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Nearly 90 percent oppose bailouts

Rochester Business Journal
September 19, 2008
The vast majority of respondents—87 percent—to this week’s RBJ Daily Report Snap Poll say taxpayer money should not be used to rescue major U.S. financial firms.

It has been a tough week in the financial sector, starting with Lehman Bros. Holdings Inc. filing for bankruptcy protection and Merrill Lynch & Co. Inc. agreeing to be acquired by Bank of America Corp. Then on Wednesday, the Federal Reserve announced it is bailing out American International Group Inc. by giving a two-year, $85 billion loan in exchange for a nearly 80 percent stake in the insurer.

The government, which rescued Fannie Mae and Freddie Mac a week ago and stood behind the sale of Bear Stearns Cos. to JPMorgan Chase & Co. in March, refused to participate in a bailout of Lehman Bros.

By a margin of 77 percent to 23 percent, respondents say there also is need for stronger regulatory oversight of financial firms.

And more than 80 percent of readers say they are concerned the crisis on Wall Street will further weaken the economy.

Roughly 733 readers participated in this week’s poll, which was conducted Sept. 15 and 16.

Should taxpayer money be used to rescue major U.S. financial firms?

No: 87%

Yes: 13%

Are stronger regulations for U.S. financial firms needed?

Yes: 77%

No: 23%

How concerned are you that the crisis on Wall Street will further weaken the U.S. economy?

Very concerned: 56%

Somewhat concerned: 35%

Not very concerned: 8%

Not at all concerned: 1%

Here are some readers’ comments:

How does using taxpayer money to rescue financial firms help? So we have a choice: Allow them to fail and have a negative impact on the economy or bail them out by using taxpayer money and have a negative impact on the economy. The net result is the same: Everyone pays for the mistakes of a few. So would you like to die by the sword or be shot? Is there an option “C”?

—Jim Garnham, Greece

I think that financial institutions are finally getting their comeuppance for their poor decision-making, wanton greed and unrestrained manipulation. I also believe that the upper-management teams and boards of directors responsible for the demise of the financial firms should have their personal dollar assets seized and placed back into the failing companies as restitution.

—M. Maida, Clerisy Corp.

I believe it is sometimes necessary for the government to rescue certain firms to minimize the effect to the economy as much as possible as long as it is done judiciously. Additionally, the top officials from those companies should not be allowed to just walk away and collect big severance packages getting rich at everyone’s expense. They need to be held accountable for their mismanagement. There needs to be stricter lending laws put in place and it needs to be done quickly.

—Grant Osman

The decision on the role of the government in the bailout should be a pragmatic one: What’s the collective future tax revenue of the corporation and employees should the company stay afloat vs. fail? Take the emotion out and decide based on the best interest of the taxpayers.

—Chris Muller

Employees of the large Wall Street firms have historically enjoyed unimaginably large bonuses. Now that their practices have resulted in business failure, I would expect these firms to handle their failures in the same way that they handled their successes—on their own. When I make a bad financial decision, either professionally or personally, I expect to own it. Since they owned those big bonuses, they need to own their own demises, as well.

—Catherine Lewis, Fairport

As much as I hate to see taxpayer money used in this manner, the implications for the country’s economic stability could be disastrous if we don’t. It’s just too bad we have such a huge deficit caused by irresponsible policies and spending.

—Rick Corey, OpticsProfessionals LLC

The failure of Wall Street investment firms is similar to the failures of Enron, WorldCom, Tyco and others. These failures are a result of poor corporate governance at the executive and director levels. These failures are a result of being driven by quarterly targets rather than a long-term strategic plan to improve services, products and performance for the customer. These failures are an indication that businesses may not know how to manage themselves in a competitive environment. In essence, these failures are a result of poor leadership! Moreover, these failures identify those businesses that are strong.

—Frank Duserick, Alfred University

There had better be some teeth in future regulations and some transparency regarding how the financial firms do business. Some limited rescue work may be necessary, but not without new federal expectations. I was pleased to see that Sen. Schumer has proposed that millions NOT be paid to the departing leaders of Freddie and Fannie.

—Carolyn Rankin, president, Phinney Rankin Inc.

It’s painful that the government has to bail out corporations of any type. There’s no doubt that part of Wall Street’s problem was greed for short-term profits, bonuses, etc. However, local, state and federal government ultimately is at fault. They are slowly transforming our free market economy into more of a socialist economy, especially in New York State. Taxation is a disincentive, and the complexity of tax laws has forced many companies to have financial stagnation. Payroll taxes, exorbitant worker compensation, income tax, sales tax, property taxes etc. have been significantly responsible for business failures and stagnation. The sad part is that the working people ultimately suffer from lack of good, quality jobs that heavily taxed companies have a more difficult time producing. Ultimately, excessive government spending is the real problem. As an example, Congress has been very critical about the huge recent profits of the oil companies. I’m not a big supporter of big oil. But the taxes government collects from them are outrageously high. Maybe the taxpayers should have hearings about the greed of Congress.

