Phil Mattera

Workplace Tyrants Talk “Democracy” to Undermine Worker Free Choice

The halls of Congress are buzzing with talk of “workplace democracy.” This isn’t about syndicalism or co-determination. The slogan is being brazenly exploited by front groups for corporate interests fighting against a piece of federal legislation, the Employee Free Choice Act (EFCA), that would make it easier for U.S. workers to form unions free of management intimidation.

Major companies and their trade associations are sparing no expense in fighting EFCA, which was just introduced in the Senate by Tom Harkin of Iowa and in the House by George Miller of California . We thus have an abundance of bogus grassroots campaigns operating under names such as the Coalition for a Democratic Workplace, the Employee Freedom Action Committee, the Workplace Fairness Institute and the Alliance for Worker Freedom.

They all foster the delusion that U.S. workplaces are currently a realm of full self-determination in which employees can robustly exercise their Constitutional rights. This Eden of autonomy is said to be threatened by EFCA, which, according to the Coalition for a Democratic Workplace, “is fundamentally incompatible with protecting the interests of individual liberty and the principles of a sound democracy.”

It is mind-boggling that these groups can get away with mouthing such slogans in furtherance of a movement whose leading proponents include Wal-Mart Stores, a company whose name is synonymous with labor abuses ranging from short-changing workers on overtime pay to mercilessly squashing any union organizing efforts. “We believe every associate or employee should have the right to make a private and informed decision regarding union representation,” a Wal-Mart spokeswoman told the Wall Street Journal recently. And when that decision results in a vote favoring the union, the company promptly shuts down the offending workplace.

Given its reputation, Wal-Mart has nothing to lose in openly opposing EFCA. Most other large non-union companies have been more circumspect, letting the front groups and trade associations do the dirty work. Yet their fear and loathing of EFCA sometimes make it on the record. For example, Wal-Mart’s cooler competitor Target Corp., which is just as “union free,” is also riding the anti-EFCA bandwagon, according to a Minneapolis Star Tribune article that appeared in January. That same article cited two other Twin Cities-based firms, Best Buy and Hubbard Broadcasting, as EFCA opponents.

The latter company’s chief executive, Stanley S. Hubbard, is a long-time foe of unions who has kept collective bargaining out of nearly all his stations. Just this week, union members in the Twin Cities picketed (photo) the company’s flagship station KSTP to protest Hubbard’s effort to extract radical concessions—including the right to withdraw negotiated pay increases at any time—from NABET-CWA Local 21 at WNYT in Albany, New York. The workers at the station have been without a contract since last September.

Stanley Hubbard also has a history of mistreating his non-union employees. A May 1997 profile of him in the publication Corporate Report Minnesota (available via Nexis) stated: “Junior reporters and cameramen regularly told friends that they would have to leave KSTP just before their fifth anniversary because the Hubbards didn’t want them vested in the company pension plan.” The author of the article quotes Hubbard as mocking reporters who challenged his autocratic style: “Newspeople think, Oh, no one should tell me what to do.”

Such is the workplace “democracy” that corporate opponents of EFCA want to preserve.

Pump and Slump: Will Citi Sleep with the Fishes?

A couple of years ago, the mighty Citigroup traded at around $50 a share. Today, March 5, the price hovered around $1 and for a while was below a buck. In other words, one of the largest financial institutions in the world is in effect a penny stock. At one time, a descent to that level would have been enough to get a company delisted from the New York Stock Exchange, but standards have been relaxed.

Penny stocks have traditionally been associated with unscrupulous brokerage practices, such as the “pump and dump” scheme graphically illustrated during some episodes of The Sopranos (photo). A look back at the record of Citi during the past decade does not suggest a moral compass much different from the wise guys of Northern New Jersey. As U.S. PIRG Education Fund notes in its recent report Failed Bailout, Citi helped crooked companies such as Enron carry out deceptive transactions and itself set up scores of entities in offshore tax havens such as the Cayman Islands in order to avoid both taxes and oversight.

