were lining up to bail out AIG with sweetheart deals, but that the U.S. government scared them off? Care to name one, or should we refer to them for now as "Hank Greenberg's invisible friends"?

Remember all that nonsense about "the sanctity of contracts" from back in the day, when insurance executives were insisting that gargantuan bonuses be paid to the idiots who took down the economy, and that payouts be made in full with taxpayer cash, because insurance companies cannot survive unless their word is gold? (Ever make an accident claim only to be lowballed by the insurance company, or fight to get a medical procedure covered? Then odds are you weren't fooled.) Remember how we were instructed that it could even be illegal for AIG to try to negotiate reduced payouts to counterparties? Now Boies complains that AIG actually had to live up to its word, the so-called "back door bailout", because the government used taxpayer money to fully fund AIG's liabilities.

If Darrell Issa has a spine hidden somewhere beneath his suit coat, perhaps he'll stop peering unsuccessfully under the skirts of Obama Administration officials, in search of fake scandals, and turn his attention full bore on AIG. And perhaps he can rally his fellow Republicans to authorize a blank check for the defense of the lawsuit - enough of the excuse for failing to prosecute of, "It's just too complicated". You didn't want to take the war to AIG, fine, but now AIG has brought the war to you. If Hank Greenberg has a case to make, let him make it - but turn the heat way up.

Crony Capitalism and Romney's Olympics

Given the Romney team's baseless accusation that the Obama Administration engages in "crony capitalism", via Charles Pierce I give you Sports Illustrated on the Utah Winter Olympics.

Is this a great country or what? A millionaire developer wants a road built, the federal government supplies the cash to construct it. A billionaire ski-resort owner covets a choice piece of public land. No problem. The federal government arranges for him to have it. Some millionaire businessmen stand to profit nicely if the local highway network is vastly improved. Of course. The federal government provides the money.

How can you get yours, you ask? Easy. Just help your hometown land the Olympics. Then, when no one's looking, persuade the federal government to pay for a good chunk of the Games, including virtually any project to which the magic word Olympics can be attached.

For the past few years, while attention was focused on the Great Olympic Bribery Scandal—in which Salt Lake City boosters dispensed as much as $7 million in gifts, travel, scholarships, medical care, jobs and other goodies to IOC members (and their relatives and companions) to ensure that Utah's capital city would be chosen to host the 2002 Winter Games—private and public interests have siphoned an estimated $1.5 billion out of the U.S. Treasury, all in the name of those same Olympics.

It would seem that after running away from his record as Governor of Massachusetts, and seeing his tenure at Bain fade as an effective cornerstone for why he would be a good choice as President, Romney's out to open the door to his one remaining claim to fame (other than his family name).

I'm Not Saying It's a Stunt, But....

My guess is that if you want to truly understand the S&P downgrade of U.S. debt, you would have to consider two things:

1. Primacy: Nobody will pay much attention to the second bond rating agency to pull this type of stunt, er, I mean to carefully reassess the risks associated with U.S. debt.
2. Profits: Wanna bet that more than a few S&P insiders made some investment decisions on Friday in anticipation of the downgrade announcement on Saturday?

Perhaps the U.S. government should figure out how it can pay for ratings, so it can be as accurately as the proprietors of those AAA mortgage-backed securities that turned out to be toxic. Seriously, I can understand being concerned that the U.S. won't get its act together, or that "Tea Party" Republicans will confuse this type of stunt with actual policy and trigger a default. But if bond ratings are supposed to be about the safety of your money, where would S&P have us put our money? I mean, albeit way late, even S&P figured out that those mortgage-backed securities were a bad deal, and we can't all put our money into UM.

Truth be told, and S&P must be aware of this, if the markets believed that the U.S. was truly going to default on its debts we would have seen panic in the market prior to the announcement and passage of the final deal. It may sometimes involve choke chains, but the Republican leadership knows the price it will pay if it allows the idiots in its ranks to actually force a default - whatever reward the Tea Partiers imagine that they might reap at the polls, the party would be severely punished by the deep pocketed contributors who bankroll their campaigns - and thus their actual agenda.

The Happy (Influence) Peddler

David Broder reminds us how much the world he loves has changed. Oh, sure, Charlie Rangel deserved to be censured but, just s when Dan Rostenkowski fell to corruption charges, it's a sad day nonetheless.

I think I can tell you why. The pursuit of power is what brings people into politics, and some of them pursue it with a grim determination never to be outmaneuvered. You can stand back and watch them work, but there seems to be no joy in them - or in the spectacle they provide. It's a deadly serious business, this fundraising, vote-counting, always manipulating treadmill, for the Tom DeLays and the Nancy Pelosis of this world.

Perhaps it's worthy of note that Tom DeLay was recently convicted of money laundering? You would think that would merit mention under the circumstances, although that might say a bit too much about Broder, "It's not the corruption that bothers me, or even the conviction - it's that he was so grim." Influence peddling, it seems, should make you happy.

What was different about Rangel and Rostenkowski was the sheer joy with which they played the game and the way they would let you know that, whatever the policy stakes, a game is what it was to them.

How did they let you know? They would analyze their own motives with the same disarming candor they brought to their calculations of their colleagues' maneuvers.

Somehow I think Broder means something different than, "They openly admitted that pretty much everybody in Congress is, at some level, for sale," but that's nonetheless a reasonable interpretation.

