The government wants to spend its way out of another financial crisis…this time to the tune of $700 billion. They toss numbers around like it was lunch money. A trillion dollars here, a trillion dollars there….where will it end? The problem is, it is OUR money and it could be spent better.

 

A trillion dollars can buy a lot of preparedness. If you are in New London, you might argue for a few more submarines – good for the Navy, great for Southeastern Connecticut’s economy. A trillion dollars can help create a safety net in health care – healthier people are more productive and cause less strain on an overburdened health care system – which means if a pandemic or biothreat occur, we’re better able to handle it. Perhaps with that money instead of fattening an overpaid group on Wall Street, we could close many of the gaps in our porous borders. Watch Red Dawn and you’ll take border security more seriously. Maybe that money could have allowed us to develop advanced renewable energy industries – even a couple nuclear reactors to help us toss the yoke of oil dependence that strangles the U.S. If we want to stimulate the economy, why not create a new set of industries for the 21st and 22nd centuries?

 

Instead we are told pumping almost a trillion dollars (that we really don’t have liquid) is the only way to save our economy. But bailing out cornerstone financial institutions that have been the bedrock of and leaders in the world of money – organizations that seemed to abandon ethical business practices in exchange for wanton profiteering – is that smart for America or good for the average citizen?

 

The Administration as “Oliver” … Please, Congress, May I Have More Money?

 

The circus act that is “the government” – you can’t make this up – just keeps on providing sad performance after sad performance.

 

Federal Reserve Chairman Ben Bernanke warned the nation that the economy could plunge into a prolonged downturn if Congress doesn’t pass a $700 billion plan to rescue the financial sector. What makes today more urgent than last week or last month? Why was Lehman Brothers left to the wolves while other companies are finding favor with the Fed and Treasury? Aren’t the shareholders and retirees what we are looking after? Shouldn’t we really be wondering how to mitigate the effects of this economic policy debacle instead of propping up companies that cut corners, did faulty practices and are now facing the consequences? Should the average taxpayer who doesn’t enjoy lunch at the Palm Court or jaunts in a Citation X now approve of using our very limited resources to be diverted to Wall Street at a time when other critical infrastructure requires funding?

 

What seems to typify a leadership short on accountability is the total lack of detail in the request of Congress – three pages! And what was seemingly off the table just how the American Public will be compensated, how it will impact other government services – from health care and welfare to security and preparedness to just how do we know the funds will be spent correctly? Who will set the value of the assets “we” are buying? How transparent will these transactions be given Paulson clearly is dealing with, to be kind, his affinity group – his buddies on Wall Street?

 

Though laying the blame game won’t help create a perfect past, it should shed light on the cast of characters that had a hand in this debacle

 

Listening to Secretary Paulson, Chairman Bernanke and the Administration one gets the distinct impression they woke up last week and for the first time noticed Wall Street was broken. Sec. Paulson opined that the other day how broken the regulatory structure was – an incredible comment from a cabinet level appointee charged with having his hands on the pulse of the economy. And their learned response – let Main Street pick up the tab. What’s wrong with this picture? His answer to the problem –a problem that is far more insidious than mere regulatory gaps, is to throw money – lots of OUR money – at Wall Street under the guise that it will help all of us in the short term and long term. The rest of the cast of characters from Cox to Bernanke and others in the Administration are echoing the chorus.

 

And why this 11th hour race for the cash? Why not let outside experts participate, like Warren Buffet, Ross Perot, T. Boone Pickens and others who understand the language of money and the power of finance? They are patriotic, well-respected and available. Let’s open up government instead of giving more cookies to the same guys who were supposed to watch the cookie jar, and who let it get emptied. I don’t think so!

 

 It would seem everyone is in charge but no one is leading. The Administrations ad hoc and crisis management approach can play out when you are a nine-month president and your country is attacked in unprecedented ways. But seven years into the arena, disarray in energy, economics, immigration, space exploration, countering geoglobal rivals such as Russia and China, and biodefense, this “strategy” is just unacceptable. In upcoming articles we’ll discuss our other vulnerabilities.