Citi’s actions had an impact beyond its own unjust enrichment. As Multinational Monitor editor Rob Weissman and his colleagues show in their new report Sold Out, Citigroup played a key role—thanks to $19 million in campaign contributions and $88 million in lobbying expenditures—in bringing about the demise of the Glass-Steagall Act and other deregulatory moves that paved the way for the current meltdown of the financial system.

Yet Citi’s management is, to a great extent, no longer in control of the company’s fate. Today it is the federal government that is in effect trying to pump up the bank and its stock. The Obama Administration, regrettably, is perpetuating the idea that Citi is too big to fail and thus requires a seemingly unlimited commitment of public resources.

Unfortunately for U.S. taxpayers, the pumping will not be followed by a timely dumping of the federal holdings in Citi at a fat profit. In fact, the federal capital infusions, loss-sharing agreements and loan guarantees are not stabilizing the company and pushing up its stock price. The more the feds put into the bank, the less the market seems to think it is worth. This downward move is attributed in significant part to short-selling of Citi’s common stock by hedge funds. At one time, those funds were apparently in cahoots with Citi. Last fall the Senate Permanent Subcommittee on Investigations charged that Citi was one of the banks that had helped offshore hedge funds engage in tax avoidance. I guess there really is no honor among thieves.

The U.S. government is now in the ridiculous position of having made commitments potentially costing hundreds of billions of dollars to a bank that the stock market, as of today, thinks is worth a total of only about $5 billion. As long as the Administration avoids the seemingly inevitable need to nationalize and reorganize Citi and the other large zombie banks, its strategy amounts to little more than “pump and slump.” Despite the efforts of the feds, the bank whose motto is “the Citi never sleeps” may soon be sleeping with the fishes.

Blurring the Bailouts

This is the time of year when most U.S. public companies file their 10-K annual reports with the Securities and Exchange Commission, which in turn makes them available to the public through its IDEA web page (formerly EDGAR). These reports include sections in which management discusses the firm’s performance over the past year and tries to put the best face on the financial results.

Many companies are, of course, reporting disappointing results this time around, but perhaps the most awkward filings are the ones being made by companies that had to get bailed out by the federal government to get through the year. Let’s take a look at how they are talking about being wards of the state.

We don’t yet know how General Motors is dealing with this challenge, since it notified the SEC that its 10-K will be late. So let’s focus on two of the other biggest supplicants: Citigroup and AIG. The first lesson, apparently, is not to use the term “bailout” when talking about being bailed out. The term appears nowhere in either firm’s 10-K.

Citi instead employs the bland statement that “the Company benefited from substantial U.S. government financial involvement.” Substantial, indeed. Citi matter-of-factly describes the capital infusions, loss-sharing agreements and loan guarantees through which the feds have made a commitment potentially costing several hundred billion dollars to keep the giant bank holding company afloat. With all the references to UST and USG, a casual reader might think Citi was referring to conventional investors rather than the U.S. Treasury and the U.S. Government.

AIG adopts a more narrative approach, writing that: “By early Tuesday afternoon on September 16, 2008, it was clear that AIG had no viable private sector solution to its liquidity issues. At this point, AIG received the terms of a secured lending agreement that the NY Fed was prepared to provide.” This does not quite capture the gravity of events that the New York Times, for example, reported on in a front-page story headlined: FED IN AN $85 BILLION RESCUE OF AN INSURER NEAR FAILURE; U.S. GETS CONTROL; POLICY REVERSAL ARISES FROM GROWING FEAR OF GLOBAL CRISIS.

Aside from downplaying the gravity of their bailouts, the Citi and AIG 10-Ks are less than lucid on what led up to their troubles. In describing conditions in 2008 that led to a $27 billion net loss, Citi takes no responsibility. The causes, instead, are said to have been “continued losses related to the disruption in the fixed income markets, higher consumer credit costs, and a deepening of the global economic slowdown.” Contrast this to its 10-K of two years ago, which stated: “We enter 2007 with good business momentum, as we expect to see our investment initiatives generate increasing revenues, and are well-positioned to gain from our balanced approach to growth and competitive advantages.” In other words, when things are going well, management strategy gets the credit; when the red ink begins to gush, impersonal market forces are to blame.