—John Rynne, president, Rynne, Murphy & Associates Inc.

Who will bail out the government when the deficit needs to be repaid?

—David DeMallie

Taxes should be used for infrastructure, public safety, military, care for the infirmed and veterans. Period.

—Lou Romano

Polls are only as valid as the questioning. In this instance, it is neither a “yes” nor “no” answer. Firms should be bailed out if it is going to have a major effect on the citizens ONLY! And if the taxpayers bail them out, there should be a criteria for not only payback through future earnings, but “clean house” with NO golden parachutes to all those who got them into financial straits! Contracts are null and void in a situation like this.

—J.A. DePaolis, Consultative Services

“Should taxpayer money be used to rescue major U.S. financial firms?” Absolutely not. It’s poor economics (moral hazard), unconstitutional and immoral.

—Chris Meisenzahl, Lima

Bear Stearns, Lehman Bros., Merrill Lynch, AIG have all gone bankrupt or have been sold due to overwhelming losses from the “mortgage” crisis. We have suffered through the savings and loan scandals of the early 1980s, the dotcom bubble burst, Enron and similar companies’ fraudulent ways, and now the mortgage crisis of today. Frankly, most or all of these financial crises have one overwhelming common thread, greed by the leaders of these companies. It doesn’t matter if the leaders of these organizations had Ivy League degrees or just a high school diploma, none of them was satisfied with a few million dollars, they wanted hundreds of millions. The CEO of now defunct Lehman Bros earned $350 million over the past five years. My question is where are the audit firms, boards of directors and/or the SEC? Are we to believe that Sarbanes-Oxley will prevent the next financial crisis? I think not. My confidence in all our regulatory agencies is non-existent. Who do we believe?

—Tony Schmitt, Fairport

I would have liked to have qualified my answer to question No. 1 by saying “depending on the circumstances,” meaning if the costs associated with a failure exceeded that of a bailout. Also, I think an occasional quality government loan (think Chrysler in the ‘80s) can actually provide a return on investment.

—Clayton Cloen, president and CEO, Rochester Management Inc.

When federal intervention in saving financial institutions is made, the Fed should reserve the right to make changes in management and policy as a condition of bailout!

—Ted Fafinski

I am disgusted with the mismanagement of these financial companies. Who made the decision to spend more than they earned, and where did the money go? Assets should be frozen, and all executive bonuses distributed for the last year should be made to be returned. There are no consequences except for the employees who are now out of work. Let the company fall, and penalize to the fullest extent the executives who failed to react to and disclose the financial data. Their business is financial data, and no one can convince me that they did not see this coming until two days before the fall. What happened to their integrity and common sense?

— Diane Romano, office manager, Romold Inc.

This meltdown was caused by “Bushenomics” and the same fiscal climate that supported tax cuts without spending cuts. Our deficit spending and the unregulated, no-common-sense fiscal policies have left the next president with few good options. Read Paul O’Neill’s (former treasury secretary) book on Bush’s tax, spend and regulatory policies if you want to understand how we got into this mess. It’s time to “pay as you go” in regards to federal spending with the whole budget (all military spending included) reviewed and painful, but critical priority setting debated and voted on and passed. It’s time we start getting back toward a balanced budget in our government and not follow these harmful tax cut and unregulated fiscal policies which made no sense six years ago and continues to harm our economy now.

—Michael Harf, EMCO Commercial Flooring Inc.

The fall of major U.S. financial firms is the product of irresponsible management, a la bad loans. The firms themselves are to blame. The boards and top management alone are accountable. These must be dealt with accordingly, regardless of the consequences, personal or corporate.

—Jim Weisbeck, Holy Sepulchre Cemetery

These large investment banks and insurers gambled with people’s money. They were fiscally irresponsible and betrayed the public trust. Absolutely no taxpayer money should bail them out, and company officers should be held personally responsible for the financial fallout. The people who allowed a system with no checks and balances should be sent to jail. It absolutely floors me that the government watched this happen (again) and did not put the brakes on months ago. WHERE is government oversight?

—Ann Tracy, Pittsford

I think that the firms have been too confident that the government would bail them out when things would go bad. This led to uncontrolled and reckless speculation. Now the gains are gone, and investors are not better off than if the companies would have been more prudent. Nobody will be punished except the people who lose their jobs and their life’s savings. While the government is eager to bail out the mismanaged companies with billions, remember that $3 billion for the health of our children was vetoed! Where is the priority? Where do the billions for the bailouts come from? From the paychecks of the workers of the country? From borrowing from foreign countries, burdening us taxpayers and our children with repayment?

