Congress at Fault for Current Financial Mess

Posted May 18, 2009 at 2:44pm

I watched with dismay, as many did, the inquisition of American International Group’s Edward Liddy. Here was a man brought out of retirement and asked, because of his business acumen, to fix the financial mess at AIG.

The inquisitors, aka Congress, after passively thanking him for his civic work, placed him on the rack and verbally stretched him to recant his sins — the sins of using his aforementioned business judgment to pay retention bonuses. Looking at the issue as a businessman and listening to Liddy testify, I thought it was a common business judgment that he made. He decided to invest millions to save, in his opinion, billions. This sounds like a very good deal to me. So why all the criticism? In a word, “deflection— — deflection from Congress’ own guilt.

Congress was a key contributor to the start of the financial crisis when it passed the Community Reinvestment Act in 1977. Its social dictates and oversight may have “influenced— many in the mortgage lending business to make loans that proved to be unsafe and unsound. But the loans were CRA-qualifying and so made they were. Many of these loans have now soured, and hundreds of millions of dollars are being spent to help people who were promised the American dream but are now living the foreclosure nightmare.

Most Americans, when asked what they think about their elected officials in Washington, D.C., give them poor ratings. Time and again, Congress has failed to act in a responsible manner when running the nation’s finances. In many states, unbalanced budgets are not constitutional. However, in our nation’s capital, everything is covered over by merely printing more money and selling debt, oftentimes to foreigners.

If AIG took too much risk in its positions, is Washington, by running record-setting deficits, taking too much risk with the future of the nation? Who is overseeing them? What are their limits? My grandchildren are being extraordinarily burdened with mounting interest costs on the mountain of debt that is being piled on.

Worse, foreign countries that do not share our cultural values hold upward of half the outstanding debt. What happens if China takes a sharp turn back toward radical Communism? What happens if Japan needs to liquidate its holdings as its population ages and it needs to pay for the increase in its social programs? Risk is not only in collateralized debt obligations and mortgage-backed securities; it’s in our public policy and its execution.

Congress, for all its harping, has not changed how it does business. Look at the more than 8,000 earmarks contained in the budget. I find it disingenuous that the inquisition tortured Liddy over $65 million when Congress wastefully, and some say shamefully, spent billions on railways-to-nowhere research projects designed to help a very narrow constituency. Also, if the stimulus money is to invigorate the economy, look at when it is being spent.

So why pick on Liddy? That’s simple. It’s easier and safer to be the accuser than the accused.

Carl Levinson is a retired senior executive of Citigroup, where he was employed for 36 years.