Today's Zinger:

There is safety in numbers. Today's politicians hide behind group think and partisanship to conceal their mistakes.


AIG.  That stands for Another Investment Gone.  It seems that we are all looking at our investments wondering where did they go.  What happened?  In the past 14 months the stock market has declined over 40%. The stock market represents a significant holding for most of our nation's retirement assets.  Suddenly a lifetime of savings has been cut in half.  The profits of the stock market that fueled consumer spending is running on empty, as is the economy. 

So what about AIG?  The Chairman of AIG is being ridiculed for the way he has handled the company.  Ultimately we hold The Chairman, management and the Board of Directors responsiible because they didn't take action to deal with the impending problem.  They did not feel the problem was significant enough to change business direction.  Besides, other companies were actively engaged in the same business practices. 

Does this mean the Chairman wasn't forceful enough with his argument?  Should he lose his standing with the Board by being more daring?  This of course would affect his future ability to get things done.  Maybe the Board is incompetent?  We will never know for sure because we do not have access to the records.  Any way you look at it, investors and the American people (through our tax bailout) are the ones that bear the burden of past bad decisions.

Is this another case of "bad big business" serving their own self interest?  Over the past election cycle we have all been indoctrinated with how bad "big business" is.  The democratic party relentlessly labeled business as "big" with the intent of assigning the notion of bad to them.  Big Oil.  Big Drug Companies.  We are told that these companies represent the privelaged and not the working class.  Companies make too much money.  Executives make too much money.   Those in power should have known and taken action.

So what about our government?  Did they know what was going on?  Did they take action?  Who is responsible?

Much of what happened in the mortgage meltdown of 2008 is attributable to business making advancement in financial instruments that outpaced the regulatory environment.  I find it hard to believe that business purposefully circumvented regulation (in an orchestrated fashion) to find new ways to make money unchecked by oversight.  Rather, Wall Street realized that you could bundle mortgages and sell them as a packaged asset.  And there were buyers.  Many buyers assuming that since they were mortgages they had a predictable value, a return on investment that could be counted on with relative security.

Unfortunately, the mortgages of the past 15 years, and the last five years in particular, were of much greater risk than mortgages in the past.  With interest rates approaching "free", a government policy to encourage broader home ownership (as in people with far riskier financial profiles being given mortgages) and a market caught up in the housing frenzy (flippers, 2nd homes, third homes, etc), builders and mortgage lenders where taking much greater risks with a regulatory environment cemented in the 1960's.

So who is responsible to ensure that our regulatory environment stays current, our businesses provide sound practices and investors are protected?  WE ARE.  But, our voice has been lost.  And we better start speaking up.....

We put the politicians in office that write and enforce the rules.  We are the shareholders that vote on proxies.  So why didn't we do our job and what needs to be done? 

The past 15 years have been exceptional. Exceptional growth, exceptional busts.  Housing prices have risen remarkably.  The stock market (until September 2008) had risen remarkably (except for the internet stock market bust in the late 90's). Investors and home owners experienced significant wealth creation.  Why would they complain?

If we are honest with ourselves we all knew that housing was at risk.  Prices had achieved levels which would prevent the next generation from affording to buy the existing inventory.  Prices had increased rapidly because of affordability (those "free" loans).  American debt was increasing at a pace that was not sustainable.  Despite the cliff ahead we were comfortable in our illusion of security and wealth creation.

This is where our elected officials should have done their job but did not.  Who in the government is responsible to oversee investments, oversee the banking and financial services industry?  Why didn't they know and why didn't they do something about it?  The truth is they did know.  And yes, they didn't do anything about it.

As is the case with AIG, The Chairman and the Board of Directors are responsible.  So who are these people?

It is easy to throw a label at anything, but it doesn't help identify the real culprit.  So, for all of those that say the Bush Administration... I say Bull!  That is nothing more than politics as usual.  Instead let's take a closer look at the Chairman and Board of Directors.

Chairman of the SEC.  Chris Cox (R).  This is the committee in Congress responsible for overseeing the activities of the SEC, including compliance.

Chairman of the Banking Committee.  Chris Dodd (D).  This is the committee in Congress responsible for overseeing the banking industry including writing regulations and compliance.

Chairman of the Financial Services Committee.  Barney Frank (D).  This is the committee in Congress responsible for the Financial Services Industry rules and compliance.