—Ingo Leubner, Crystallization Consulting

What goes up must come down. I’d suggest that the folks who made the millions from the good times should now deal with the bad times. There must have been something seriously wrong with the structure of these companies if they got hit by the first big wave that came along. The U.S. government should absolutely not interfere, nor should they use my money to do so. The integrity of this country is already at stake — let’s not expand the old boys’ club.

—Richard Stevenson, CEO, CobbleSoft International

This is the markets regulating themselves. And unless there would be irreparable economic damage that needs to be prevented, taxpayer money shouldn’t be used to intercede in the process.

—Ben Murphy, department director, Catholic Family Center

Just set up a “Reconstruction Finance Agency” to re-fund these firms. Wipe out the common and preferred shareholders, claw back all executive bonuses over the previous three years and transfer ownership of at least 51 percent of the common stock to an Employee Stock Ownership Plan. Rebuild the company and sell the other 49 percent back to the public and return the capital to the treasury.

—John Perry Smith, Total Information Inc.

Both parties, through many administrations, have touted home ownership as the American Dream. Both parties have pushed lenders to offer home loans to people who couldn’t pay. (NINJA Loans: No Income, No Job, No Assets.) How soon the bubble? How soon the burst? This federally induced distortion of the market has turned the American Dream into the American Nightmare. These federal policies and regulations skewed the free market and got us into this mess. Will greater federal regulation and intervention help get us out of this mess? Is the cure more of the illness? Capitalism or socialism? It’s your choice. If not in the bailout, then in the election.

—Clifford Jacobson, WebHomeUSA.com

We need to return to regulated banking and lender practices. We should also return to basing our currency value to the gold standard. Without a standard, we have no true measure of inflation due to the excess spending policies of our federal government.

—Joe Denny, RailComm Inc.

Our economy is based on a free market system, and the government should not be allowed to use taxpayer monies to “bail out” private or public corporations when they are in financial trouble. We have a system in place called bankruptcy that allows for the distribution of assets and/or the timely payment of debt owed over a certain period of time determined by the courts. The “bailout” erodes the free market system and the idea of competition in the marketplace.

—David Bayer, The Whitehurst Co.

Since government meddling was a big part of what got us into this mess in the first place, government should bail out the companies that did what they were told to do. Government edicts insisting that banks make mortgages to people who could not otherwise afford to repay them is a big part of the problem. The government officials who pushed these programs should be identified, associated with the dollar cost of this mess, and then tossed out of office! They are the reason for this, and they should be running for cover. The speculators who bought properties only to resell them later at inflated prices (with no plan to ever occupy them) are a different story. They lost when the bubble inevitably burst. They should not be bailed out. They gambled and lost. It was a calculated risk. We don’t bail out folks who lose in the stock market or at the casino, either.

—Tom Nesser, Greece

Taxpayer money is already in play. There is no question about that. The FDIC, SIPC and PBGC, though privately funded by the respective members, always count on the federal government as a backstop. And it should be that way, because the economy would be thrown back to the Stone Age without a solvent, well-functioning financial system. What is needed is a compensating government action for every intervention, whether public money was needed or not. If a major financial institution fails, there could be serious consequences for the rest of the system. There could be a cascading effect, dragging down other institutions, here and abroad. There could be second-order consequences, like a run on banks and mutual funds, which would certainly cause a panic of a magnitude never seen before. I believe that 1929 would be a picnic by comparison. Yes, the government should intervene, and put up cash, if necessary. At the same time, authorities must issue a flurry of arrest warrants. Throw in jail those who put us in this mess and we just may prevent malfeasance in the future (though I never underestimate the power of greed; the thought of piles of money there for the taking makes a lot of people forget about principles and the law).

— George Traikos, Traikos Development LLC

Kudos to Sen. Charles Schumer, D-NY, for not paying those crooks at Fannie and Freddie their golden parachute money.

—Paul Houde, Future Electronics Corp.

Taxpayer money should be spent on government oversight and enforcement, not bailouts. The financial industry should also adopt a code of ethics for oversight and enforcement that will work with the government to prevent foreseeable problems like the current situation. Additional regulation will do little (except raise costs of doing business) without buy-in from the financial industry and enforcement of existing regulation. Again, the country has a significant problem caused by lack of preventive action in government enforcement, and greed in the financial industry.