AIG, which reported an astounding $99 billion net loss for the year, also paints itself as a victim of conditions outside its control, saying “the 2008 business environment was one of the most difficult in recent decades.” The difference with Citi is that AIG’s management is blunter about the continuing dismal prospects for the company. The notes to its financial statements include a section entitled “Going Concern Considerations” that raises the possibility that the company may need yet more government assistance and that, even then, its survival is far from a sure thing.

Perhaps the most telling parts of the reports are the sections in which the companies have to disclose significant legal proceedings in which they are involved. It takes more than 7,000 words for AIG to summarize all of its legal problems, including about a dozen securities fraud class action cases. Citi engages in a similar recitation.

While the two companies are still in a state of denial about their responsibility both for their own circumstances and for the larger financial crisis (as illustrated in the image above from Citi’s website), the existence of these legal proceedings may see to it that they are eventually held accountable for their financial misdeeds.

The Corporate Crime Fighting Budget

The call to boost taxes on the wealthy to start paying for healthcare reform is not the only refreshing thing about the budget outline just released by the Obama Administration. There is also a marked shift toward tighter regulation of business. Here are some features of what might be called the Corporate Crime Fighting Budget:

Cracking down on corporate polluters. The Environmental Protection Agency—a joke during the Bush Administration—is slated for a 34 percent increase in funding. This would result in a hike in the budget for core functions such as enforcement to $3.9 billion, an all-time high for the agency.

Cracking down on abusive employers. Obama wants the Department of Labor—another agency enervated by the Bush crowd—to get a smaller increase than EPA, but the additional funds are intended to rebuild DOL’s responsibilities in workplace monitoring. The budget document proposes to “increase funding for the Occupational Safety and Health Administration, enabling it to vigorously enforce workplace safety laws and whistleblower protections, and ensure the safety and health of American workers; increase enforcement resources for the Wage and Hour Division to ensure that workers are paid the wages that are due them; and boost funding for the Office of Federal Contract Compliance Programs, which is charged with pursuing equal employment opportunity and a fair and diverse Federal contract workforce.”

Prosecuting white-collar crooks. The section on the Justice Department in the budget document says that the Administration will seek [not yet quantified] “resources for additional FBI agents to investigate mortgage fraud and white collar crime and for additional Federal prosecutors, civil litigators and bankruptcy attorneys to protect investors, the market, the Federal Government’s investment of resources in the financial crisis, and the American public.”

Thwarting purveyors of tainted food. The Administration plans to “take steps to improve the safety of the Nation’s supply of meat, poultry and processed egg products and to ensure that these products are wholesome, and accurately labeled and packaged.” The proposed budget for the Agriculture Department “provides additional resources to improve food safety inspection and assessment and the ability to determine food safety risks. This will lead to a reduction in foodborne illness and improve public health and safety.” The Food and Drug Administration, which is under the auspices of the Department of Health and Human Services, would also get a hike in funding.

Restricting plunderers of national resources. The section of the budget document on the Interior Department outlines the Administration’s intention to rein in the windfalls long enjoyed by extraction companies with leases to drill and mine on public lands. The plan includes “a new excise tax on offshore oil and gas production in the Gulf of Mexico to close loopholes that have given oil companies excessive royalty relief” as well as the imposition of user fees and more realistic royalties for oil and gas drilling on federal lands.

Controlling drug and healthcare price gouging. The general framework for healthcare reform released by the Administration as part of the budget document contains plans to slow down the growth in Medicare costs. This includes a proposal to force providers of privatized coverage under the name of Medicare Advantage to participate in competitive bidding. Medicare drug costs would be reined in by tightening oversight of Part D spending and by preventing brand-name pharmaceutical companies from paying generic drug producers to keep their low-cost products off the market.