 

The role of government

 

If the role of the federal government is to protect the nation, and presumably the public, our leaders – democrat and republican, House, Senate and Administration – have failed their charge miserably. Don’t believe me? Let’s see how the Federal Government is doing as the guardian of our health, rights and security:

 

War on Drugs – bad choice of issues to grade the government on unless you are on crack, then everything looks great, if not a bit hazy. But then Viagra can do that, too. So let’s look at the War on Cancer – nope, especially if you are an adolescent – your rates aren’t improving. How about let’s try another one – the War on Poverty, hmm – better look for another issue for the win column. How about FEMA? Homeland Security? We’ve sunk enough money into these agencies to see a major return, right? ….Okay, maybe we need a different set of examples to judge our governments track record on looking out for the public. Let’s look at the economy. Better not, unless you have a strong stomach…

 

President Bush hired some financial experts to watch the money end of the store. What were they thinking? Were they on cruise control? Of course it’s easy to do that when everything is going well. Companies like countries can get away with a lot when the money is rolling in. But the economy has been wobbling over the last year and more….when dollars get tight, times get hard, all of a sudden the waste, inefficiencies and layers of management become unsustainable. Unless, perhaps, your industry has an insider advocate who marches over to the Hill to create the Wall Street Welfare program. One has to ask as this latest round of bad news emerges from Wall Street – who was watching out for us?

 

Who’s driving the car in Washington and why is it again on the wrong side of the road?

 

Who is driving the car? In 2006 President Bush announced his appointment of the new Treasury Secretary - Henry Paulson, Jr., who at the time was Chairman of Goldman Sachs Group Inc. – a venerable Wall Street mega financial company. Bush extolled the virtues of his then newest Cabinet member as leader of one of the most respected firms on Wall Street “who has an intimate knowledge of financial markets and an ability to explain economic issues in clear terms.” Really? Apparently his “knowledge of financial markets” didn’t go beyond the confines of lower Manhattan, or else perhaps he had difficulty “explaining economic issues in clear terms” to Congress? He was selected to lead the administration’s economic team and become the chief promoter of their fiscal policies. Of note, Paulson didn’t immediately jump at the chance, only accepting after several overtures. Apparently he wasn’t eager to enjoy a dramatic pay cut going from the elite pay scales of über financiers to that of government pay grades. Paulson wanted assurances he would have the proper kind of stature before signing on. I’d say the opportunity to play with $700 billion of American taxpayer money is a pretty nice dose of “stature.”

 

For someone highly regarded as a savvy financier, why all the bail outs? Surely an astute businessman or group of money experts should have seen the warning signs long before we mere mortals, who are happy paying our bills at the end of the month, should receive the bad news; clearly our government sentinels should have known before it hit USA Today. It seems both the folks at Treasury and the American public woke up at the same time to the reality “uh oh, we’re in trouble!” If the economy is considered like a patient then the “economy physicians” let it get very sick before catching on. Call me crazy, but most patients would like their physician to find the disease before they do, thank you very much. Isn’t that why we hire experts? Paulson et al were supposedly the financial or “economy doctors” – and they missed the diagnosis – badly and too late for a simple intervention. Why? Was he too close to Wall Street? Did his loyalties or experiences cloud his judgment? Or was he just in the wrong place at the wrong time?

 

Finance and Security

 

It is interesting to note that in a 2007 interview on the role of Treasury and National Security, Secretary Paulson offered these insights: “Throughout history, Treasury Secretaries have focused their efforts on promoting policies and actions to help ensure the safety and soundness of our financial system. Today, the Secretary must focus on the security of the financial system, as well as its safety and soundness.” One wonders if he needed new glasses given his “focus” on the security of the financial systems apparently didn’t include faulty business practices, rampant profiteering, a broken regulatory system or a dangerous debt to earnings trend afflicting much of the public. For Sec. Paulson to exhort Congress to immediately authorize a nearly trillion dollar bailout of his former colleagues after two years of indifference to the likely outcome of the broken financial industry, disastrous economic policies and consumer trends or in light of his utter incompetence – he has brass ones for sure to ask me as well as my fellow Americans to authorize forking over several thousands of dollars per capita.

