Wednesday, September 17, 2008

Bush's "Publicization" Efforts on Wall Street Produces SWF

President George W. Bush just opened a sovereign wealth fund, using the beleaguered American taxpayer's money. His first four investments involved loans and equity stakes in four storied firms.

1. Bear, Sterns $29 billion
2/3. Fannie Mae & Freddie Mac as much as $200 billion
4. A.I.G $85 billion

George W. raised over $310 billion in a matter of weeks. It can take private equity firms months to assemble an offering.

Let's consider the history of three of the firms, George pocketed on behalf of the taxpayer. Here’s the pattern with Fannie Mae, Freddie Mac, and A.I.G.

1. Accounting scandal
2. CEO change
3. Financial practices supposedly cleaned up
4. Mortgage crisis causes huge losses
5. Taxpayer funded government rescue
6. New CEO’s

These firms have a history of fudging financially, followed by leadership changes and intensive cleanup efforts. That the pattern repeats itself, the root cause might be hiding in plain sight.

Could it be incentive executive compensation that causes CEO's to swing for the cheap seats, undertaking high risk strategies? If so, the new owners, American taxpayers, need to demand more changes.