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.

Rep. Elijah Cummings (D-MD) Doesn’t See the Light at the End of America’s Dark Economic Tunnel

Rep. Elijah Cummings (D-MD) interrogated Dr. Keith Hall, Commissioner of the Bureau of Labor Statistics, before a Joint Economic Committee hearing focused on reviewing the problems with the current American employment situation.

Cummings hammered away at Hall, backing his stance with a barrage of statistics about the job market. The Congressman also offered a harsh critique of the recently passed Bush Administration stimulus package and the “shocking” state of less-than-adequate infrastructure growth our nation is experiencing.

Dr. Hall acknowledged that while manufacturing and retail employment was down, he refused to say that America was entrenched in full economic recession. Hall’s opinion was that the American economy was “flat” but not yet experiencing the “broad losses” generally characterizing an economy dealing with full recession. Hall noted that health care employment continued to expand, proving that not all areas of the job market were struggling as much as others.

Regardless of Hall’s optimism that America still can hopefully escape recession, Cummings’ dissatisfaction painted a dark portrait of a weak economic future he cautioned our country will likely face, should our government not work to provide more jobs for needy Americans.

Senate Budget Committee Critiques President's Budget Proposal

In a heated exchange, the Senate Budget Committee heard testimony from OMB director Jim Nussle regarding President Bush’s FY2009 Budget Proposal. Chariman Kent Conrad (D-ND) opened the hearing with a poster reading “the debt is the threat” and continued this theme, saying the “debt is going up like a scalded cat,” described the three D’s of President Bush’s legacy as “debt, deficit, and decline,” and called the budget “a debt bomb on the next president.” He made sure to emphasize the difference between the deficit, which is the year-to-year difference between spending and revenue, and the debt, which includes all money owed to Social Security and other lenders.

The consensus was apparent that this budget is unrealistic on a number of levels. A number of social programs would face spending cuts of up to 100%, the DOD would receive less than half of the $193 billion it spent this year in Iraq and Afghanistan.

While each side of the aisle presented different complaints, they were united in opposition to the projected economic outlook if this plan is put into action. The $9 trillion debt is expected to reach $10 trillion; if the stimulus package is enacted, the 2008 deficit is expected to reach $400 billion. Ranking member Judd Gregg (R-NH) criticized the Democrats regarding Pay-Go rules and SCHIP, but gave Nussle the same treatment, criticizing the long-run usefulness of this plan.

Chairman Conrad and Senator Bernard Sanders (I-VT) were some of the most vocal and aggressive when demanding justifications for unrealistically low war spending estimates ($70 billion for 2009) and severe cuts to social programs like LIHEAP which helps low-income families heat their homes. Nussle responded with a question, asking when Congress would pay the war bills for this year.

Medicare and Medicaid was also a topic of long discussion. Nussle claimed the budget aims to limit uncontrolled growth in spending in these areas. The Committee discussed the need for reform in these areas, rather than simple spending cuts.

Senator Lautenberg (D-NJ) focused on the cuts that Amtrak would receive under the President’s plan, remarking on traffic problems across the country.

Senator Menedez (D-NJ) seemed to sum it all up when he declared the proposal “dead on arrival.”

Senate Budget Committee Hearing on Economic Stimulus Package Before Floor Debate

 The Senate Budget Committee held a hearing this morning to once again discuss the economic stimulus package that will be debated and voted on the Senate floor this afternoon. Chairman Kent Conrad (D-ND) and ranking member Judd Gregg (R-NH) heard testimony from Dr. Alan Blinder of Princeton University, Dr. Mark Zandi of Moody’s Economy.com, and Dr. Daniel Mitchell, Senior Fellow of the Cato Institute.

The three T’s (timely, targeted, and temporary) once again led the conversation. The current Senate plan is costlier and broader than the bill the House has passed, including rebates for all taxpayers, regardless of income.

Dr. Blinder identifies himself with former Federal Reserve Chairman Alan Greenspan’s “school” in proposing transfer payments, as food stamps and unemployment insurance, and aid to states, tools left out of the House version.

Dr. Zandi pointed out that several states including California, Nevada, and Florida are already in recession, though the nation as a whole is maintaining slow growth. He recommends replacing the House’s business incentives with a version of the programs endorsed by Dr. Blinder.

Dr. Mitchell cited Monty Python, announcing “And Now for Something Completely Different!” Denouncing Keynesian economics flat out as “bad theory.” Reminding the committee that there are no “magic wands,” denies the efficacy of fiscal policy to stimulate the economy. Instead, he recommends that the Congress focus on long term practices to provide an environment conducive to business investment.

In closing, Senator Gregg described the whole stimulus process as a “feel good event” while acknowledging its potential benefits nonetheless. Speaking with me afterward, he stated that if the Senate is to do this, it must do it quickly.