Analytical Wealth

At present the favored method for politicians to win brownie points with the electorate is to heap derision on the private sector (banks in particular), for damaging the economy, needing bailouts, etc.

However considering that the government can't even manage it's own finances and congress is a big fan of voting in its own raises, it's more than just a little bit hypocritical for the government to criticize the private sector for similar behavior. In truth the only real difference between the federal government and Citibank, is that the former doesn't need to turn a profit because it can always borrow money from China and take money from the taxpayers.

In other words do we really want the U.S. Government managing the day to day operations of the companies receiving bailouts/support? The same government that tends to make decisions based on political agendas as opposed to what makes the most fiscal sense? Let's not forget that this is the same government that ran the mortgage GSEs into the ground because they didn't want to make politically unpopular decisions. The same politicians that are criticizing Wall St. are the same ones that authorized the mortgage GSEs (on multiple occasions) to expand their mortgage investment activities at the onset of the credit crunch. They're also the same ones who are criticizing functionally insolvent banks for not lending out the money they've received under the TARP program, even though that would just return them back to square one as far as being at risk of failing, needing additional capital infusions, etc.

Needless to say our politicians are just as clueless (if not more) than the financial sector leaders that caused the current crisis!  The reason being that they're not thinking in terms of what makes the most business sense, they're thinking in terms of what makes the most political sense, what's popular, what will make a good sound bite, and what will get them re-elected.

As I said before: is it in the best interests of this country for the federal government to have control of a significant % of our nation's financial institutions? In my view it makes more sense to appoint a group of leaders from the private sector to make the governance decisions for the companies receiving bailouts, because letting the people who practically destroyed the mortgage GSEs call the shots is a recipe for disaster.

This is something that doesn't need to be tremendously complicated, you could put together a "bailout board" of sorts comprised of private sector leaders with a solid track record in leading turnarounds. These leaders would be provided with significant incentives to reach certain objectives around controlling compensation, refining operations, and ensuring that the taxpayer is paid back as soon as possible. You could also insert limited political objectives around funneling a certain % of profits back to the taxpayer in the form of lower interest rates, discounts on health insurance, etc.

While the board would be largely autonomous they would need to provide progress reports to congress on a quarterly basis. However congress wouldn't be allowed to insert their own political agendas into the situation, as the primary goal would be to get these companies back on their feet as soon as possible as possible to serving political agendas.

I.e. the complete opposite of the current situation.

Perhaps the best way to look at this is as follows: no one would hire Chuck Prince to help  AIG recover from its current situation, so why are we tasking the Chuck Prince's of Congress to do the same for AIG and numerous other companies? If we really want to get out of this crisis for as little cost and long-term economic damage as possible, we're going to have remove some of the culprits from the decision making process.

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.