Broder tells us,

I remember conversations with [Rangel] when he was engaged in what may have been his greatest coup: helping free Hillary Clinton from the confines of the East Wing and converting her into a successful Senate candidate in New York.

The number of people who were determined to keep that from happening were legion, both in Washington and New York. But Rangel knew them all, and he knew how to get around them - by co-opting or by mowing them down, whatever was required. And he loved every minute of this game - which he played for unselfish purposes, not to expand his own influence.

Let me get this straight - the evidence David Broder offers of Rangel's selflessness is that he helped one of the most politically connected people in the world become a United States Senator, happily pulling in chits, trading favors and bulldozing obstacles along the way? And Broder knows that Rangel had no expectation that he would benefit from his ongoing relationship with President Clinton and his political supporters, let alone any future benefit from his relationship with Senator Clinton? And we know all of this simply because... that's the way Broder spins the story? Why am I left less than completely satisfied....

Meanwhile, Broder assures us, people like Rostenkowski and Charlie Rangel aren't greedy (don't be deceived by your lying eyes). Broder's explanation?

Often, they were just sloppy about the demands of the new era of politics.

Which apparently involves the unrealistic expectation that you'll be reasonably honest in your financial dealings and disclosures, and not commit any felonies on the job? The horror.

Broder informs us,

And [Rostenkowski] always hugely enjoyed the game he was part of - never burdened by whether it was negotiating with the Treasury secretary or regaling his pals late at night at his favorite steak and bourbon joint.

How often, I wonder, was Broder among those pals? And who picked up the tab?

Dana Milbank shares a different perspective, that we have "A House full of Rangels".

The rules governing members' behavior were proven so lax as to be irrelevant. The vast majority of transgressors are never punished - Rangel was penalized only because he himself asked the ethics committee to investigate some of the allegations against him.

To be sure, Rangel deserved punishment for his wrongdoing, which included failing to pay taxes on his beach house in the Dominican Republic and improperly using his office for charitable fundraising. But in the 30 minutes allotted to him for his defense on the House floor Thursday evening, Rangel and his friends made a compelling case that he was being punished for doing things that lawmakers do routinely.

"The only examples of anybody sanctioned for tax matters in this House in the history of the United States have been those who didn't pay taxes on bribes they received," Rep. Bobby Scott (D-Va.) argued in Rangel's defense. Several members had a chuckle over their laxity.

The most telling Congressional whining came from Rep. Peter King:

And Rep. Peter King (N.Y.), one of the few Republicans to oppose censure for Rangel, implored his colleagues to "step back" and reconsider. "Let us apply the same standard of justice to Charlie Rangel that has been applied to everyone else, and that all of us would want applied to ourselves."

It's really difficult to read that as something other than, "I'm in huge trouble if somebody pokes around for the skeletons in my closet - and many of you are, as well." But buck up, Members of Congress - if you can learn to revel in the sheer joy of influence peddling, no matter what that involves, even if you're caught and convicted you can count on David Broder to write a glowing obituary for your Congressional career.

Thomas Friedman on Competition with China

Sometimes you have to wonder where Thomas Friedman's head is....

To visit China today as an American is to compare and to be compared. And from the very opening session of this year’s World Economic Forum here in Tianjin, our Chinese hosts did not hesitate to do some comparing. China’s CCTV aired a skit showing four children — one wearing the Chinese flag, another the American, another the Indian, and another the Brazilian — getting ready to run a race. Before they take off, the American child, “Anthony,” boasts that he will win “because I always win,” and he jumps out to a big lead. But soon Anthony doubles over with cramps. “Now is our chance to overtake him for the first time!” shouts the Chinese child. “What’s wrong with Anthony?” asks another. “He is overweight and flabby,” says another child. “He ate too many hamburgers.”

That is how they see us.

Here's the thing, Tom: When a state-run organizaton presents a state-approved, state-sponsored caricature of how its own citizens compare to those of other nations, even before you take notice that it's a communist, totalitarian state, the idea is not to convey "Here's what you already think." It's to convey, "Here's what you should think." In the context of the film at issue, if a chubby American whose idea of exercise appears to be putting on his Rolex in the morning or getting in and out of his Lexus SUV happens to be in the audience, nodding in vigorous agreement, all's the better.

You know what else? You don't have to go to China to hear that story. More than two thousand years ago Aesop wrote a version, the Tortoise and the Hare, which (believe it or not) was not intended as a wake-up call to us. (Granted, Ancient Greece did fall.) In terms of "Wow, look at those really big buildings," China's not the first totalitarian state to want to show off its prowess through massive building projects and it won't be the last.

That's not to discount China's role as a global economic competitor, or the problems we face at home. Friedman highlights problems faced by both nations,

The Chinese system is autocratic, rife with corruption and at odds with a knowledge economy, which requires liberty.

and

There is absolutely no reason our democracy should not be able to generate the kind of focus, legitimacy, unity and stick-to-it-iveness to do big things — democratically — that China does autocratically. We’ve done it before. But we’re not doing it now because too many of our poll-driven, toxically partisan, cable-TV-addicted, money-corrupted political class are more interested in what keeps them in power than what would again make America powerful, more interested in defeating each other than saving the country.

Friedman brings out his inner G.W. Bush ("If this were a dictatorship, it'd be a heck of a lot easier, just so long as I'm the dictator"), suggesting that China's system of government has resulted in the "average senior official [being] quite competent". His thesis, however, is internally inconsistent - in his own words there is a reason we can't "do it now" - our flawed and corrupted political system.