To these should be added tax proposals that would put an end to various boondoggles that have enriched oil companies, hedge funds and other anti-social elements. Some of Obama’s proposals (especially regarding healthcare) do not go nearly far enough, but the budget as a whole represents a major break from the priorities of the Bush Administration. Though you would hardly know that from the geeky, matter-of-fact way it is being promoted by Budget Dirtector Peter Orszag (photo).

Budget documents are, of course, merely wish lists conveyed by the executive to the legislative branch. In the short term, the main impact of Obama’s blueprint will be to launch a massive wave of business lobbying. Now it is up to Congress to resist the entreaties of those paid persuaders and make it clear that the days of unchecked corporate giveaways have come to an end.

Nationalization Would Be Good for Our Health

Nationalization—a term alien to most Americans taught to believe in the ideology of a free market—is now at the center of a public discussion on how to address the ongoing crisis of the country’s major financial institutions. For most observers, nationalization is viewed as an unfortunate and temporary step that would be taken to restore troubled banks to health and then turn them loose on the market again.

Yet perhaps we shouldn’t be thinking in such narrow terms. If the taboo against government ownership is disappearing, now might be the time to consider applying that solution to another industry that causes Americans a great deal of grief: for-profit health insurance.

Long before the banking system became a national embarrassment, health insurance companies—especially health maintenance organizations—were a leading symbol of market forces running amok. A wave of consolidation put the industry under the control of a handful of huge for-profit corporations whose business plans are based on the denial of as much care as possible. Despite being hit with a variety of class action lawsuits filed on behalf of patients and healthcare providers, their practices remain largely unchanged.

Calls for healthcare reform have grown, yet mainstream analysts insist that private insurers have to remain a central part of any new system. Although it is the norm in most other developed countries, the conventional wisdom is that government-managed coverage—the single-payer approach long advocated by groups such as Physicians for a National Health Program—is unthinkable here.

That’s not because single-payer isn’t feasible. On the contrary, it’s the for-profit system that leaves a lot to be desired in the efficiency department. Consider this: According to their latest financial statements, the five largest private U.S. health insurers—UnitedHealth, WellPoint, Aetna, Humana and Cigna—together spent more than $36 billion on marketing, administration and other non-medical costs last year. This represented 19 percent of their total costs, which doesn’t include the administrative costs they impose on doctors, hospitals and other healthcare providers. By contrast, in Canada’s government-run single-payer insurance system, administration accounts for only 3.4 percent of total costs.

If the five big U.S. private insurers were that efficient, they would be spending only about $7 billion a year on non-medical costs. In other words, they are wasting nearly $30 billion a year on functions that do little to promote the physical well being of their subscribers. In fact, a large portion of the waste represents their efforts to reduce care and thereby raise profits, which for the five totaled more than $8 billion last year despite a difficult economic environment.

A great deal of the waste among private insurers reflects the huge workforce—totaling more than 200,000 at the top five firms—they employ to operate their immense bureaucratic machine. Imagine how much better our system would be if most of those 200,000 people were retrained to be healthcare providers rather than deniers, and the billions in wasteful spending went toward lowering premiums and improving care. Some researchers have estimated that the replacement of the multiplicity of private and public payers into a single national system would eliminate $350 billion a year in wasteful expenditures.

In his speech to Congress this week, President Obama was emphatic about moving on healthcare reform soon, but he was vague about details. Vast sums are being spent to at least partially nationalize banks. Why not use some of those funds to take over the health insurers that create their own form of financial distress?

It is an auspicious time to take the plunge. Thanks to the slumping stock market, the stock prices of the big insurers are cheap. The total market capitalization of the big five is currently only about $74 billion. For far less than what has been spent giving dubious capital infusions to banks, the federal government could buy out all the shareholders of the large insurers and move their subscribers into a federally operated system—perhaps an extension of Medicare—that could use cost savings to remove restrictions on coverage and enroll the uninsured.