Chairman of the Federal Reserve.  Alan Greenspan.  He is responsible for the monetary policy of our country including money supply and setting interest rates.  The Fed is an autonomous entity and does not report to Congress or the President.

President of the United States.  George Bush (I & II) (R),  Bill Clinton (D  He is responsible to recommend laws to Congress and advises and guides Congress in its' lawmaking activities.

Congress.   Led by Nanci Pelosi (D) and Dennis Hasert (R).  The role of Congress is to pass laws proposed by members of Congress or the President; Congress decides how to spend our money and Congress shapes foreign policy.

The news media.   While the media has no official role in regulation or compliance, the American people rely on the media to investigate accurately and bring forward issues of importance. 

It is the job of Congress to pass the laws (which were proposed by the President and other members of Congress since 1998) that would have dealt with the mortgage melt down.  Congress was led by the Republicans for about half this time and Democrats half this time.  Particularly in the past few years, Democrats have been in charge.  The Chairman of the Banking Committee is  Chris Dodd (D-Connecticut).  The Chair of the Financial Services Committee is Barney Frank (D- Massachussets).  The Chair of the SEC was Chris Cox(R) who has resigned his post.  Congress' inaction and denial

So why didn't anyone act?   Just like those Americans that saw their wealth grow through the stock market and housing, Congress was fat and happy.  Donations to their campaigns were flowing (Fannie Mae and Freddie Mac invest in Lawmakers) and constituents back home were relatively happy.

         
Top 20 Fannie Mae and Freddie Mac Campaign Contributions, 1989-2008

Name	Office	State	Party	Grand Total	Total from PACs	Total from Individuals
Dodd, Christopher J	S	CT	D	$165,400	$48,500	$116,900
Obama, Barack	S	IL	D	$126,349	$6,000	$120,349
Kerry, John	S	MA	D	$111,000	$2,000	$109,000
Bennett, Robert F	S	UT	R	$107,999	$71,499	$36,500
Bachus, Spencer	H	AL	R	$103,300	$70,500	$32,800
Blunt, Roy	H	MO	R	$96,950	$78,500	$18,450
Kanjorski, Paul E	H	PA	D	$96,000	$57,500	$38,500
Bond, Christopher S 'Kit'	S	MO	R	$95,400	$64,000	$31,400
Shelby, Richard C	S	AL	R	$80,000	$23,000	$57,000
Reed, Jack	S	RI	D	$78,250	$43,500	$34,750
Reid, Harry	S	NV	D	$77,000	$60,500	$16,500
Clinton, Hillary	S	NY	D	$76,050	$8,000	$68,050
Davis, Tom	H	VA	R	$75,499	$13,999	$61,500
Boehner, John	H	OH	R	$67,750	$60,500	$7,250
Conrad, Kent	S	ND	D	$64,491	$22,000	$42,491
Reynolds, Tom	H	NY	R	$62,200	$53,000	$9,200
Johnson, Tim	S	SD	D	$61,000	$20,000	$41,000
Pelosi, Nancy	H	CA	D	$56,250	$47,000	$9,250
Carper, Tom	S	DE	D	$55,889	$31,350	$24,539
Hoyer, Steny H	H	MD	D	$55,500	$51,500	$4,000

For those things that constituants weren't happy about , Democrats in Congress could throw the old slogans,  It's the fault of  "This Administration" meaning George Bush, or a function of "big business" or "the failed policies of the Bush Administration"  (which were never defined)  Republicans sat quietly by without objection, being complicitous as well.

Were was the media in all of this?  it appears that reporters have been abandoned for editorialists.  Today, hard nose reporting has given way to political agendas.  The media failed.   The media is in bed with politicians.

We all must take responsiblity for what is going on through our elected officials.  They must be held accountable.  Alan Greenspan testified with honor in front of a Congressional hearing admitting to mistakes that he made along the way. (Greenspan admits mistakes).  The Congressional Chair of the SEC has admitted mistakes and stepped down.  So what about Chris Dodd, Barney Frank and Congress for not passing laws that were proposed?  Denial.  They say they didn't have any involvement.  They point back to legislation that sponsored in the early 90's which is not relevent to what happened in the past few years.  Dennis Hastert couldn't get his own party to vote for the change and Nanci Pelosi just didn't understand it.

I guess the Chairman of AIG should just deny any mistakes.  Somehow the American people are suppose to believe it and accept it.  Certainly that is what is going on in Congress.  And they just keep getting re-elected.