Navigating through the Road Bumps in the Financial System

By Courtney Ann Jackson-Talk Radio News Service

We can’t let things go back to the way they were with the United States Financial System according to Treasury Secretary Timothy Geithner Monday. Geithner joined Newsweek Magazine editor, Jon Meacham, at a luncheon interview on the topic of the recession and what American’s should expect as the steps to recovery continue to be put into action.

“This is still the most challenging economic crisis that this country has seen in generations. It took a long time for these problems to build up," Geithner said. "It’s going to take time for us to work through them. We’re not going to have a steady, even process of repair, it’s going to be bumpy, still feel fragile for a while.”

Geithner expressed his sympathy for struggling Americans and said he understands why Americans are angry. He said that even as growth inevitably begins to turn positive, unemployment will continue to increase for awhile. He also said, “It’s not going to feel better for a long time for millions of Americans.”

As the administration continues to work its way through this economic crisis, Geithner believes they need to take a “fresh look” at the financial system as a whole. In terms of speed and quality of initiative that are already in progress, he said he thinks the administration is doing well.

“The American people want to see us moving to change things, not just waiting and hoping,” he said.

Meacham asked Geithner about people’s critique that the administration was being too lenient. Geither replied, “I actually think that what the President has put in place is the most aggressive approach to solving a financial crisis than we’ve seen from any serious country in a very long period of time.”

He also noted that they are doing more preventative work and referred to it as a type of insurance from a greater recession. They are working to make the system more stable and plan to release a new set of proposals in the next few weeks for reforming the oversight framework.

Congress criticizes military for sexual assault cases

Members of the House Oversight and Government Reform Committee had harsh words for Department of Defense officials at a committee hearing on sexual assault in the military. Rep. Michael Turner (R-Ohio) said "there is a clear problem within DoD." John Tierney (D-Mass.) said the Defense Department had not done their job as far responding to accusations of sexual assault. Rep. Carolyn Maloney (D-N.Y.) said that sexual assault and rape must be prosecuted equally in civilian life and in the military. Currently, she said, the two contexts are different.

Director of the Defense Capabilities and Management for the U.S. Government Accountability Office Brenda Farrell said that according to survey data, 6.8 percent of women and 1.8 percent of men in the military had experienced "unwanted sexual contact," during the last 12 months. She said that the majority chose not to report it. In a survey to 14 bases, 103 service members said they were sexually assaulted. Farrel said that the GAO concluded that the Defense Department had made progress, but they had " not adequately addressed some important issues," such as encouraging a system that supports reporting of sexual assault. Farrell said that in the GAO survey, 91 to 98 percent of those polled felt that their direct supervisor would address sexual assault.

Director of the Sexual Assault Prevention and Response Office for the Department of Defense Kaye Whitley said that Feb. 13, 2004, the Defense Department created a sexual assault task force. She said that the Pentagon knew of the problem of sexual assault, but that the commanders must report it, and deal with it harshly. Whitley had been subpoenaed for an earlier hearing date in July but the Defense Department advised her not to testify. Rep. Christopher Shays (R-Conn.) criticized Whitley, "We don't want someone weak in this office, we want someone who shakes it up and gets in trouble...It feels like your being abused in a different way."

Protecting D.C.- Management of the Federal Protective Service investigated

The Senate Homeland Security and Governmental Affairs Committee Subcommittee on Oversight Management, the Federal Workforce, and the District of Columbia held a hearing regarding management challenges facing the Federal Protective Service (FPS).

Senators at the hearing questioned Director of the FPS (U.S. Immigration and Customs Enforcement section) Gary Schenkel and Mark Goldstein, Director of Physical Infrastructure Issues at the Government Accountability Office (GAO) about the progress the FPS has had in protecting Washington from terrorist attacks, as well as enforcing the law.

Schenkel argued that his agency has been successful in protecting the city and people of Washington in recent years despite a lack of sufficient funding from the government. With more money, Schenkel said the FPS could increase the protection of the over 9,000 buildings they oversee the protection of yearly. Goldstein noted that despite a lack of proper equipment the GAO has improved training for police officers in recent years and is looking to continue to do so.

Aviation safety laws very much up in the air

The Senate Committee on Commerce, Science, and Transportation Subcommittee on Aviation Operations, Safety, and Security hearing on “Aviation Safety Oversight” examined violations made by the Federal Aviation Administration (FAA) regarding their allowance of unsafe airplanes to take to the air. Senators questioned a panel of witnesses that included the much criticized Nicholas Sabatini, FAA Associate Administrator for Safety.

The argument against the FAA was spearheaded by a myriad of violations committed by Southwest Airlines (SWA). Significant debate arose over the FAA’s oversight of the aviation industry, particularly how to eradicate “cozy” relationships between FAA employees and airline companies. Many on the Committee felt that the FAA had acted more like a business than as a government agency, and had passed planes they should not have passed as a result of strong relationships between each group.

Sabatini argued that under his watch the FAA has maintained an “unprecedented aviation safety record.” He mentioned that despite such success, his administration is still striving to make planes even safer. Also, Sabatini’s defense described the problems that took place at SWA as being “isolated” and not “systematic.” These feelings were not echoed by the majority of the Committee.

The Committee was also concerned about the rapidly increasing rate of retired FAA plane inspectors and how to efficiently replace such employees. To fix some of the problems the Committee found with the FAA, the possibilities of unannounced safety checks for departing planes, a revamped Customer Service Initiative (CSI), and a new method for anonymously reporting violations made by safety investigators from their peers were discussed.

House Oversight and Government Reform Committee Investigates CEO Severance Packages

The House Oversight and Government Reform Committee held a hearing on "Executive Compensation II: Mortgage CEO Severance Packages," focusing on CEOs involved in the ongoing subprime mortgage crisis.

Chairman Waxman (D-CA 30) said corporate executives currently earn an average of 600 times more than the average employee, up from 40 times in 1980. A CEO can sometimes earn all of 10% of a companies net profits. This works out to around $160,000 per hour. He also said that such earnings may be justified by market conditions but that this does not explain the recent hundred million dollar severance packages received by the former executives of Countrywide, Merrill Lynch, and Citigroup, all of which recorded multi-billion dollar losses before their resignations.

Ranking member Davis (R-VA-11) shared these concerns, but warned against congressional involvement, fearing the consequences of micromanaging these volatile financial markets.

Susan Wachter, professor of financial management of the University of Pennsylvania's Wharton School, described a misalignment of incentives that led to the recent economic troubles which contributed to these huge corporate losses.

Anthony Yezer, Economics Professor at GWU, stated that borrower education is not a viable option for preventing similar financial troubles because borrowers lack the mathematical understanding that predicates financial understanding.

Nell Minow, editor of The Corporate Library, said that the pay packages given to executives contributed directly to the economic crisis because they created incentives to produce more business rather than better.