I know there are a lot of complications, but this may be a rare opportunity to cast away old assumptions about what is possible and seek radical rather than patchwork reform. Nationalization of shaky banks may prove to be a futile effort; the federal takeover of private medical insurance would pave the way to a more humane and effective healthcare system.

Not Quite Beyond Petroleum

For the past eight years, the oil giant formerly known as British Petroleum has tried to convince the world that its initials stand for “Beyond Petroleum.” An announcement just issued by the U.S. Environmental Protection Agency may suggest that the real meaning of BP is Brazen Polluter.

The EPA revealed that BP Products North America will pay nearly $180 million to settle charges that it has failed to comply with a 2001 consent decree under which it was supposed to implement strict controls on benzene and benzene-tainted waste generated by the company’s vast oil refining complex in Texas City, Texas, located south of Houston. Since the 1920s, benzene has been known to cause cancer.

Among BP’s self-proclaimed corporate values is to be “environmentally responsible with the aspiration of ‘no damage to the environment’” and to ensure that “no one is subject to unnecessary risk while working for the group.” Somehow, that message did not seem to make its way to BP’s operation in Texas City, which has a dismal performance record.

The benzene problem in Texas City was supposed to be addressed as part of the $650 million agreement BP reached in January 2001 with the EPA and the Justice Department covering eight refineries around the country. Yet environmental officials in Texas later found that benzene emissions at the plant remained high. BP refused to accept that finding and tried to stonewall the state, which later imposed a fine of $225,000.

In March 2005 a huge explosion (photo) at the refinery killed 15 workers and injured more than 170. The blast blew a hole in a benzene storage tank, contaminating the air so seriously that safety investigators could not enter the site for a week after the incident.

BP was later cited for egregious safety violations and paid a record fine of $21.4 million. Subsequently, a blue-ribbon panel chaired by former secretary of state James Baker III found that BP had failed to spend enough money on safety and failed to take other steps that could have prevented the disaster in Texas City. Still later, the company paid a $50 million fine as part of a plea agreement on related criminal charges.

In an apparent effort to repair its image, BP has tried to associate itself with positive environmental initiatives. The company was, for instance, one of the primary sponsors of the big Good Jobs/Green Jobs conference held in Washington earlier this month. Yet as long as BP operates dirty facilities such as the Texas City refinery, the company’s sunburst logo, its purported earth-friendly values and its claim of going beyond petroleum will be nothing more than blatant greenwashing.

Another Crooked Philanthropist?

A recent article in the Wall Street Journal discussed the ways a person can enhance his or her profile on Google by creating positive material that will displace unflattering references from the top of the search results. R. Allen Stanford, who has just been accused by the U.S. Securities and Exchange Commission of engaging in a “massive, ongoing fraud,” seems to have done something similar in the management of his public image.

Until word got out recently that federal authorities were combing through records at the Houston offices of his Stanford Financial Group operation, Stanford (center in photo) had successfully cultivated his image as a flamboyant Caribbean-based financier, a leading promoter in the world of cricket and an active philanthropist. He began referring to himself as Sir Allen after being knighted by the government of Antigua.

While investors were most interested in the spectacular yields his firm provided on so-called certificates of deposit (which were actually more exotic investments), Stanford seemed to work hardest in his efforts on behalf of St. Jude Children’s Research Hospital in Memphis and his Stanford 20/20 cricket tournaments. He brought his interests in philanthropy and sports together in 2007, when Stanford Financial took over the primary sponsorship of a PGA golf tournament benefitting the children’s cancer hospital. In 2007 the event became known as the Stanford St. Jude Championship.

Until this month, Stanford’s public record in news databases such as Nexis was dominated by articles concerning his charitable and sporting side activities. A little digging, however, unearthed what Stanford may have been trying to suppress: a series of unflattering articles in the late 1990s and early 2000s about his efforts to block legislation in Congress to crack down on offshore money laundering, especially in the Caribbean, where Stanford’s offshore bank, Stanford International Bank, is based.