Friedman also quotes an Indian entrepreneur. Although it's not clear, I believe he's referring to an entrepreneur who is developing businesses in India, as opposed to the United States. And that entrepreneur sees democracy as part of the problem,

For democracy to be effective and deliver the policies and infrastructure our societies need requires the political center to be focused, united and energized. That means electing candidates who will do what is right for the country not just for their ideological wing or whoever comes with the biggest bag of money. For democracies to address big problems — and that’s all we have these days — requires a lot of people pulling in the same direction, and that is precisely what we’re lacking.

But that's not really, true, is it. India had a business boom based neither on those aspects of democracy nor upon a broad sharing of its new wealth with the public at large. As compared to the United States it has a serious problem with corruption and success in business can mean bribing a lot of people. Not so long ago, Friedman was lecturing us that we needed to prepare for our flat-Earth race against India, now it's apparently the U.S. and India against China. When you're in a race to the bottom for who can hand out the best business environment for sweatshops - no worries about labor laws, western-style environmental regulation, or paying taxes sufficient to help support a fully developed city or state - democracies will always lose to totalitarian states.

There are a couple of points worth making about what Friedman sees as our corrupt political culture. First, as bad as things are right now, they've been worse at various points in our nation's history. Second, if everybody pulled together and decided, "The government must have sufficient revenue to build quality infrastructure that will carry us through to the 22nd century, must reinvent higher education, must make large, bold investments in research and innovation," we would be left with a big question: How do we pay for all of that? It's easy if you're China - as long as the money keeps rolling in, the government can skim what it wants right off the top. Here it would require tax increases - and let's be blunt, the hyper-wealthy elites of our nation, people like Thomas Friedman, simply won't get on board with that.¹

Sure, Tom's willing to pay an extra 50 cents per gallon to fuel up his hybrid SUV, but only if everybody in the nation also has to pay the new tax. He's not shown any inclination to offer up any of his extended family's wealth, or to scale back his own lavish lifestyle. Not that Friedman's hypocrisy makes him any less correct than, say, carbon-burning, mansion-dwelling Al Gore; but I would be more enthusiastic when he made this type of argument if it didn't smack of, "Now everybody pull together - pick me up and carry me across the finish line before the burgers get cold."

I would suggest that for his next column Friedman approach this issue from a different angle. Rather than telling us what we need to do - things that, frankly, would likely get massive voter approval if funded, he should do us the favor of telling us exactly where the money will come from.

Update: Harold Meyerson makes some observations about China, and the role of large U.S. companies in both its growth and its status as a competitor, that Friedman appears to consistently overlook:

Consider the debate in Congress about whether to impose tariffs on Chinese imports if China continues to depress the value of its currency. Roughly 150 House members, including 45 Republicans, have authored a bill to do just that, and the Ways and Means Committee will take up the bill on Friday. Unions and some domestic manufacturers support the bill. But a large number of American businesses, in a campaign coordinated by the U.S.-China Business Council, oppose it.

Now, there's nothing un-American in opposing the legislation as such -- far from it. Support for and opposition to tariffs are both as American as apple pie. The question here is whether the 220 corporations that belong to the council -- household names such as Coca-Cola, Bank of America, Ford, GM, Wal-Mart, Intel, Microsoft, Hewlett-Packard, J.P. Morgan Chase, Chevron, Exxon Mobil and Boeing -- are already so deeply invested in China as manufacturers, marketers or retailers that buy goods there to sell them here that their interests are more closely aligned with China's than with America's. Revaluing China's currency would be helpful to domestic U.S. manufacturers, their employees and the communities where those employees live and work, but America's largest companies have long since ceased to be domestic.

Given the explosive growth of the Chinese economy, it's a safe bet that every major U.S. corporation will devote greater resources to building, buying and selling there. But China, unlike the Obama administration, truly is guided by an ideology alien to most Americans -- Leninism -- and wields far greater control over what U.S. corporations can and can't do there than the U.S. government does over what corporations can and can't do here. Our leading companies' economic interests, and those of their Chinese hosts, whom they cross at their peril, are increasing likely to pit them against proposals that diminish China's edge, however obtained, in global competition.

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1. As a member of the Pulitzer Committee, did Friedman vote in favor of Kathleen Parker's award? Because, it should be noted, she's presently endorsing propaganda of a different sort, applauding the notion that we can have "smaller, more caring government, one that remembers us". Why am I instead reminded of the television edit, "Forget you."

Some Mistakes Aren't Just Incompetent....

They're "Detroit under Coleman Young" incompetent. What's the plausible explanation for this?

Rhee explained that part of the teacher raises contemplated in the new contract would come from a $34 million surplus in the schools budget. Of course, various members of the council were quick to inquire how the school system could be running a surplus now, when just last fall Rhee justified the dismissal of 266 teachers due to a $43 million deficit. According to Rhee, the surplus was uncovered because a previous budget estimate mistakenly used $81,000 as the average teacher salary, about $15,000 more than it actually is.

Well, it's not like they could have looked at actual payroll figures, is it? Two possible explanations: They deliberately inflated teacher salaries to justify the layoffs, despite the inevitability of being caught and subjecting the city to numerous lawsuits (covered, I would venture, by a different budget); or they are hopelessly, woefully incompetent. I am trying to give Rhee the benefit of the doubt at this point, but I have a great deal of difficulty seeing how this could occur without her knowledge - and it appears she has known of the "error" for quite some time.

