The AIG Debacle

The AIG Saga: A Brief Primer
By Dean Baker

The awarding of $165 million in bonuses to AIG executives has dominated the news in the last week. There has been widespread outrage over the idea that taxpayers' dollars are being used to reward the people who effectively bankrupted AIG and cost the government more than $160 billion in bailout funds to meet the company's obligations. This primer addresses some of the issues raised by both the bonuses and the much larger sum going toward the AIG bailout.
The Bonuses: What Did They Know and When Did They Know It?
One of the silliest distractions in the AIG saga has been the various accounts of when AIG told Treasury Secretary Geithner of the bonuses and when Geithner passed the information along to President Obama. This discussion is silly because Geithner almost certainly knew of the bonuses ever since the initial takeover on September 15th. He just didn't think they were important.

Geithner was the chair of the New York Fed at the time of the original takeover. In that capacity, he was the person directly overseeing the takeover. As the chairman of the New York Fed, Mr. Geithner was undoubtedly familiar with the Wall Street culture and knew that financial firms paid out large bonuses each year to their most-valued employees. Since he did not issue any directives to AIG telling them not to pay bonuses, it was reasonable to expect that AIG would do so, just like it always did.

In other words, Geithner had every reason to believe that AIG would continue to pay out bonuses even after it was bailed out by the government, because he did not tell it stop paying bonuses. He may not have considered this issue important until the last week. And, he may not have known the exact size and the structure of the bonuses, but for all practical purposes he has known for six months that AIG would be issuing million dollar bonuses to certain employees, in spite of the fact that it was dependent on massive infusions of government money to stay alive.
Should the Government Have Gotten Something in Return for Giving Tens of Billions to the Banks?
When the government lent hundreds of billions of dollars to the banks through TARP, it got preferred shares of stock in return, in addition to placing conditions on the banks' conduct. By contrast, the government received absolutely nothing for the tens of billions of dollars that it passed on to the banks through AIG. It may have been desirable to ensure that AIG's defaults did not lead to the collapse of the major banks that were its counterparties, but this could have been accomplished by directly giving these banks capital through TARP or some equivalent mechanism. There is no obvious reason why it was necessary to give the money through AIG without getting anything in return.

It is worth noting that if the government had instead lent the AIG money to the banks through TARP, and under similar conditions, it would own an even larger share of these banks. Obviously the banks prefer that the money instead pass through AIG without conditions, but there is no reason that the taxpayers should prefer this route.

It is also worth noting that several of the recipients of AIG money were foreign banks. While the public has an interest in the stability of the world economy, which means preventing major foreign banks from going bankrupt, there is no obvious reason that American taxpayers should be forced to bail out foreign banks of wealthy countries. It is possible that there is some quid pro quo under which foreign governments are bailing out U.S. banks on losses suffered in their countries, but there has been no public acknowledgement of such an arrangement.

There is a possible alternative explanation. The government may have made these payments in order to preserve the international reputation of the U.S. financial industry. If that is the case, then this is a rather expensive subsidy to the financial industry. To date there has been no explanation as to the reason for making these payments.

SF Flower Show

Note, the San Francisco Flower show this year is in San Mateo.
AND, a union is picketing the event because union workers were not hired.