 

Even if it is reduced significantly, with this nearly trillion dollar bailout the U.S. will not have the ability to respond to any more catastrophes without significantly mortgaging our future and selling a part of our present. What’s done may be done, but don’t bet on it. We need to take this opportunity to evaluate all the major players in our major industry sectors, which if they were to weaken further would impact the security of our nation. While some industries, at least for the moment remain strong, now is the time to assess our assets and liabilities industry by industry beyond the headlines and examine as if providing a second opinion, just how sick or healthy the patient is. I think if we look under the covers we will find far more challenges.

 

Paulson in 2007 goes on to talk about world wide economics and his role as guardian of our economy. “Global financial flows are growing rapidly and greatly exceed the trade in goods and services. This is a positive trend; open finance and free trade enhance the economic security and prosperity of people in this country and around the world.” Is he kidding? Did he not notice the Wal-Mart effect – the growing trade imbalance with China? Our vulnerability to many of their tainted products? What part of China and Russia buying up U.S. financial obligations did Paulson et al miss?

 

Domestic security hinges on a variety of pillars. First and foremost is confidence in the government. Second, is domestic harmony – a sense that we have a secure even if uncertain future. Third, that the government has the capacity – time, treasure and talent – to protect us from foreign assault. Fourth, that the government in collaboration with all the key stakeholders develops or supports an economic infrastructure that promotes internal economic growth, provides for global trade and protects against policies that impose a burden upon domestic corporations while advantaging foreign competitors. Fifth, our system should enable the average citizen to enjoy a quality of life whereby incentives to excel are not curtailed by punitive taxation. Last – a reassessment of government agencies tasked with homeland security that ensures a unified and collaborative interaction. Seven years after 9 /11 is not the time to restart once again, homeland security organizations and concepts.

 

There’s a certain irony in Sec. Paulson’s comments on his role in security:

 

“But bad actors seek to abuse this global financial system to support their illicit purposes. The world of finance and the world of terror and weapons proliferation intersect through the same system that spreads prosperity at home and abroad. National security is not only an integral part of my job; it is also a sobering one. Our enemies are determined, and there are significant threats that aren't going away anytime soon. As part of the National Security Council, I work with the President and his Cabinet to address these threats. Treasury is now a key pillar of the President's national security and foreign policy strategy.” If that is the case, given his track record, we should be afraid… very afraid for our national security and foreign policy since clearly it has not been in great hands given his report card based upon Wall Street. We should immediately review all his activities and recommendations related to national security and head off at the pass any impending disasters before another reprise of the 11th hour panic.

 

Make no mistake about it – our security is inextricably linked with our economic stability. The economic downturn has opened the United States up to numerous vulnerabilities as competing demands settle in.

 

Selling our borders.

 

The ripple effect of the financial markets and economy can be seen in the disaster called the South Florida real estate market which has left tens of thousands of condominium units for sale – many oceanfront or on the vital Intracoastal Waterway. Who is buying these up? Buyers from nations shall we say less than friendly to the U.S. (Russia, the Middle East) and South Americans, including Venezuelans – those same happy folks represented by President Chávez who also plays host to extremist Muslim terrorist organizations, purchases inordinate amounts of high tech weapons from Russia, and has made it no secret his antipathy for all things U.S., except of course our assets. We are selling off valuable and potentially strategic real estate to foreign interests. It is well known that the Russian Mob has purchased large chunks of real estate in New York and increasingly has set its sights on other important coastal areas from the Northeast to South Beach. Does this make sense? Are we so profit and money driven that we sell our souls and our resources to the first cash dropped in our hand?

