A bailout package is ready to be voted on by Congress, but that doesn’t obviate the concerns of Nonprofit Quarterly readers who by and large believe that the bailout and the conditions that led to it reveal something fundamentally wrong about our society. The so-called Troubled Assets Relief Program (TARP) may even be necessary to jumpstart liquidity and credit in the financial sector, but it is for many a bitter pill to swallow.
We asked NPQ readers to “sound off” on the bailout, and boy did they ever. Rather than moaning about the loss of potential philanthropic grants from now semi-comatose or dead Wall Street behemoths, NPQ’s commentators went to the heart of the issue. They know that no amount of charitable grantmaking from Fannie Mae, Freddie Mac, Bear Stearns, or Lehman Brothers makes up for the shortfalls nonprofits face everyday as a result of long-term disinvestment in the systems on which the least well off Americans depend.
If there’s a core message in the 40 responses we got in two days, notwithstanding the commentators’ disagreements about the particulars, it’s that we are sliding toward deeper, structural inequalities in society—in the case of the bailout, subsidized and rationalized by federal subsidies, that is, taxpayer dollars—that cannot be overcome by doing what we’ve always done, except doing more of it. Some of the most telling themes to us were these:
Crisis decision-making: Like the subprime mortgage foreclosure crisis that underlies much of the financial sector’s collapse, our nation’s leaders are treating the Wall Street implosion like it is a surprise comparable to 9/11 and requiring overnight, impulsive, open-ended solutions. While no one assumes that nothing should be done, even if it means protecting long rapacious Wall Street investment houses in the process, the “shot-gun presentation” of the bailout package affronts common sense policy making.
Conflicts of interest: It hardly escapes attention that Secretary of the Treasury Henry Paulson most recently was the chief at Goldman Sachs, but that is but one of the obvious conflicts of interest among those engaged in crafting the bailout. Consider the numbers of members of Congress of both parties who have benefitted from five- and six-figure campaign donations from Fannie Mae, for example, or those who own substantial amounts of Fannie, Freddie, and AIG stock. To a man and woman, they all say that they weren’t bought, but no one is stupid enough to believe that they weren’t wined, dined, socialized, and influenced. These conflicts are not tolerated inside nonprofits, so why are they built into a $700 billion bailout for Wall Street? Inquiring NPQ readers want to know how that can be tolerated.
Something gained, something must be lost: Knowing the basics of budgets, nonprofits know that if you spend a mere $700 billion on something, it means you don’t have that money for something else. It was Jim Lehrer’s question that neither presidential candidate could or perhaps would answer in the debate last week. What gets sacrificed? Affordable housing? Public works jobs? Incentives for energy alternatives? We all know that spending $700 billion the bailout means that other social programs are going to be sacrificed, we just don’t know which ones and when.
Distrusting the experts: Secretary Paulson and Federal Reserve chair Ben Bernanke have approached this shotgun policy-making approach with a “trust me, we know what we’re doing” message. Paulson’s original bailout bill was less than two pages of text, asking for relatively unfettered powers. Bernanke’s response to a Congressional interlocutor was that he controlled the Federal Reserve dollars almost like a personal fiefdom. Nonprofits have seen enough half-baked experts come and go, screwing up their communities and leaving things worse in their wakes, to find little comfort in Paulson’s and Bernanke’s Ph.D credentials.
Rewarding the malefactors: It may or may not get anywhere to throw the book at some of the perpetrators of the financial crisis, although the FBI is currently conducting new investigations of Fannie Mae, Freddie Mac, Lehman Brothers, and Countrywide to see if these guys weren’t simply screw-ups, but might warrant a visit to the hoosegow. But more basically, nonprofits are outraged at the salaries, benefits, and stock options that the leaders of these institutions walked away with, leaving the American taxpayer holding the bag. Based on information reported on corporate 10(k) filings, the numbers are outrageous.
