AIG Bonuses: Schumer's Phony Outrage

"If you don't return it on your own, we will do it for you," Senator Charles E. Schumer warned the AIG bonus recipients, as he joined in the public outrage against AIG's executive bonuses of $165 million. After receiving $170b in US taxpayer money, AIG announced these scandalous bonuses for their executives in the financial products unit which sold derivatives that cratered the company and the entire financial system.

The grandstanding by the senator from Wall Street, as Mr. Schumer is known because of his close links to the financial services industry, seems to be designed to deflect public anger and scrutiny from the real scandal and the main culprits of collapse of AIG and other financial institutions--the politicians in Washington. For years, as the Wall Street cheerleader on Capitol Hill, the senator joined his other corrupt colleagues in preventing any regulation of the financial weapons of mass destruction such as credit default swaps (CDS) and collaterlized debt obligations (CDO) in exchange for millions of dollars in campaign contribution from Wall Street.

Mr. Schumer led the Democratic Senatorial Campaign Committee for the last four years, raising a record $240 million while increasing donations from Wall Street by 50 percent, according to the New York Times. That money helped the Democrats gain power in Congress, elevated Mr. Schumer’s standing in his party and increased the industry’s clout in the capital.

Schumer gathered support and donations by embracing the industry’s free-market, deregulatory agenda more than almost any other Democrat in Congress, even backing measures now blamed for contributing to the financial crisis.

While other lawmakers took the lead on efforts like deregulating the complicated financial instruments called derivatives, it was Mr. Schumer, a member of the Banking and Finance Committees, who repeatedly took other steps to protect industry players from government oversight and tougher rules, a review of his record shows. Over the years, he has also helped save financial institutions billions of dollars in higher taxes or fees, according to the New York Times.

On the nature of deregulated credit default swaps (CDS) that caused the collapse of AIG and financial markets, a recent CBS 60 Minutes segment explained, "In retrospect, giving Wall Street immunity from state gambling laws and legalizing activity that had been banned for most of the 20th century should have given lawmakers pause, but on the last day and the last vote of the lame duck 106th Congress, Wall Street got what it wanted when the Senate passed the bill unanimously." Though CNN has only picked Senator Phil Gramm as one its top 10 Culprits of Collapse, the entire US Congress shares responsibility for it.

The American people need to put the AIG bonus issue in proper perspective to channelize their genuine and deep anger and resentment against the corrupt political-industrial elite who are the real culprits of collapse. The bonus amount of $165m is an extremely tiny fraction of the trillions of dollars of losses in retirement savings and home values suffered by Americans because of the Wall Street misdeeds, committed with the collaboration of Schumer and his fellow politicians in Washington. It's also a small fraction of the tens of billions of dollars of US aid for Israel, the biggest recipient of US aid, that Sen. Schumer continues to champion as a staunch supporter of Israel on the Hill. The anger of the nation in severe distress should be used to force reforms in Washington. The first steps toward serious reform should include a grassroots campaign for major curbs on political campaign contributions by the lobbyists followed by an open, public trial of Senators Charles Schumer, Chris Dodds, Phil Gram and their Democratic and Republican colleagues on the US Senate's Finance and Banking Committees to hold them to account.

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Pay-to-Play is the Norm in Washington

“This town (Washington) is full of people who call themselves ambassadors, and all they did was pay $200,000 or $300,000 to the Republican or Democratic Party,” says the well-known criminal defense lawyer Robert Bennett, referring to a passage in the criminal complaint filed against the Illinois governor suggesting that Mr. Blagojevich was interested in an ambassadorial appointment in return for the Senate seat. “You have to wonder, How much of this guy’s problem was his language, rather than what he really did?” Gov Blagojevich was reportedly wire-tapped by the FBI as saying, "I've got this thing (the senate seat) and it's f------ golden, and uh, uh, I'm just not giving it up for f------ nothing."

According to the New York Times, Mr. Bennett says that the Illinois Governor Blagojevich's corruption case raised some potentially thorny issues about political corruption.

Patrick Fitzgerald, the US prosecutor who has charged Gov Blagojevich, believes that the governor has crossed the line between political horsetrading and corruption. “We’re not trying to criminalize people making political horse trades on policies or that sort of thing,” Mr. Fitzgerald said. “But it is criminal when people are doing it for their personal enrichment. And they’re doing it in a way that is, in this case, clearly criminal.”

It seems to me that political campaign contributions routinely buy favors such as favorable legislative votes or policy decisions or significant political appointments by elected officials. However, this is done in a manner that avoids the explicit mention of quid pro quo in any conversations or writings. A nod and a wink is often sufficient for such a transaction to keep the prosecutors away. If what the prosecutors claim Balgojevich did is proven in a jury trial as criminal violations of the law, it would be because of how Blagojevich chose to do it rather than the substance of what he really did.

As the recent CBS 60 Minutes segment explained, "In retrospect, giving Wall Street immunity from state gambling laws and legalizing activity that had been banned for most of the 20th century should have given lawmakers pause, but on the last day and the last vote of the lame duck 106th Congress, Wall Street got what it wanted when the Senate passed the bill unanimously." Though CNN has only picked Senator Phil Gramm as one its top 10 Culprits of Collapse, the entire senate is responsible for it.

Political corruption in Washington is believed to be the root cause of the current international financial crisis, the worst since the Great Depression that started in 1929 and lasted through the 1930s. Clearly, the unanimous Senate passage of the Commodity Futures Modernization Act of 2000 demonstrated the power of Wall Street over both Republicans and Democrats. In fact, the data of the financial services industry's recent campaign contributions shows that two of the top three recipients of the largess from Wall street are Democrats Barack Obama and Hilary Clinton. John McCain is in a distant third position. Overall, Sen Obama's campaign is awash with record, massive cash contributions.

Since the current financial crisis has its roots in easy, plentiful mortgages and the housing bubble facilitated by the Democrats' unabashed and reckless support for home ownership via Fannie and Freddie and community re-investment legislation, a larger share of the blame for the current crisis should be assigned to the Congressional Democrats such as Barny Frank and Chris Dodd. Both Fannie and Freddie have been major campaign contributors to key politicians in Washington.

If Blagojevich is convicted and jailed, it would simply offer a lesson for other politicians to be wiser about how they exchange favors for campaign money rather than deter them from engaging in the rampant pay-to-play political corruption in America. As far as campaign money is concerned, the rules for how it can be used by politicians are loose enough that it amounts to personal enrichment for maintaining power and expensive lifestyles. If the Blagojevich case goes to trial, it may help bring the spotlight on the culture of political corruption in America.

In terms of government corruption, the US is currently ranked at number 20 on a list of 179 nations by Transparency International, worse than most of the countries of Western Europe and Japan. If the American politicians' common practices are redefined as criminal rather than mere political horse trades, then the US corruption ranking will likely slip further.

Here's a video clip on US campaign contributions: