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CIT saga is just business as usual
Robert Reich
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TEXT OF COMMENTARY
Kai Ryssdal: Small business owners will be relieved to hear that CIT is still alive. At least as of right now. This country's biggest lender to small and medium-sized businesses is smack up against a Chapter 11 filing, even after a federal bailout. Commentator Robert Reich says the CIT saga is just the latest example of business as usual on Wall Street and in Washington.
ROBERT REICH: CIT Group, one of the nation's biggest small-business lenders is on the brink. If its bondholders reject CIT's last-ditch plan, which seems increasingly likely, the company will become the fifth-largest bankruptcy in U.S. history.
And when CIT goes under it will also take taxpayers with it, to the tune of $2.3 billion, which is what the firm got from the Treasury's Wall Street bailout program last December.
But here's an interesting thing. When CIT goes down, Goldman Sachs reportedly will receive a billion dollars from CIT under a 2008 rescue agreement between the two firms.
Now, why will Goldman get a billion, while taxpayers lose more than twice that? Because the Treasury failed to protect taxpayer interests nearly as well as Goldman protected Goldman's interests. And why was that? Incompetence at Treasury? Close ties between Treasury and Goldman Sachs? Just bad luck?
You can rule out bad luck because almost the same thing happened last fall after the Treasury bailed out AIG, which owed Goldman $13 billion. AIG still hasn't paid us taxpayers and probably never will. But when we bailed out AIG, Goldman got repaid its money.
Goldman has announced record earnings for the first six months of this year, and set aside $11.4 billion for a bonus pool for its executives and traders, which comes to a few billion dollars less than we taxpayers have indirectly channeled to Goldman since last fall.
I don't want to pick on Goldman. All top five Wall Street banks have profited nicely from the bailout, all have increased their market shares, all their executives and traders are now making bundles, and all continue to have close ties to Washington.
Now, some in Congress want to set limits on Wall Street pay. This is one of several measures being considered for financial reform. The Treasury doesn't like the idea, but it sounds reasonable to me. As long as we taxpayers continue to bail out the Street, which seems likely to continue for some time, our tax dollars will inevitably find their way to these giant banks and their executives and traders.
Just follow the money, and watch what happens with CIT.
RYSSDAL: Robert Reich is a professor of public policy at the University of California Berkeley.
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Goldman does not have an obligation to other than the shareholders. Stakeholders that are not invested are just along for the ride. I also find it repugnant that those that do not pay income taxes get to vote and determine how much money we must give them so they do not have to be responsible adults.
A story about CIT's troubles morphs into lobbying about control over compensation? Different topics!
In addition, we are ignoring the historical background to CIT. If CIT is too big to fail, let's ask why it got so big. Could it be that no one cared about anti-trust matters when CIT was buying up its competition? This is exactly why we have anti-trust laws.
Two things:
First, I agree with Kate in noting that the government can and should set the most conservative rules possible, no matter how arbitrary they seem, when providing a bailout. And that's their prerogative. This is why Goldman hurried to pay back their TARP money so quickly.
Secondly, let's not forget that corporations are a relatively new construct in terms of business organization, and their uniquely beneficial status is based on certain rules of sound governance. This recent rash of bad behavior on the part of many businesses has not only jeopardized the investments and livelihoods of many Americans, but it has shaken the public's confidence in our system of capitalism. Why wouldn't we expect some sort of popular backlash?
I had read that CIT was the lender of last resort for *many* small businesses in this country.
If CIT goes under what happens to the small businesses? Do they close because they can't get any credit? How many small businesses will fail? How many more people will be unemployed when they do?
I am not in favor of the government setting salaries EXCEPT in the case of a bailout. In that case, the government becomes a controlling shareholder and, it seems to me, does have the right to set all kinds of arbitrary rules. In fact, I think the same should apply if a company is "too big to fail." In that case they are expecting the government to back their gambles, and should either pay for insurance to cover their possible failure, or put up with arbitrary rules. There has to be some kind of penalty for stupid risks or they will just do it again in some new and odd way, which I already think they will, based on how little the last fiasco hurt.
I do not think that Goldman has ultra genius cadre for managment, so it has to be something illegal that us an ordinary folks have not discovered as of yet, and "money grease pump" is very good to keep silence of any possible defectors at this time.
I think that such large financial institution has an obligation to this country and to this society, and not just to its shareholders.
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