Business Roundtable: Taking Stock | Newsweek Inside Business

NEWSWEEK's Business Roundtable takes stock of the real damage—and offer solutions to the economic crisis.

NEWSWEEK

Published Jul 19, 2008

From the magazine issue dated Jul 28, 2008

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A Modest Proposal

Robert Reich , secretary of Labor under Bill Clinton, and author of "Supercapitalism: The Transformation of Business, Democracy, and Everyday Life"

Of course Fannie and Freddie are getting bailed out. They're Bear Stearns to the 10th degree—way too big to fail, especially with the rest of the Street in turmoil. And of course taxpayers get stuck with the tab.

What worries me is the complete lack of accountability by Fannie's and Freddie's executives, as well as Wall Street investment bankers also now being insured by taxpayers. We've created the worst form of socialized capitalism—private gains combined with public losses. These executives and bankers are among the best paid in all of corporate America. Their organizations are treated as if they're giant investor-driven private sector entities as long as they're healthy. But when they start to go down the tubes they become public entities with public responsibilities, and the rest of us have to bail them out.

Surely there will be more failures or near failures of financial institutions in the coming months, and American taxpayers will once again be called on to insure their solvency. The important question is what conditions should be applied.

Herewith a modest proposal: when taxpayers insure a giant entity against loss—Freddie, Fannie, Wall Street investment banks, whatever—the entities must agree that (1) for the duration of the bailout, their top executives cannot receive total annual compensation higher than that received by the president of the United States, and (2) the government gets 5 percent of their current valuation as shares of stock (roughly representing the benefit to their shareholders of the federal insurance). If and when the entities become profitable again, taxpayers are thereby compensated for the risk they've taken on.

The Dangers of Getting Too Cozy

Larry Lindsey, former governor of the Federal Reserve and former economic adviser to President George W. Bush

Excellent point about Fannie and Freddie, Mr.R........You realise of course the opposition to reguation under Bush, proposed four times and Barney Frank and Christopher Dodd, were butt deep in campaign money, NOT TO MENTION, Barney's 'lover' at Fannie.......The Congress of the United States is getting a pass on it's culpability, with regard to Fannie Mae and Freddie Mac and the obvious corruption. Bundling worthless mortgaes and tossing them off on our Banking System as valuable entities. I listened to your "ramblings" while with Clinton. You are still a left wing apologist who seemingly needs a bad guy to prop up your 'little man complex. Go after the real badguys.....even if they are your friends.

As a public high school teacher, the current state of our public (and private) institutions reflect our values as a society, from my point of view. I ask all readers to consider this comparison of the following American institutions: Wall Street, Financial Powerhouses, and our public schools...

We are bailing out these failing institutions with taxpayer dollars. The state of our public school system continues to decline. Bailouts and deregulation and more money for failing financial (private) institutions. But increased regulation and LACK of financial support for our PUBLIC SCHOOLS - does this tell us something about our overall priorities as a nation? Are we reaping what our leaders have sown for us?

Think about this, voters PLEASE! Not just for the sake of your own personal interests, but for the sake of our country.

Good teachers are being laid off and class sizes are growing. No child left behind is a law that requires improvements without the promised funding to implement these improvements. And our schools are listed as "failing schools" losing support from the federal government who "regulated" the schools in the first place.

What is left in our public schools is often a stressed out skeleton staff that does not have the resources to properly educate our students, our future, which we would hope will lead us someday.

More evidence is proving that No Child Left Behind (an unfunded mandate) has actually lead to increasing drop outs of our high school students. PLEASE don't blame the teachers for this. We don't want any child to fail. We are working as hard as we can. We are not "in it for the money."

Meanwhile, these corporate lobbyists have effectively secured deregulation and what they consider "optimal" conditions for their financial success (deregulation). And a few well-connected people have lined their pockets with enormous amounts of other peoples' money.

This sort of short-term gain at the expense of long-term growth way of thinking have really infected our entire way of running our society.

