What were they thinking???

I am stunned by the sheer stupidity of Congress. What on earth possessed them to pass a rushed piece of legislation to tax bonuses for Financial Intitutions receiving Federal Bailout money?

First of all their spontaneous reaction to "populist" rage is now open to questions of constitutional legitimacy, and secondly, they look like idiots just reacting without thinking. I get the anger over the sheer greed and thoughtlessness of AIG and Merrill Lynch for giving bonuses to morons who brought about this financial crisis. But to compound this mistake with an another one is ridiculous.

We should not have laws passed on whims of "populism". It was just as dumb when people voted to legislate the California Constitution to define marriage. It would be just as stupid for Government to enact legislation based on the whims of polls, pundits, or the Stock Market. President Obama said very thoughtfully in his interview on "60 Minutes":

The one thing that— I've tried to emphasize, though, throughout this week, and will continue to try to emphasize during the course of the next several months as we dig ourselves out of this— the economic hole that we're in, is we can't govern out of anger. We've got to try to make good decisions based on the facts, in order to put people back to work, to get credit flowing again. And I'm not going to be distracted by— what's happening day to day. I've gotta stay focused on making sure that— we're getting this economy moving again.

Furthermore, in response to Steve Kroft's question on the legitimacy of the bill passed by the House, that would "impose a tax of up TO 90% on the AIG bonuses and on the bonuses of anyone making more than $250,000 a year who works for a financial institution receiving MORE THAN five BILLION IN bailout funds"

President Obama had this to say:

Well, I think that— as a general proposition, you don't want to be passing laws that are just targeting a handful of individuals. You want to pass laws that have some broad applicability. And as a general proposition, I think you certainly don't want to use the tax code—is to punish people.

We have no idea on the implication of what they have done. Furthermore, what kind of precedent does this set for the future? There needs to be a holistic view on what's the right thing to do. The point of leadership is to set policy with a strategic goal, and not to be distracted by the latest policy "trend". Action for the sake of action is not necessarily a good idea, and in the business world, if you don't have the right strategy driving your action plans, it will soon drive you into a ditch and bring a number of inefficiencies within your organization - not to mention have people running around like chickens with their heads cut off.



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Economic Armageddon

I just came across a video clip, of what happened that fateful day in September, 2008 when Hank Paulson literally came begging on his knees to Nancy Pelosi to gain support and action from Congress with regards to the first TARP Financial Bailout.

According to TMFSinchurina on his MotleyFool blog:

Now, we have another video (actually available since late January), and one which I encourage every Fool not only to watch but to circulate as they see fit, in which Congressman Paul E. Kanjorski of Pennsylvania reveals some shocking information regarding a bank run which occured right here and indeed brought this country and the entire world economy to within three hours of complete and systemic financial collapse. In this video, Congressman Kanjorski reveals (at about the 2:15 mark) that the move to raise the move to guarantee money market funds up to $250,000 was an emergency measure to stave off a massive run on the banks that removed $550 billion from the system in a matter of just a couple of hours. Treasury then injected $105 billion to no avail, and shut the system down to prevent a panic continuation of this electronic bank run. By "their" [read Treasury's] estimation, had they not shut it down and issued the guarantee, money market withdrawls would have reached $5.5 trillion by two 'o'clock that afternoon!! He then indicates Treasury's assessment that the run not only would have destroyed the U.S. economy immediately, but would have collapsed the world economy within 24 hours.

According to Bloomberg back in Sept. 17, 2008:

Assets in money market funds, considered the safest investments after cash and bank deposits, rose to a record $3.59 trillion this month as stock and commodity markets fell. Investor confidence has been shaken by the subprime-mortgage collapse, the demise of Lehman and Bear Stearns Cos., and the failure of 11 U.S. commercial banks.

Widespread withdrawals from money-market funds would aggravate the global credit crunch because they are major buyers of short-term debt issued by corporations and financial companies. Today, the cost of borrowing in dollars for three months jumped the most since September 1999 as banks hoarded cash. The London interbank offered rate, or Libor, rose 19 basis points to 3.06 percent, the British Bankers' Association said. A basis point is one-hundredth of 1 percent.