In June 1999 Shelley Emling of Cox News Service wrote a story suggesting that Stanford was involved in weakening money laundering regulations in Antigua, where he had taken up residence. An article by David Ivanovich published on July 16, 2000 in the Houston Chronicle provided more details on Stanford’s role in strengthening Antigua’s bank secrecy practices, which were a source of frustration for U.S. officials trying to prevent money laundering.

In 2002 Stanford was in the news again after Public Citizen published a report listing Stanford Financial Group as a major provider of soft money contributions to promote the campaign against new U.S. money laundering proposed during the Clinton Administration. The report found that major recipients of the contributions included 527 groups affiliated with Senator Thomas Daschle and Democratic Caucus Chairman Martin Frost.

The Center for Responsive Politics points out that Stanford continued to invest in the political process even after the money laundering controversy died down. The group calculates that Stanford Financial’s PAC and the firm’s employees have given $2.4 million to federal candidates since 1989, and the firm has spent $4.8 million on federal lobbying efforts during the past decades.

It is difficult to know if these contributions helped Stanford thwart earlier investigations of his money management practices. One also wonders how many other possible business crooks are out there deflecting attention from their misdeeds by wrapping themselves in heartwarming activities such as fundraising on behalf of pediatric cancer victims. It is unfortunate that worthy endeavors such as St. Jude have to depend on wealthy supporters who may have much less noble ulterior motives.

The Banality of Corporate Evil

Our culture worships spunky small businesses and entrepreneurship. Stewart Parnell epitomized that ideal and was living the good life in Lynchburg, Virginia until last month, when his Peanut Corporation of America (PCA) was linked to one of the biggest salmonella outbreaks—at least eight deaths and more than 500 illnesses—ever to occur in the United States.

According to federal officials, PCA knowingly shipped contaminated peanuts as well as peanut butter and paste on numerous occasions, including 32 truckloads meant for the school lunch program. PCA also provided tainted raw materials for many large food processors, which have issued a cascade of product recalls. PCA is now the subject of a criminal investigation, and this week Parnell (photo) was compelled to appear at a Congressional hearing, where he grim-facedly invoked the Fifth Amendment and declined to answer questions.

He had reason to look grim. The House Energy and Commerce Committee released several e-mail messages sent by Parnell, including one in which he told his plant manager to make shipments (his exact words were “let’s turn them loose”) despite some test results showing evidence of salmonella. In another he complained that those problematic results were “costing us huge $$$$$.”

This was also a week when the chief executives of the country’s largest financial institutions were called before Congress and pelted with questions about bonuses paid out amid the massive federal bailout of the industry. But these days everyone expects executives of large corporations to be reprobates.

The Parnell situation is more chilling. He is the head of a privately held company with annual revenues of only about $25 million, which makes it a small business by contemporary standards. PCA had almost no public profile until last month, and Parnell’s only previous time in the national spotlight (though a much dimmer one) was in 2005, when Bush Administration Agriculture Secretary Mike Johanns appointed him to the Peanut Standards Board. (Parnell was just ousted from the panel by the USDA, which also announced that it is seeking to debar PCA from doing business with the federal government.)

According to the Atlanta Journal-Constitution, PCA was built by Parnell’s father, Hugh Parnell, as an outgrowth of his ice cream sandwich business. The company later got caught up in the takeover wave that swept through the small world of peanut processing. The Journal-Constitution reports that PCA was sold in 1995 to Morven Partners, the vehicle set up by billionaire investor John Kluge to take over various nut companies such as Jimbo’s Jumbos.

Jimbo’s, by the way, was mentioned in one of the e-mails released this week by the House. In it Parnell said: “We need to find out somehow what our competition (JIMBOS) is doing [about salmonella] and at the very least mimic their policy.”

Stewart Parnell and his brother Hugh Brian Parnell, the Journal-Constitution goes on to report, became management consultants for Morven until the late 1990s, when Stewart repurchased PCA.