The best Rhee, Parker and Gandhi will be able to do is blame the miscalculation on Noah Wepman, the DCPS CFO who resigned late last year after having failed to report on an apparent budget deficit in the schools budget, the one that forced Rhee to lay off the 266 teachers to begin with.

So he was fired for not detecting what now appears to be largely or entirely a fake budget shorftall, most likely because prior to detecting the "deficit" he based the figure for teacher salaries on actual teacher salaries? Trying to (again?) scapegoat him doesn't sound very promising, although I would be very interested to learn the back story to how his "error" occurred.

I guess we're supposed to cut Rhee some slack because she is thinking of "the good of the children", when the Young Administration's incompetence - defaulting on lawsuits, allowing police executives to loot unaudited slush funds, etc. - often seemed to be more about creating cover for theft, graft and embezzlement. But it looks like this "little deception" is going to cause D.C. a great deal of difficulty and potentially derail the new teacher compensation and accountability deal.

The Age-Old Question

Does Congress act the way it does because its members are stupid, venal, or selfish?

As I see it, the problem is more institutional than individual. First, the manner in which we select and elect politicians in this country scares off many people (arguably most to nearly all) that we would most benefit from having as representatives. People who are drawn to political campaigning on a national scale - people who like the constant media attention and celebrity treatment, the parties and glad-handing, the power - are much more likely to be self-important, even narcissistic. Matt Bai writes,

Unlike our parents, who may have worked at the same firm or factory for 30 years, most of us these days fully expect to cycle through a succession of jobs during our professional lives. But a lot of lawmakers still cling to their seats at any cost to conscience or to constituency, as if it were the only job they could ever see themselves holding — even though, once they leave Congress, they can expect to field more offers and make more money than the average voter will see in a lifetime. It’s this outmoded sense of entitlement that lobbyists skillfully exploit.

I don't believe it's that most Members of Congress can't see themselves in other jobs. If they want another job they'll resign. I believe it's that they can't bear the thought of the rejection?

Consider the behavior of Joe Lieberman - who kept his job - or more topically, Eric Massa. Lashing out and snarling at the world over their psychic injuries, eager to inflict harm on anybody they perceive as having caused harm to them. Blind to the fact that responsibility for the harm they suffered lies with themselves, their own choices and their own actions.

Lobbyists not only offer resources that can help with reelection. They help politicians feel important - "Look at all these special interests who want to talk to me, who want my vote" - and as Nancy Scola observed, as part of their relationship, lobbyists can help a politician appear considerably smarter than he actually is. That doesn't mean that most politicians are stupid; in Congress, most have above average intelligence and some are way above average. But institutionally, being smarter than the next guy isn't much of a benefit. Trying to change the institution from inside? As the holder one vote? That's a recipe for frustration - and to ultimately being labeled as "ineffective". If you can rationalize accepting the status quo, perhaps even convincing yourself that it's for "the greater good", you'll likely be a lot happier and "more successful" as a member of either the House or Senate.

There's Optimism For You....

One of former Detroit Mayor Kwame Kilpatrick's lawyers is optimistic about a recent Court of Appeals ruling:

Hajji today said the Court of Appeals order means they are taking his appeal seriously.

“I think it’s very favorable to me,” he said. “They are looking at this with the eyes of a microscope from what I can see and they are not taking it lightly.”

I do agree with this much: the Court of Appeals does appear to be taking a very careful look at the case. Were it not a high profile case, they may well have passed on providing further review and issuing a stay of proceedings. But favorable? You don't ordinarily see two judges adding written opinions to a simple order of the court. From Judge Murray:

However, I respectfully dissent from this Court's sua sponte¹ decision to stay the lower court proceedings. Defendant has failed to argue the full requisite criteria for the granting of a stay... and has only argued that the trial court erred in several respects. However, other than raising one potential legal error regarding use of Mrs. Kilpatrick's personal funds to pay towards the restitution order, see MCL 557.21(1), an issue which was presented to the Court last year in a prior application that was denied... defendant has not in my view raised any other legal errors committed by the trial court that would warrant a stay.

From Judge Hood:

I write separately to express my disay at the abject nature of the pleadings filed on behalf of defendant. This Court is an error correcting court... and we are bound by the proceedings held in the lower court. Therefore, the litigants are required to present the transcripts of any proceedings and any ordere entered by the lower court for appellate review. MCR 7.210(A).... Our review is limited to the record created in the lower court.... The motion and brief filed by defendant requesting reconsideration of a stay does not contain any citation to legal authority or the lower court record, contrary to the court rules, but rather contains a narrative one-sided view of the proceedings. Indeed, the court rules provide that pleadings that do not conform to the court rules may be stricken....

In this case, defendant's filing is unconscionable and does not merit serious consideration in light of the nature of the filing.

Judge hood indicated that she would not strike the defendant's pleadings, despite their being "grossly noncompliant and inappropriate", and would join a second judge in granting the stay, in the name of "judicial economy". I suspect in a case that was lower in profile, the Court's action in the name of judicial economy would involve denying a stay, striking the defendant's filing and dismissing the appeal.