Unfortunately middle and lower class young people (the MAJORITY) of our future do not have the money or the resources to hire corporate lobbyists. Their teachers and their schools have very limited resources. And there is little to NO organized efforts to effectively support the reform and progress to lead our public schools to educate and prepare our future.

In every other developed and developing country we compare our students' progress with, there is a clear and dedicated effort to improve, fund, and prioritize education. We are and will be competing with these nations. In America, we are starving our schools while bailing out reckless fat cats who've thrived on greed. Is this the American Way? Or have we lost our way?

Let this be a lesson. Hopefully (as we say in class) we will learn from all of this and use it to improve, grow, and succeed.

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Posted By: Dredd @ 03/21/2009 7:40:19 AM

The people are the real Uncle Sam. I am fearful that severe conflicts of interest exist in the business model and structure which must be addressed. Does AIG Iraq, Banque AIG, AIG Dubai, or Swiss bank AIG private bank give you any pause?

http://blogdredd.blogspot.com/2009/03/aig-iraq.html
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Posted By: Cretin @ 01/23/2009 5:09:47 PM

Excellent point about Fannie and Freddie, Mr.R........You realise of course the opposition to reguation under Bush, proposed four times and Barney Frank and Christopher Dodd, were butt deep in campaign money, NOT TO MENTION, Barney's 'lover' at Fannie.......The Congress of the United States is getting a pass on it's culpability, with regard to Fannie Mae and Freddie Mac and the obvious corruption. Bundling worthless mortgaes and tossing them off on our Banking System as valuable entities. I listened to your "ramblings" while with Clinton. You are still a left wing apologist who seemingly needs a bad guy to prop up your 'little man complex. Go after the real badguys.....even if they are your friends.
- Reply
- Report Abuse
Posted By: melbee1971 @ 09/19/2008 10:26:28 AM

As a public high school teacher, the current state of our public (and private) institutions reflect our values as a society, from my point of view. I ask all readers to consider this comparison of the following American institutions: Wall Street, Financial Powerhouses, and our public schools...

We are bailing out these failing institutions with taxpayer dollars. The state of our public school system continues to decline. Bailouts and deregulation and more money for failing financial (private) institutions. But increased regulation and LACK of financial support for our PUBLIC SCHOOLS - does this tell us something about our overall priorities as a nation? Are we reaping what our leaders have sown for us?

Think about this, voters PLEASE! Not just for the sake of your own personal interests, but for the sake of our country.

Good teachers are being laid off and class sizes are growing. No child left behind is a law that requires improvements without the promised funding to implement these improvements. And our schools are listed as "failing schools" losing support from the federal government who "regulated" the schools in the first place.

What is left in our public schools is often a stressed out skeleton staff that does not have the resources to properly educate our students, our future, which we would hope will lead us someday.

More evidence is proving that No Child Left Behind (an unfunded mandate) has actually lead to increasing drop outs of our high school students. PLEASE don't blame the teachers for this. We don't want any child to fail. We are working as hard as we can. We are not "in it for the money."

Meanwhile, these corporate lobbyists have effectively secured deregulation and what they consider "optimal" conditions for their financial success (deregulation). And a few well-connected people have lined their pockets with enormous amounts of other peoples' money.

This sort of short-term gain at the expense of long-term growth way of thinking have really infected our entire way of running our society.

Unfortunately middle and lower class young people (the MAJORITY) of our future do not have the money or the resources to hire corporate lobbyists. Their teachers and their schools have very limited resources. And there is little to NO organized efforts to effectively support the reform and progress to lead our public schools to educate and prepare our future.

In every other developed and developing country we compare our students' progress with, there is a clear and dedicated effort to improve, fund, and prioritize education. We are and will be competing with these nations. In America, we are starving our schools while bailing out reckless fat cats who've thrived on greed. Is this the American Way? Or have we lost our way?

Let this be a lesson. Hopefully (as we say in class) we will learn from all of this and use it to improve, grow, and succeed.