Hugh Brian Parnell told reporters that work and family occupy his brother Stewart’s time. “He doesn’t drink, smoke or socialize,” Huge was quoted as saying. “He’s a family man. You never see him without a grandchild around.” The Associated Press quotes a neighbor of Stewart’s as saying: “He’s always been an upstanding, generous person and a pillar of the community.” Parnell and PCA didn’t have a much of a presence in the business community in Lynchburg, where the company has its modest headquarters. “This episode is the first time I’ve heard of them,” the president of the city’s chamber of commerce was quoted as saying.

Even less is known about Parnell’s associate David Royster III, who reportedly financed the acquisitions that allowed PCA to reach its current size. Royster is one of the younger members of a family that operates a variety of apparently respectable businesses in Shelby, North Carolina.

The apparent fact that supposed pillars of the community can engage in outrageously reckless business practices shows that there is sometimes a fine line between the aggressive pursuit of profit and behavior that can legitimately be called evil. Those who would venerate entrepreneurship should keep in mind that it can also have a dark side.

A Missed Opportunity

In three public appearances—town hall meetings in Indiana and Florida as well as a prime-time news conference—President Obama has achieved a rhetorical tour de force in promoting the economic recovery legislation now before Congress. His remarks have skillfully discredited the government-bashing and market fundamentalism that have dominated U.S. political discourse for the past quarter century.

One of Obama’s most effective points has been the need to turn the current crisis into an opportunity. He argues that proposed spending provisions relating, for instance, to school construction, renewable energy development, and the computerization of medical records will help both in boosting short-term economic activity and in providing the basis for longer-term improvements in education, energy independence and healthcare efficiency. Rarely has the case for public investment been made so passionately and so eloquently.

Would that the same could be said about the speech given by Treasury Secretary Timothy Geithner (photo) about the Administration’s plan for revamping the financial bailout. First, it felt odd for a cabinet officer to be introduced by a member of Congress—Senate Banking Committee Chairman Chris Dodd. Second, the speech was surprisingly vague on some key points, and Geithner did not take any questions.

The speech began with a recitation of the dismal features of the ongoing financial crisis, which he seemed to attribute more to loose monetary policies than to the predatory practices that saddled so many homeowners with unsustainable mortgages. Geithner spoke of failures in the regulatory system without mentioning that, until nominated for the Treasury post, he was part of that system as the head of the Federal Reserve Bank of New York. That awkward fact may explain why his criticism of the bailout policies pursued by his predecessor Henry Paulson was rather muted. “The actions your government took were absolutely essential,” Geithner insisted, “but they were inadequate.” A lot of adjectives come to mind about Paulson’s track record. “Inadequate” is hardly the most apposite.

When it came to the plan itself, Geithner seemed mainly concerned to give the appearance of dynamism, even resorting to quasi-military terminology in saying that Treasury and other agencies “will bring the full force of the United States Government to bear to strengthen our financial system.”

And what will this force seek to achieve? Geithner then switched to a medical metaphor to say that banks will be subjected to a “comprehensive stress test.” This seemed to mean a closer look at their balance sheets. But instead of suggesting any crackdown on institutions whose financial records reveal past shenanigans, Geithner suggested that those banks with more serious problems will be given access to a new “capital buffer” provided by Treasury. In other words, more bailout money for those institutions that screwed up the most.

The Treasury Secretary went on to describe a Public-Partnership Investment Fund that would “leverage private capital” to begin a process of relieving banks of the toxic assets that are now said to be the reason why credit is not flowing. Yet Geithner did not adequately explain why the financial markets would suddenly become enamored of assets that they are currently shunning.

A more straightforward portion of Geithner’s plan is the idea of injecting at least $500 billion and perhaps up to $1 trillion from the Federal Reserve to unfreeze the market for consumer and business borrowing. A big part of this market relates to credit cards, so the Administration seems to be suggesting that we try to ride out the recession by using more plastic.

Geithner left perhaps the most important feature of the plan—foreclosure assistance—for last and then said it was too soon to announce full details.

