“Taxpayers instinctively continue to dislike the idea that their tax dollars have been used to bail out Wall Street as Main Street continues to suffer,” said Representative Edolphus Towns (D-NY) at a Center for American Progress event on September 16, which was one year to the day of the AIG rescue. Towns shared the public’s outrage that their tax dollars were used to save large companies such as AIG, CitiGroup, and General Motors from bankruptcy. The bailouts also lacked transparency and accountability measures so the public could see that their interests were being protected.
Towns praised a paper from Emma Coleman Jordan, professor at the Georgetown University Law Center, which was released at the event and proposes placing public directors on the boards of private entities that receive substantial public funds. Jordan asserted that placing government officials on the boards of rescued companies would make the companies accountable to the public and ensure that funds are being appropriately spent.
Towns compared the public’s investments to those of Warren Buffet and asked, “Would Warren Buffet invest billions of dollars in a company without getting a seat on the board?” The answer was an unequivocal “no.”
Byron Georgiou of the Financial Crisis Inquiry Commission—the group charged with investigating the causes of the collapse of each major financial institution—thought that Jordan’s proposal was sound if taxpayers were considered to be investors in the traditional sense, like Buffet. However, he questioned whether taxpayers were really just donating money to financial institutions and making the judgment that they had to save the institutions because they were “too big to fail.”
Jordan proposed that public directors would have proportional representation according to how much money the company received from the Troubled Assets Relief Program. She also insisted that directors be selected based on the principle of difference. Jordan blamed much of the financial crisis on “groupthink”—everyone had the same financial approach, so everyone failed. In her opinion “it’s important to get people that are outside of the financial sector—that have expertise, but are outside of that sector—to make a contribution [to the organizations’ strategies].”
Kathleen Kennedy-Townsend, the former lieutenant governor of Maryland, expanded on Jordan’s call for board diversity and demanded board involvement. “You need people on the board who are actually paying attention,” she said. Kennedy-Townsend thought that all companies, not just those with federal funding, needed boards with better corporate governance.
Damon Silvers, a member of the Congressional Oversight Panel for TARP, agreed that to the extent we are already making public investments in financial institutions, “we ought to, just as Warren Buffet would … be represented on boards….”
However, Silvers pointed out the risks in Jordan’s report. He explained that “we are not trying to maximize shareholder value here … what we are trying to do is make the financial system work.” He believed that it’s in the public’s best interest for banks to succeed because weak banks will not lend to the people that need it, and that requiring financial institutions to be too accountable to their shareholders might compromise institutions’ willingness to take risks. In the financial sector risks tend to be the main source of rewards.
For that reason, Silvers warned, “we ought not to let [the current] response to this strategy become a way in which we become more embedded [in the private sector].”