—Louis DeCarolis

This crisis is the result of excessive use of incomes policy and the concept that deficits do not matter. This has left the federal government in a bind caught between inflation and large budget deficits and a large private debt to GNP ratio. A major question is will the Keynesian income policy (an economic theory based on the ideas of John Maynard Keynes that says state finances should be used to counteract cyclical economic downturns) be the chosen solution, or will the federal government opt to start a policy of reduction in debt public and private. If debt reduction and a stable currency is chosen as a policy, then the financial failure of corporations and individuals may be necessary in the short term to achieve that policy.

— Kenneth Morrow, Magna Products Corp.

In the ordinary course the government should not intervene, but if the public will be materially and adversely impacted and the private sector is unwilling or unable to act, then the government should act and implement regulatory reform to avoid such crises in the future.

—Nathan J. Robfogel

We don’t need more politics or regulations, just clearly thought-out regulations that severely penalize those who can manipulate prices unfairly by having phantom stock transactions, push commodity prices to unrealistic levels, etc. These institutions should not be bailed out by the Fed. We need some 21st century thinking in the form of a Blue Ribbon bipartisan panel with the mandate to quickly come up with some short- (90 to 180 days) and long-term (one to five years) ideas that will provide concrete and measurable benchmarks to help us to avoid this kind of catastrophe in the future. Then we need some real leadership from our new president and Congress to not play politics but rather provide concrete bi-partisan financial plans to help the working people of this country and not just those on Wall Street. The trickledown effect of this calamity is going to last for years and hurt a lot of people and businesses large and small.

—David Crawford, Crawford Funeral Home

It seems that the root cause for the current crisis is based on corporate greed, assuming unreasonable risk and outright mismanagement. Taxpayers should never have to pay the price for that. The shareholders, board members and company executives should be held liable, not rewarded with outlandish bonuses and salaries.

—Jim Wright, RG&E

What taxpayer money? The money we don’t have? The money that is already so heavily leveraged by debt that we’ll never see ourselves, our children or their children solvent? Absolutely not! Not another penny should be committed to the bailout of institutions or businesses that make unwise (and reckless) investments. And, who in hell do they think they are anyway. It’s not their money at all. Think for a moment about the definition of the word “broker.” The “broker” is the go-between, the person who knows where to get something that you want and will obtain it for a “small” portion of the ultimate deal. And, what’s this $160 million that the CEO of Merrill Lynch got for disappearing in the night? What utter gall! What a load of pure brass! Big brass, too! If Merrill Lynch has that kind of money to reward that fraud of a CEO, they shouldn’t be looking for a buyer. No more bailouts! STOP the insanity! My creditors would certainly hold me accountable for my debts. And, the bank holding my mortgage doesn’t give a rat’s behind if I blindly opened a sky shop in Jamaica and lose my shirt. Do we detect a bit of bitterness here? You bet! Start paying the debt while we still can (or can we?).

— Rick Bradley

I wish that your question No. 1 allowed for an “under certain circumstances” response. I answered “yes,” but believe that we should be very prudent about the institutions that we choose to bail out. The “moral hazard” issue should be top of mind as we make those decisions.

—Eleanor Chin, Thompson Chin Associates, LLC

The large financial firms hire the best and brightest from our business colleges to grow and build their companies and customer companies. The decisions and actions they took created a weak infrastructure and requires their best persistence and leadership. These were possibly elective classes, but throwing government money (my money) at the financial firms undermines the institutions and leadership needed to strengthen their firms.

—Kurt Uetz, RainMaker Energy Services

I don’t believe it’s an all or none answer. If foreigners stop buying our bonds, we’ll be forced to make some very unpleasant lifestyle changes. On the other hand, a line has to be drawn. We are not a socialistic economy (yet, anyway). I believe the Fed/Treasury drew the line correctly. The Bear Stearns Cos. situation was a crisis that came up very fast. Fannie and Freddie were government-sponsored entities in the first place with a mountain of mortgages in their portfolios. There will be second-guessing, of course. It’s much easier to do that than to handle a crisis at hand.

—Jim Cronin

I think it’s wrong for the government to selectively bail out institutions that have made bad operating decisions. It sets a very poor precedent for critical U.S. companies. We all suffer for our errors in judgment; financial institutions shouldn’t be singled out for special treatment.

—Al Schnucker, Schnucker Packaging Inc.

What taxpayer money? Maybe under Clinton, who balanced our budget, but we are $9.6 trillion and counting in debt! Bush and the GOP have put us perilously on the brink. We are probably over the brink, and they are just hushing it up. … Please don’t let Palin/McCain “win” the election in November. Give Obama/Biden the opportunity to bring sanity back to government.

—Marjorie Campaigne, www.Project-HOUSE.us

(c) 2008 Rochester Business Journal. Obtain permission to reprint this article.




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