Apart from laudable provisions relating to transparency (including a new disclosure website), there is not much in the Geithner plan that represents a fundamental break from the Paulson approach to the crisis. According to the New York Times, Geithner resisted calls from other Administration officials to take a tougher approach toward the big banks. The result is a new plan that, aside from the restrictions on executive compensation, continues to coddle the large financial institutions that brought the country to its current precarious condition.

By putting its financial policy in the hands of a man who seems to have accepted the cowboy culture of Wall Street, the Obama Administration is wasting the opportunity to use the crisis to achieve fundamental change in the banking system. Instead, the new transparency measures may end up revealing that the Geithner plan is headed for the same dead end as that of his predecessor.

A Complete Break?

The contradictory impulses of the federal government were on full display today. At one location on Capitol Hill, a group of so-called Senate moderates were meeting to strip some $80 billion out of the Obama Administration’s economic recovery plan. According to press accounts, they were mainly targeting proposed spending related to education, ranging from Head Start programs to Pell grants for college students. I guess they are telling us that in these hard times we shouldn’t be lavishing taxpayer funds on fat cat students.

Meanwhile, in another part of Capitol Hill, the Senate Banking Committee heard testimony from Elizabeth Warren (photo), Chair of the Congressional Oversight Panel that was created by the Troubled Asset Relief Program (TARP) legislation enacted last fall. Warren gave a preview of her panel’s new report that will contain estimates that, in its purchases of capital stakes in major banks, the Bush Treasury Department overpaid by some $78 billion.

Want to take bets on which group—students or banks—end up keeping their $80 billion?

Warren’s statement was based on a valuation study of a sample of the banks that got federal infusions. “Despite the assurances of then-Secretary Paulson, who said that the transactions were at par,” Warren said, “Treasury paid substantially more for the assets purchased under the TARP than their then-current market value.”

Being generous, Warren said that Treasury may have overpaid as part of a deliberate policy to increase the amount of assistance being given to the banks to enhance the stabilization effort. As I see it, the overpayment could just as easily be seen as incompetence or a corrupt conveyance of value by Treasury officials to their friends in the financial community.

Warren was joined at the hearing by Neil Barofsky, the TARP Special Inspector General, whose testimony echoed her concern about the failure of Treasury to explain the criteria it applied in making its TARP payouts last year. Barofsky also expressed frustration about the refusal of the TARP recipients to reveal what they are doing with the funds. Yet he made it clear that the era of non-accountability is over. Barofsky said his office is moving ahead with plans to ask all recipients for an accounting, and in some cases—such as Bank of America—he is launching an audit of where the TARP money went. Even more tantalizing was Barofsky’s statement that his office has “opened several criminal investigations.”

Warren and Barofsky’s aggressive approach meshes with the Obama Administration’s stance on executive pay, which was announced in the wake of revelations that bailed out Wall Street firms had distributed a total of some $18 billion in end-of-the-year bonuses. It’s unfortunate that the plan does not apply to the many companies and their executives who already took the money (from taxpayers) and ran (to the bank to deposit their bonus checks). Yet, given the likelihood that many more corporations will be receiving federal help in the months to come, some top executives may finally have to endure some sacrifices.

What worries me, however, is that the Administration’s assault on executive pay may be an effort to placate the public in advance of the big new bailout plan that Treasury Secretary Timothy Geithner is expected to announce next week—a plan that could include the creation of a “bad bank” to allow financial institutions to unload their toxic assets onto the taxpayers. Cracking down on the compensation of bank executives feels good, but it will not relieve the pain of another ill-conceived giant bailout.

Given the state of the economy, more federal intervention may be inevitable. Yet Geithner will have to make it perfectly clear next week that the Obama Treasury Department has made a complete break with the irresponsible and opaque policies of the former Paulson regime.

Note: Transparency is an issue not only for the TARP program, but also for the economic recovery plan. The stimulus legislation includes provisions for federal disclosure of money flows, but a new coalition is also calling for greater transparency in the way the states will use those funds.