I'm still puzzling over Kwame Kilpatrick's legal team. He seems to show up in court with a succession of high priced lawyers, but goes to the Court of Appeals with a lawyer who appears to have very little appellate experience. A bit more about the motion to the Court of Appeals:

Kilpatrick's attorney, Daniel Hajji, made the claim in an impassioned 14-page motion filed with the state Court of Appeals late Tuesday in an effort to postpone the ex-Detroit mayor's Friday probation-violation hearing in circuit court - one that could eventually land him behind bars.

Wayne County Circuit Judge David Groner will arraign Kilpatrick for failing to pay $79,011 toward the $1 million he owes in restitution by last Friday's deadline. Kilpatrick and his lawyers say he doesn't have the money, despite his plush lifestyle in a tony Dallas suburb and $120,000-a-year sales job for Covisint, a Compuware subsidiary.

"The clientele he must establish a rapport with are likely to be the privileged and the affluent," Hajji said in the motion. "Burgers and beer at the local bar is not going to be sufficient."

This, apparently, means that Kilpatrick must spend his entire take-home pay to rent a lavish mansion... except he doesn't, as the money to rent his mansion falls like manna from heaven.

[In a court hearing] on what should have been fairly ordinary matters, with questions like, Does your wife leave the house each morning to go to work? Shockingly, Kilpatrick said he didn't know. Groner then asked, "Who's paying the rent?" Kilpatrick responded with a simple, "Um," and then looked to his attorneys, Michael Schwartz and Daniel Hajji. "I assume my wife is paying the rent ... because I'm not."

Yeah, right. And wow, for an employer who hired a felon fresh out of jail, Compuware sure is generous:

Perhaps the most surprising revelation during last month's hearing was that four of Michigan's wealthiest men — including Compuware CEO Peter Karmanos Jr., auto retailer Roger Penske and Quicken Loans chairman Dan Gilbert — had given a total of nearly $240,000 in loans to Kilpatrick's family around the time he left prison. Precisely how the money was used is unclear. The executives swiftly issued statements nearly identical in tone to explain their actions. "We were concerned about the city's inability to move forward due to the situation and circumstances that had surrounded Mayor Kilpatrick and his administration," Gilbert's statement read. The statement of Karmanos, Kilpatrick's boss, read: "We wanted to help care for his family until he could get back on his feet. At this time the loans remain outstanding."

And they say it's hard to get a job with a record, no experience, and no apparent qualifications other than your mother's being a sitting Member of Congress. Oh, yeah. I guess that last bit helps.

Back to the motion:

"The trial court appears to infer that it wants Mr. Kilpatrick to live a middle-class existence, when such an existence is inconsistent with earning a sufficient amount to fulfill his restitution obligation.

"Mr. Kilpatrick is going to have to function in the upper echelons of society."

Kilpatrick works as a sales representative for Covisint, a subsidiary of Detroit-based Compuware. He has a base salary of $120,000, but could earn substantially more through commissions. Compuware officials could not be reached for comment Tuesday evening.

A sales position with a base salary of $120,000 (plus an extra $60K as a draw against future commissions, plus a quarter-million dollar loan), where the employee is expected to live the life of Riley? Well, then, Kilpatrick must be making an impressive number of sales to merit that substantial base salary, to be augmented by commissions that could float his lifestyle?

Kilpatrick works as a sales representative for Covisint, a subsidiary of Detroit-based Compuware. He has a base salary of $120,000, but could earn substantially more through commissions. Compuware officials could not be reached for comment Tuesday evening.

So... it would appear that as commissions go we're still in the world of the hypothetical. That is, it doesn't look like Kilpatrick has landed a single sale. Yet the manna from heaven keeps pouring down:

During a hearing Tuesday over Kilpatrick's failure to pay, Beverly Smith, area manager for the Michigan Department of Corrections, gave Groner a draft report outlining the department's assertion that Kilpatrick violated his probation by failing to make the full $79,011 payment by Friday.

However, payments for the former mayor came in through 57 money orders totaling $14,048 on Friday and 17 money orders totaling $21,125 on Monday. The money came from unidentified payees.

Lucky man.

After the hearing, Michael Alan Schwartz, one of Kilpatrick's lawyers, said the violation hearing will not become a gimme for prosecutors: "You got to have due process ... and I'm going to hold them to their proofs."

He also said that some of Kilpatrick's payments could have been donations from "warm-hearted people" who wanted to help out.

Michael Schwartz is still on Kilpatrick's legal team. Michael Schwartz is an experienced appellate practitioner. And yet the appeal was filed (in, by Judge Hood's measure, atrocious form) by a junior member of the team with little appellate experience? I assume I'm not the only one who finds that to be a bit fishy.
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1. When a court grants relief "sua sponte" it does so on its own initiative, without the request of a party.

Our Corrupt Allies

Pat Buchanan is upset that the media is paying so much attention to the corruption and ineptitude of Hamad Karzai. He argues that when we're involved in military action in a state or region, and depict a leader as corrupt, it means we're about to abandon our support for him.

When Chiang Kai-shek, who fought the Japanese for four years before Pearl Harbor, began losing to Mao’s Communists, we did not blame ourselves for being a faithless ally, we blamed him. He was incompetent; he was corrupt.

We did not lose China. He did.

Let's take a look at that allegation:

Mao Zedong’s communists eventually came to power in 1949. A year earlier, in June 1948, Chiang wrote in his diary that the Kuomintang had failed, not because of external enemies but because of disintegration and rot from within.

