We Are Not AIG
Now that the federal taxpayer owns nearly 80% of AIG, are AIG's interests ours?
Last week's TARP stress test results reminded us to ask ourselves: now that the federal taxpayer owns nearly 80% of AIG, are AIG's interests ours? We own a quarter of Citibank; does that mean the bank's desires are now in sync with ours? Is Bank of America—currently afloat with $45 billion in taxpayer dollars—now truly America's bank? In a word: No. The political interests of bailout recipients aren't necessarily consistent with public interest which is one reason recipients should be held accountable for all political or partisan spending they do with our money.
Government ownership of big portions of the economy could threaten democracy; for one thing, it creates massive conflicts of interest for those who manage bailed out companies. Do they have a fiduciary duty to the taxpayer or the companies they manage? What happens when those duties aren't perfectly aligned? Alarmingly, if not surprisingly, the AIG bonus debacle suggests managers' inclination to act in the corporate, not the public's, interest.
Here's another question we'd do well to sort through before the Treasury turns over more of our money to failing companies: what happens when troubled companies use federal funds for lobbying? We could eliminate potential problems by prohibiting corporate contributions; this, however, implicates First Amendment jurisprudence. A simpler, less Constitutionally sticky solution, is to insist that all political spending be entirely transparent.
Americans have entered a brave new world. Taxpayers aren't used to owning banks, insurance or car companies. It all happened so fast we're not even sure what our rights—or what their responsibilities—are. The AIG bonuses generated outrage. But the country's economic fate is now linked with AIG and the fate of the hundreds of other banks and companies that took federal money. We need these companies to survive —and thrive—if only so that they can pay back the money we've lent to them. This does not mean, however, that recipient institutions should use federal money—our money—to advance their narrow political agendas, a giant portion of which may conflict with public interest, to say nothing of the common good, without full disclosure.
Scrutiny and oversight should accompany all federal dollars. The Brennan Center recently urged Elizabeth Warren, Chair of TARP's Congressional Oversight Panel (COP), to require more transparency with respect to political spending from bailout recipients so that we can keep track of what ailing institutions actually do with our money.
Interestingly, the biggest bailout recipients spent massive sums on state and local campaigns and lobbying efforts. AIG, for example, spent nearly $4 million dollars in 28 states during the 2004, 2006 and 2007 elections and contributed to more than 400 political committees in these three years. Over the past 10 years, AIG has spent $9.3 million on federal elections, split more or less evenly between Democrats and Republicans. In the current election cycle, the financial services sector as a whole contributed more money—roughly $463.5 million nearly evenly split between the two major parties—to candidates for Congress, the presidency and political parties than did any other sector. In the past, current bailout recipients funded all kinds of non-profit organizations, including the Brennan Center.
Questions about corporate lobbying efforts complicate matters; lobbying records are so general so it is all but impossible to see if a corporation uses public funds to pay lobbyists. One thing is clear: bailout recipients have continued to bankroll lobbyists after they've received public funds. The Washington Post reports that major bailout spent more than $22 million on lobbying in the past six months. And the Wall St. Journal reports that Bank of America Corp spent $820,000 on lobbying in the last quarter of 2008; Merrill Lynch & Co. spent $1.2 million; GMAC LLC, GM's auto- and mortgage-lending arm, spent $1.5 million, and AIG spent $1.08 million.
The bailout involves a staggering sum of federal money. As TARP's Special Inspector General noted yesterday, TARP "now includes 12 separate, but often interrelated, programs involving Government and private funds of up to almost $3 trillion—roughly the equivalent of last year's entire Federal budget." The scale of the bailout argues forcefully against partisan spending on the part of TARP recipients as just a small portion of the TARP billions can make outcome-determinative differences in particular elections, especially local ones.
Alarmingly, the Government has largely taken a passive role in managing the bailed out companies. The trustees designated to manage AIG on the public's behalf have, for example, exercised little, if any, oversight. Now, with Treasury signaling an interest in converting TARP loans into equity stakes, we need to raise questions—and demand answers—about how to protect the public's interest. To start, we need real oversight by the Treasury.
TARP's Special Inspector General put it plainly earlier this month when he told Congress, he "continues to recommend that Treasury require all TARP recipients to report on their actual use of TARP funds...Simply put, the American people have a right to know how their tax dollars are being used."