When it comes to Congress, truth is not only stranger than fiction, it appears to be fiction. I was on Capitol Hill at the invitation of the Aspen Institute, speaking to congressional staffers about the future of saving and investing in America. So I decided to attend several congressional hearings related to financial matters.
When it comes to congressional hearings, you have to be there. Watching C-Span can't replace the experience of personally seeing the activity going on all around the room. Representatives come and go, having made their point, with few staying for the entire proceedings. It's show time.
Accusing Fannie and Freddie
Taking the heat in the front row of this particular hearing were the deposed heads of Fannie Mae (FNM) ( FNM) and Freddie Mac (FRE) ( FRE). Squaring off against them were angry congressmen and women, demanding answers about how these smart men could have made so many bad mortgage loans.
It was like the Mad Hatter's tea party from "Alice in Wonderland," with everyone talking in riddles. The very same representatives that had demanded "affordable housing" and "community reinvestment" were now angrily asking why all those subprime loans had gone bad.
(FNM) (FRE) Henry Waxman, a Democrat from California, who had no complaints when Californians were receiving easy loans to purchase homes that were ever-rising in price, now complained: "Your actions could cost taxpayers hundreds of billions of dollars."
(FNM) (FRE) Then, when former Fannie Mae head Franklin Raines was asked what he regretted most, he replied: "I wished we had a regulatory bill enacted earlier." Former Freddie Mac CEO Richard Syron agreed, saying he "wished I'd been more effective in working towards stronger regulation."
How could Congress cast stones, knowing that much-needed regulatory bills had stalled because of their own bickering for the past four years?
(FNM) (FRE) It got curiouser and curiouser, as Alice would have said. When challenged with the fact that these execs received more in bonuses than salaries, they explained that their bonuses were based on "profitability." (Subprime loans were far more profitable to package than traditional 20%-down loans.) Yet the former CEOs blamed Wall Street greed and not their own bad judgment for the losses.
The next day, a different House committee was grilling Assistant Treasury Secretary Neel Kashkari about the disposition of the $700 billion TARP (Troubled Asset Relief Program). The young, well-dressed former Wall Streeter tried desperately to respond to their furious accusations.
(FNM) (FRE) But he could not explain why the program had changed from its original intent of buying bad assets to investing in banks' equity. And he couldn't give a convincing demonstration that he knew what happened to the original $350 billion that has already been distributed to the banks.
(FNM) (FRE) Among the highlights: California Rep. Maxine Waters, demanding to know why they had given billions to Bank of America (BAC) - Get Report ( BAC) but hadn't bothered to call the bank to ask why they'd pulled the line of credit from a Chicago window company denying earned benefits to laid-off employees.
(FNM) (FRE) (BAC) - Get Report Then there was Congressman Dennis J. Kucinich of Ohio, demanding to know why Treasury hadn't come up with an overall "master industrial policy" for the nation in the past 68 days since the rescue bill was passed.
Now TARP is likely to be involved in a bailout of the automakers. Last week, Speaker Nancy Pelosi said firmly: "We'll be watching how they spend the money, and if they are not doing a good job, we'll take it back!"
(FNM) (FRE) (BAC) - Get Report That reminded me of a mother dealing with a kid having a tantrum by handing him a cookie, and telling him to stop crying or she'd take it back. News flash: Soon the cookie will be gone, and the kid will be crying again. Common sense is lost inside the Beltway.
There should be a sign on the door of Congress that reads: "Your Tax Dollars at Work" or "... at Play." But wait: We elected them! Where do we point the finger of blame?