You see, sometimes when a foreign leader or his administration is depicted as corrupt and incompetent, the depiction is accurate.

Buchanan similarly complains that South Vietnam's President Diem was depicted as "a dictator... who had lost touch with his people", something he fails to demonstrate is in any way false. He similarly whines that Cambodia's Lon Nol "got the same treatment", again failing to demonstrate that the treatment was undeserved. For some reason, he neglects to mention such illustrious leaders once supported by the United States, including the Shah of Iran, Manuel Noriega... the laundry list of thugs and despots the U.S. has at times supported in South and Central America.... Should we include Saddam Hussein?

Yes, when it's convenient we have historically dropped support for such "allies", and it's no coincidence that the public narrative goes from their being "important allies to the U.S." to "corrupt and incompetent, an impediment to our goals in the region", but the convenient timing of the admission of corruption doesn't make it any less true. It instead highlights how we care more about advancing our interests in a given region than we do about whether that region enjoys honest, scrupulous governance. Buchanan was an assistant to Richard Nixon - yet he claims to know nothing of realpolitik?

Buchanan's memory cannot be so short that he has forgotten his time in the Reagan Administration. Perhaps he remembers a guy named Pol Pot - an incompetent, genocidal leader responsible for the deaths of probably millions of Cambodians. What did Ronald Reagan do after Vietnam toppled Pot's regime?

Rollback was the American end of the proxy war fought between the two superpowers for power and influence in the developing world. The basis was childishly simple: my enemy's enemy is my friend.

To that end the Reagan administration insisted on recognising the deposed Khmer Rouge government in exile at the UN, mostly because it was the pro-Soviet Vietnamese that had done the deposing. This recognition helped maintain a civil war in which many Cambodians were killed and many thousands of landmines were laid.

What defense does Buchanan now offer for Rios Montt, whom Reagan described as "a man of great personal integrity"? Reagan's high praise for Jonas Savimbi? Is it problematic that those leaders are now judged based upon the facts, not upon Reagan's (I would hope knowingly) fabricated songs of praise?

No, fundamentally, Buchanan knows the charges are true. The problem is that the truth is becoming known:

That there are warlords who are war criminals, allied with the Afghan regime and us, that drug-traffickers are abetted by high officials, that Karzai stole the election, no one denies.

That the Pakistani intelligence services are shot through with elements loyal to a Taliban they helped bring to power in Kabul, that there are Pakistani army officers who believe they should be defending their country against India, not fighting America’s war in Waziristan, is also undeniable.

But what does it avail us to insult these people who have cast their lot with us, many of whom will, with famines and friends, pay a far more terrible price than we if we lose these wars.

I'm sorry, but I don't feel any great sympathy for people who "cast their lot with us", enrich themselves, their families and their clans at the expense of their countries and countrymen, undermine U.S. political goals and military efforts, and ultimately lose our support due to true allegations of their greed, corruption and incompetence. I can't feel sorry for somebody who thought that "casting his lot" with the U.S. meant "winning the lottery", and who if deposed will most likely live out his life in a billionaire's exile, supported by the money he has stolen from his (and our) country.

Does Buchanan really believe it's too much to ask of somebody like Karzai to steal a little bit less, or to accept a small risk of losing an election he probably could have won honestly, in order to help us achieve our goals of improving and stabilizing the country he claims to lead? Well, yeah, I guess he does. Because they "trusted us", apparently, to not care if they demolished the foundation of our efforts.

AIG's Long History of Responsible Conduct

In 1987, AIG made a huge mistake in launching a credit-default-swaps portfolio, the source of the company's eventual collapse. Don't take my word for that - hear it from current CEO, Edward Liddy:

Mistakes were made at AIG, and on a scale that few could have imagined possible. The most egregious of those began in 1987, when the company strayed from its core insurance competencies to launch a credit-default-swaps portfolio, which eventually became subject to massive collateral calls that created a liquidity crisis for AIG. Its missteps have exacted a high price, not only for the company and its employees but for the American taxpayer, the federal government's finances and the global economy. These missteps brought AIG to the brink of collapse and to the government for help.

So, how that that happen? As a former CEO is quick to tell you, as long as you make profits on paper nothing should be deemed a mistake:

From 1987 to 2004, the company's financial products unit contributed more than $5 billion to AIG's pretax income.

As you might imagine, in former CEO Greenberg's eyes, there was no cause for concern until after he left the company:

In spring 2005, after I left the company, AIG's credit rating was downgraded. It would have been logical for AIG's new management to end or reduce its business of writing credit default swaps because of the risk it faced of having to post billions of dollars in additional collateral in connection with certain credit default protection. Yet AIG ramped up its credit default swaps business; significantly, the quality of the securities AIG wrote credit protection for deteriorated, and the company plunged into subprime mortgages. The results were disastrous.

There's no reason to doubt Greenberg's word that everything was peachy until the day he left.... except for the fact that he was ousted from AIG over dubious accounting practices, and the financial products division was his baby:

But in 2005, amid an investigation by then New York Attorney General Eliot Spitzer, Greenberg was forced out by AIG's board. He had refused to cooperate with the company's own probe.

He is still fighting civil charges being pursued by New York state, as well as a string of other lawsuits outstanding between him and AIG.

But detractors say he could face a tough time saving face given the latest loss revelations since the former chieftain was sole architect of AIG Financial Products - the business that poured itself into the CDS market, and ultimately cost AIG so much.

Under Greenberg and Joe Cassano, the former Michael Milken associate who headed the financial products group, there was trouble. In 2001 the financial products division engaged in illegal conduct, resulting in a $80 million fine and its return of close to $40 million in fees, back in 2004:

To make the transactions look legitimate, Financial Products had set up a company to "invest" in the entities, while receiving an equivalent amount in fees, investigators said. The structure of the deal violated securities laws, FBI agent Randy Tice asserted in an affidavit filed in federal court as part of the simultaneous settlement of a criminal case and an SEC civil complaint.

AIG and two Financial Products subsidiaries agreed to pay an $80-million fine and give back $39.8 million in fees it had earned, plus $6.5 million in interest. PNC paid a $115-million fine.

The settlement also required AIG "to implement a series of reforms addressing the integrity of client and third-party transactions." A group of senior AIG executives would review complex transactions from the previous few years, working with an independent monitor chosen by the Justice Department, the SEC and the company.

Unsurprisingly, the company's auditors wanted to take a close look at its operations - and was apparently told that they had to take "no" for an answer:

Both PricewaterhouseCoopers, the company’s auditor, and an independent accountant complained of a lack of access to the London unit and its leader, Joseph Cassano. The accountant, Joseph St. Denis, said in a statement to the committee that he had been deliberately blocked from questioning Mr. Cassano because he might ”pollute the process.” Mr. St. Denis later resigned in protest.

(There were a lot of red flags.) When things reached the breaking point, Cassano was allowed to retire with a sweetheart consulting deal, until negative publicity brought it to an early end.

He was forcibly retired in March of 2008, but kept on a $1 million per month retainer and allowed to keep living in the AIG-paid for apartment in London. It was only in September 2008 that Rep. Henry Waxman flipped out when he heard that the guy who blew up AIG and put taxpayers on the line for tens or hundreds of billions of dollars was still getting a $1 million a month retainer. That's when they killed the retainer too.

As things crumbled around them, those within the financial products division "negotiated" an incredibly one-sided "bonus" package based upon their division's illusory 2007 profits.

These bonuses are payable regardless of performance and are calculated at 100 percent of 2007 compensation for all employees except senior management, who receive 75 percent of 2007 compensation. The amount is payable unless they are fired with good cause, resign without good reason or fail to meet performance standards. For those hoping that these employees could now be fired, “good cause” is defined in the agreement as a very high standard.

Although the recent payments are supposedly necessary to keep on board the people needed to unravel AIG's mess, as it turns out the hardest work in wrapping up the mess was completed months ago.

The work of defusing the most dangerous bets placed by American International Group was largely concluded by December, according to documents and interviews, long before the company gave bonuses to employees it said it needed to retain to avoid a financial meltdown.

The remaining people at the financial products division could be replaced - unless they all quit at once.

But what about the argument made by top AIG officials that the people receiving retention bonuses have unique skills and knowledge that make them indispensable?

"They are replaceable," Pasciucco acknowledges. "If we were running a long-term business, we could probably replace them over time, not all at the same time."

So the sole remaining justification for the bonuses is that a bunch of replaceable employees might walk off the job at the same time, into the loving arms of the current financial industry job market, rather than "settling for" their salaries or a renegotiated bonus package based upon such absurd measures as their job performance.
__________

Update: Here's a more comprehensive summary of AIGFP's history. It provides a bit more context to some of the bad decisions made along the way.

The (Indefensible) AIG Bonuses

Although this article is exceptionally bad as journalism, it does suggest a few things to me:

• The bonus issue is even worse than people think - the contract calls for similar bonuses to be given next year, as well.

• Geithner has probably known about the bonus plan from the day the government took control of AIG. Obama has probably known since he took office.

• Recognizing how this would look to the public, Obama instructed Geithner to do something about the bonuses.

• Working closely with Liddy and AIG, Geithner apparently chose instead to find ways ot justify the bonuses, or depict them as unavoidable.

• There's no excuse - none - for this having been sprung on the public at the last second.

I'll take another look at it later, along with anything else that comes down the pike, to see if any of those impressions change.

Avoiding Consequences

You would think, from the way the latest bailed out company bonus scandal hit the press, that nobody could have seen this coming. Wrong. Quite obviously, AIG CEO Edward Liddy saw it coming. For that matter, everybody within AIG who was "entitled" to a bonus saw this coming. To the extent that Geithner and Summers didn't see this coming, it was because they were deliberately kept in the dark - and perhaps also that they chose not to ask.

Here's an interesting theory (albeit most likely incorrect) on how Liddy may have tried to scare Geithner out of any meaningful confrontation over the bonuses.

I take this to mean that if a bunch of AIGFP managers quit because they didn't receive bonuses promised in their contracts, then France could, if it wanted, to appoint its own designee. And if that happened, then it would equate to a default and those contracts would kick in, at a cost to AIG the US government of at least tens of billions.

I doubt that such an outcome was likely and, if it were, my preference would have been to talk to France about the many reasons they weren't going to do any such thing.