 

Selling our financial notes

 

 All countries trade in other nations’ currencies, purchase the treasury instruments of other countries and invest geoglobally. While that is all well and good in an ideal world where everyone plays fair and shares a social compact, one wonders how sound it is to write checks that some of our biggest rivals – China and Russia ultimately cash? They are hard currency rich and we need it. Are they propping up our cash flow? You decide. Never the less it is bad policy to spend ones household or country into debt to the point that loans, selling off shares of U.S., Inc and other practices are needed to get through the week.

 

Trade imbalance/worker imbalance

 

Creating a system where our biggest companies no longer hold allegiance to their native land instead choosing to go to the place of least resistance and greatest profit may be financially savvy in the short term but has caused the abandonment of the American worker, development of an offshore economy and trade imbalance that is out of control. Our foolish trade practices have allowed an unfair advantage abroad at untold cost in morale, money and economic stability to the U.S. Where was Congress, Sec. Paulson, his several predecessors over the last two administrations and Presidents Clinton and Bush as the Wal-Mart effect emerged?

 

Our role in this debacle

 

We spent more than we made; that could easily be said by the folks on Wall Street or Main Street. Irresponsible credit practices have hurt this nation. No question bad things happen to people – unexpected financial crisis, health expenses, deaths and unforeseen events. But those scenarios are not representative of the majority of debt burdened Americans. We need to become a financially responsible public – starting with the grown ups but clearly demanding that financial literacy be taught in our schools. It rarely is and such money ignorance will continue to hamper us.

 

Our leaders have created an environment whereby corporate profit trumps domestic security. With the number of leadership changes at numerous government agencies, low morale, rampant organizational inefficiencies, interagency challenges and sometimes outright failures across the board by Congress and the Administration, it can be argued Washington is broken. Given the dizzying number of lobbyists per Congressman, Senator, Cabinet member, candidate and civic leader offering soft landings and other attractive perks, the constituency of “K” street has outplayed “Main Street.” Instead of complaining about it, we as citizens must share some of the responsibility.

 

First – A government is only as good as the candidates we elect, the rules of engagement we create or allow to be created and the benchmarks or expectations we hold our officials to. Understanding how legislation is passed – the intended way and the real back room way is akin to trying to connect the dots in a Jackson Pollack picture. Though some parts of government by necessity need to be classified and top secret or higher, much of it should be transparent. The average citizen shouldn’t need a degree from the Fletcher School of Government to figure out how to get things done. But the average citizen should expend a little more energy in the political process given it is a government “of the people” – that’s us! Participation via YouTube and chat rooms isn’t the answer. If you have a concern – contact your elected official. Remember they work for you! You put them in office and they presumably ran to serve. Well hold them to it! Find out what they are doing. Are your officials showing up? Are they voting? Are they looking out for you?

 

Second – Our voting effort is shameful. Where much of the peoples of the world do not have even the barest ability to vote for anything substantive or resulting in meaningful changes in their lives, we have an abundance of freedoms to influence our elected leaders – and we waste those opportunities. Our elected officials know this and can thus target their efforts to the demographics that truly matter to them – those who donate, those who campaign and those who show up to vote. Senator Obama beat Senator Clinton because he understood the key constituents necessary to win the primary. Every citizen should vote – period. Even if you don’t like the candidates – show up and write your own name on the ballot…it is your right to do so!

 

Third – We must become part of the process. It is very likely Congress will approve of some form of bailout. You have become the ultimate Bank of the U.S. Your wallet is the treasury. Make sure your representatives include in this “loan” from you to Wall Street a way to get reimbursed with interest! No CEO in a bailed out company gets to draw more than his government grade equivalent and no bonuses or options until the American people have been paid back. But Congress won’t watch out for you if they don’t think you are watching them!

 

What needs to be done?

 

For starters why just bail out the financial industry? Most of my medical students will graduate with between $140,000 and $200,000 in student loans; want to guess why most of them CAN’T (not won’t) go into primary care? The government sets the reimbursements, also oversees the management of student loans (beginning to see a pattern here?). What can be more fundamental to the stability of the nation than making sure enough doctors exist – a twist on Paulson’s argument for the well being of the U.S. based upon the economic model. I say let’s bail out medical students (and their attending physicians who also have student loans) on the assumption health underscores the well being of the U.S. Then after we’ve spent that trillion, let’s go for the food industry – it’s tough milking cows in Minnesota during the winter. Then let’s build an 800 mile wall to keep folks out. Oh, we already authorized that, we just haven’t built it. Hmmm. Where else can we drop a trillion? Rickety bridges? Elder care? How about Social Security?