Is it any wonder nonprofit leaders are disgusted with the notion of bailing out these guys? The toleration of nonprofits—and society in general—for multimillion dollar compensation and bonus packages may be at an end. The notion of providing bailouts that cement and sustain inequalities such as these, what NPQ readers referred to as “socialism for the rich” or “reverse socialism” for people one characterized as “robber barons”, is simply maddening. Unfortunately, the controls on executive compensation, bonuses, and “golden parachutes” in the draft legislation appear to be less than muscular, prompting criticism on the left that Congress caved on the issue and on the right that even the bill’s modest “claw-back” provisions will harm corporate performance.
The rewards of deregulation: Much of the financial crisis can be attributed to the past few decades’ massive generally unregulated infusion of credit into the economy. Both political parties turned blind eyes to the need for regulation of parts of the rickety financial infrastructure—and still do vis-à-vis the cowboy-like hedge funds—despite the signs of a brewing crisis. Even the Securities and Exchange Commission under the leadership of former Republican Congressman Chris Cox demonstrated new standards of inaction in the face of evidence that demanded intervention and oversight. Nonprofits are virtually unanimous in agreement that it’s time to rev up the role of government to regulate against the excesses of unfettered free market dynamics, though they might remember that regulatory oversight applies to nonprofits themselves too.
Public benefit: Again, nonprofits understand the economics of the bailout sufficiently to understand that the bailout—at least initially–looked suspiciously like buying the bad paper and bad investments of Wall Street and the banks at prices that the market certainly wouldn’t have supported—else they wouldn’t have been choking the financial sector’s liquidity. Why should the American taxpayer end up owning (or “socializing”) the losses, with the return on investment that in time the economy improves, but insufficient specific return to the national coffers for the $700 billion investment? Nonprofit readers suggested that there has to be a better deal than simply owing the stuff that the banks and Wall Street don’t want, such as taking equity positions in the firms that benefit, or using the federal funds as essentially the purchase of preferred stock positions. Like Congresswoman Maxine Waters who hinted at removing the “quasi” from quasi-governmental, post-conservatorship entities such as Fannie and Freddie, it may be time to get something back for the tax investment in Wall Street.
Wall Street versus Main Street: Readers referenced the public statements of Dennis Kucinich (D-OH) and Bernie Sanders (I-VT), hardly influential players in the Congressional negotiations, but with content and ideas for the bailout that might be worth listening to. Their essential point that resonated with NPQ readers is that the Wall Street collapse is playing out on Main Street, with devastating effects. Rectifying the economic freefall—yes, Virginia, it is a full-fledged recession, no matter what some politicians see as the “still strong fundamentals” of the economy—requires aiding more than the investment banks. The meltdown is inundating nonprofits’ constituents and stakeholders with little apparent evidence of federal action for Main Street in any way comparable to what the nation is doing for the investment bankers. For nonprofits, it is a clarion call for reviving philanthropic commitment to nonprofit advocacy that mobilizes the community interests that don’t have the campaign contributions and K Street lobbying power of Fannie, Freddie, and Wall Street.
Since we published “What the Financial Sector Meltdown Really Means for Nonprofits and Philanthropy” on September 23rd, Washington Mutual surpassed IndyMac as the largest single bank failure in U.S. history, and just now there was word that Citigroup purchased Wachovia’s banking operations at a bargain basement price pushed by the FDIC (which took the unusual step of providing loss protection for more than $300 billion in Wachovia’s mortgage-related assets). There is no question among nonprofit leaders and NPQ readers that something has to be done. The consequences of inaction are clearly intolerable, with impacts that would reverberate throughout the economic system.
But the “conundrum” identified by readers is that the problems that we all confront today are not simply the result of financial managers that one reader characterized as “no better than criminals”. The individual agency of Countrywide Financial’s Angelo Mozilo and Washington Mutual’s Kerry Killinger smothering the nation with subprime mortgages is, according to readers, a product of a flawed economic system, not simply a couple of speculators run amuck. Rather than being captured and silenced by philanthropic gifts from Wall Street, the commercial banks, and Fannie and Freddie, the nonprofit sector is going to have to stand up to challenge economic fundamentals in order to achieve long term changes.
Statistics on corporate executives salaries obtained using the ERI Economic Research Institute Platform Library (www.erieri.com).