But really, I think the legalistic rationalizations are just meant to give Liddy cover - he wanted to pay the bonuses, and the best way to do what he wanted to do was to keep quiet about them until the secret could no longer be kept, thereby avoiding the chance that Congress will revise the strings it has imposed on bailout money, then dump a convoluted legal rationale on the credulous and compliant Timothy Geithner in order to avoid any serious action before the bonuses can be distributed. [Addendum: Certain key people, probably including Geither and Summers, knew about these bonuses for a considerable time before the news was made public; so part of this assumption was unfair to Liddy.]

Larry Summers is worried about having policy created out of anger? This is increasingly looking like the straw - a word that strangely enough fits, because in the larger scheme of things these bonuses are a tiny part of the bailout - that broke the camel's back.

Modern Bank Robbery

I agree with Simon Johnson that this line of thinking is atrocious and unacceptable:

One main stumbling block to the purchasing of troubled assets has been pricing, specifically how does the government price a diverse set of assets in a way that does not put the taxpayer on the hook. However, this should not be the standard by which we judge the efficacy of the plan, because a more prolonged deterioration in the economy will result in a higher terminal unemployment rate and a greater deterioration of the tax base. As such, the decline in tax revenues will crimp many of the essential services provided by the government. Ultimately, the taxpayer will pay one way or another, either through greatly diminished job prospects and/or significantly higher taxes down the line to pay for the massive debt issuance required to fund current and prospective fiscal spending initiatives. We think the government should do the following: estimate the highest price it can pay for the various toxic assets residing on financial institution balance sheets which would still return the principal to taxpayers.

If the goal is to wrap up the crisis as quickly as possible, then let's stop talking about buying junk assets from banks and start talking nationalization. If the key to recovery is to avoid "prolonged deterioration", we can end the role of those junk assets in this mess just as quickly by estimating the lowest price we can pay for "the various toxic assets residing on financial institution balance sheets".

What Truly Amazing Timing

Good news - after years of diligent searching, literally days before he ducks out the door, G.W. finally found his missing emails!

A Justice Department lawyer told a federal judge yesterday that the Bush administration will meet its legal requirement to transfer e-mails to the National Archives after spending more than $10 million to locate 14 million e-mails reported missing four years ago from White House computer files.

This is interesting....

Once the e-mails are transferred to the National Archives, federal law allows them to be requested under the Freedom of Information Act after a five-year interval.

Without digging deeper, I'm not sure: Does this mean Bush has put off disclosure of these potentially embarrassing emails until 2014, where they would otherwise have been open to FOIA requests next year?

The Scary Part Is, It Was Close

Louisiana voters have booted William "Cold Cash" Jefferson out of office.

Paulson's Got Some Explaining To Do....

CJR looks behind the claims that Goldman Sachs didn't benefit from the AIG bailout, and finds that's not actually the truth. And it gets worse:

The AIG bailout, it is now apparent, is basically a pass-through from taxpayers to the counterparties. It is clear the tax money is barely stopping at AIG for a cup of coffee.

Even AIG’s former chief Hank Greenberg, not exactly Ralph Nader, says the bailout is going straight to Wall Street banks on the worst terms.

* * *

Can the U.S. get a better deal? I have no idea.

But what strikes me as utterly unacceptable—a true scandal—is that the recipients of U.S. taxpayer funds in the AIG bailout are not even disclosed. We pay them, and we don’t even get to know who they are? Has this ever happened before?

This is disgraceful, and something Congress should remedy.

The Worst Government Money Can Buy....

Whatever the outcome on Tuesday, let's hope it's at least marginally better than what we're continuing to suffer under Bush. We've seen the harm caused by Bush's many incompetent appointees, and now we're being, in essence, robbed by one of his few competent appointees.

The swindle of American taxpayers is proceeding more or less in broad daylight, as the unwitting voters are preoccupied with the national election. Treasury Secretary Hank Paulson agreed to invest $125 billion in the nine largest banks, including $10 billion for Goldman Sachs, his old firm. But, if you look more closely at Paulson's transaction, the taxpayers were taken for a ride--a very expensive ride. They paid $125 billion for bank stock that a private investor could purchase for $62.5 billion. That means half of the public's money was a straight-out gift to Wall Street, for which taxpayers got nothing in return.

These are dynamite facts that demand immediate action to halt the bailout deal and correct its giveaway terms. Stop payment on the Treasury checks before the bankers can cash them. Open an immediate Congressional investigation into how Paulson and his staff determined such a sweetheart deal for leading players in the financial sector and for their own former employer. Paulson's bailout staff is heavily populated with Goldman Sachs veterans and individuals from other Wall Street firms. Yet we do not know whether these financiers have fully divested their own Wall Street holdings. Were they perhaps enriching themselves as they engineered this generous distribution of public wealth to embattled private banks and their shareholders?

Meanwhile, bailout money is being used to fund astronomical "bonuses" for the employees who ran their companies into the ground. In the U.K. they saw that possibility coming, and thus forbade it as part of their bailout package. Here Paulson saw it coming as well, and made sure that the recipients of taxpayer $billions had a green light to shovel taxpayer money into their pockets.

I can only hope the next President tells companies like Goldman Sachs, "We appreciate that you needed to fritter away the bailout money we gave you in order to pay bonuses to the people who bankrupted you. And don't worry - we're still here for you. Yes, if you need an additional penny of taxpayer money to stay afloat, we'll help you be taken over by a competent institution in the manner of Merrill Lynch, or help you enter the bankruptcy process in the manner of Lehman Brothers. Feel free to ask, any time."