 

Assuming we have to pump some money into the profiteers of Wall Street, let’s consider the following:

 

First we DO NOT under any circumstances allow Secretary Paulson a fiefdom and a trillion dollars…that is too much power and money concentrated at the discretion of someone who already failed miserably at his duty to protect the American people.

 

Second, we create a bipartisan (translation both parties play nice – this is the future of our country, check the rivalry and “I gotcha” at the door) oversight team from Congress and the Administration, and bring in the best and brightest financiers as the action team. Also need to bring in and work with security, health, public preparedness, urban and suburban leaders – this bailout will have a ripple effect on virtually every domain of public life – as such stakeholders from a wide range of arenas should be at the table from the onset anticipating problems and sharing insights as well as possible solutions before the morass that this bailout will become grows out of hand.

 

Third, the companies that receive the bailout need to understand a few ground rules:

They work for the interests of the American public until such time as the debt – ALL of it is repaid. The senior management signs the IOU. They are responsible in word, deed and by law to do everything they can to position their companies to pay the debt. The senior leaders will have a choice – get paid at government pay grades or what Lee Iacocca earned when Chrysler got bailed out. No golden parachutes.

 

Fourth, the American public is the de facto shareholder of these assets and should be compensated. We authorized our government funds we provided through taxation to be used judiciously. The Framers never envisioned this sort of bail out…such a wanton abandonment of fiduciary responsibility towards the public by officials and did not endorse the use of taxes for such purposes as sponsoring private enterprise. As such, “we the people” should enjoy some of the benefits of investment – and receive a “bonus” ever year based upon the prorated amount per capita we ultimately invest in the bailout. Consider it a ‘dividend” of sorts.

 

Fifth – every proceeding, every nickel and every benchmark is to be made public.

 

The future

 

While in Toronto, several security colleagues quipped “the U.S. is still a great nation, respected up here, and can remain a global leader, even though you don’t have any money.” You know things are bad when the Canadians feel sorry for the U.S.! The fact remains, unless we get our house in order we will quickly become a second rate economy with a first rate military. Global leadership requires more than Raptors and Stealth Bombers. The world has always admired our economic strength, and our innovation – Yankee ingenuity. This latest Wall Street debacle should be relished for the opportunity it presents us to reexamine who we are and where we are going as a society.

Newt Gingrich was on target when he suggested buying our way out of this problem isn’t the solution.

 

The economy must be addressed and it will cost us; whether it is a trillion dollars or not remains to be seen.

 

America is a great, ingenious and strong nation. Our people are strong, resilient and dedicated. But we can only take so many misadventures. It is time for Washington to remember their duty to the people and it is time for the people to take a more hands on interest in how the government works. The Wall Street bailout may be the catalyst that awakens citizen interest and participation in government. The disruption of the financial market is an example of government getting caught asleep at the controls, and illustrates the direct correlation between government failure having a direct impact upon the daily lives of the average person. Though painful, it is a reminder that when we don’t have a hands-on approach to government, sometimes our government doesn’t take a hands-on approach to governing.

 

As we enter the last months of this election season both candidates should be mindful of the fragility of greatness and the need for both parties to work together for the common good. The thirst for victory and the incentives associated with party politics can often overshadow what should be the ultimate reason to run for office – a sense of duty, a sense of service and doing what is right for the nation. The next administration has before it a long list of lessons to be learned from and mistakes not to be repeated. The good news for this administration – it’s almost over – which means there is time to leave a legacy of good. So whatever the administration does in the last remaining months to start us on the way to a solution, even if it means telling us just how extensive the “how bad it is” really is, can in the end be one of the most important acts and contributions President Bush can do for the American public.

 

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