They ask that people not enter.
Duane Campbell
Sacramento

Bill Maher vs teacher unions

Real Time with Bill Maher
On the March 13, 2009 show, Bill Maher used Barack Obama’s comments on the need for school reform as a foil to launch into some extended criticism of teachers unions- This was not part of the President’s message. Unfortunately Maher seemed to be operating from Business Roundtable talking points rather than a serious analysis of the school crisis.
I have not yet been able to get the transcript.
His first claim was that union rules prevent teachers from being fired and that many teachers should be fired. He implies that problem with our schools in crisis was that administrators could not fire teachers.
Well, lets look at that. Large numbers of new teachers quit each year, almost 50% in the first 5 years of teaching. So, there is significant turn over.
And, to understand our school crisis, you need to know that there are many schools that work just fine, usually in middle class neighborhoods, and many urban schools that are crisis zones. There are few teachers fired in both parts of the system. There is a radical difference in where teachers quit. So, there does not seem to be evidence that not firing teachers makes the difference between successful and failing schools.
Where is the evidence?
Maher properly cited drop outs, as did Michael Eric Dyson as a measure of school failure. The drop out crisis is real and severe. What are the causes? Well there are many. However, note that the drop out rate between Freshmen and Seniors in college is higher than the drop out rate between Freshmen and Seniors in high school. And, the drop out or push out rate at community colleges is even higher.
So, what is the cause of the drop outs? Is it unionized teachers? No evidence has been provided.
Most cities now have a number of charter schools where teaches do not have union protection. Some of these charters are doing a good job, like the KIPP schools. The drop out rates, and the push out rates in the charter schools is parallel to the drop out rates in the public high schools. Teacher turn over, including firings, is high in these charters. Yet the achievement rates and the drop out rates are similar.

There is much more to say on this subject. But, this is a blog, not a textbook. You can read the detailed version by reading my book, Choosing Democracy: a practical guide to multicultural education. ( 4th edition, 2010).
While the media and the corporations argue that the schools are failing, I think it is more likely that the society has failed the schools – in particular state legislators and local governments have failed the schools.
First, we need consider the processes of schooling in the social, political, and cultural, and economic context which surrounds the school and to a significant degree controls the schools. Schools did not create and can not resolve the racial, class and gender divisions in our society. But, what schools can do is to effect individual students lives every day. Our multicultural society requires multicultural schooling. Students from all cultural and ethnic groups must succeed, and must learn to get along and to respect each other.

As my friend the late Henry Trueba said
“Education is crucial to the realization of the American dream. The reason is that it is primarily through the acquisition of knowledge and skills associated with formal education that immigrant and low-income students become empowered and a part of mainstream America. It is particularly relevant to speak of multicultural education as the kind of education that will permit Americans to become aware of “democracy at work,” realize their full potential, and live in harmony.”
This is time for a change for our society and in our schools. This generation must renew our democratic society. We face marked crises in government, politics, the economy, families, communities and in the schools. Public schools have a particular responsibility to reverse these crises and to renew our democratic society. The first mission of pubic schooling is to equip all students for the responsibilities and privileges of citizenship – and many of the schools in low income areas are presently not fulfilling this mission. If we do not solve the problems of low performing schools our democracy suffers. For our democracy to survive we need to create schools that value all of our children and encourages each of their educational achievement.

All children need a good education to participate in our democracy and prepare for life in the rapidly changing economy. Making schooling valuable and useful is vital to prosperity for all. Lack of education is a ticket to economic hardship. The more years of school that a student completes, the more money they are likely to earn as adults and the better their chance to get and keep a good job. Unemployment is highest among school dropouts as is incarceration for crimes. When we fail to educate all of our children, the high costs of this failure come back to hurt us in unemployment, drugs, crime, incarceration, violence and social conflict.


We need to invest in urban schools, provide equal educational opportunities in these schools, and recruit a well prepared teaching force that begins to reflect the student populations in these schools. We must insist on equal opportunity to learn, without compromise. When we do these things, we will begin to protect the freedom to learn for our children and our grandchildren, and to build a more just and democratic society.
Teacher advocates for democratic educational opportunities challenge those social forces acting to preserve the present inequalities and injustices in our schools. We consider schools as sites for the struggle for or against more democracy in our society. The struggle for education improvement and education equality will be a long one. The struggle for multicultural education, based in democratic theory, is an important part of the general struggle against race, class, and gender oppression and for democracy.
Schools serving urban and impoverished populations need fundamental change. These schools do not open the doors to economic opportunity. They usually do not promote equality. Instead, they recycle inequality. The high school drop out rates alone demonstrate that urban schools prepare less than 50 percent of their students for entrance into the economy and society. A democratic agenda for school reform includes insisting on fair taxation and adequate funding for all children. Political leaders in most states have not yet decided to address the real issues of school reform. We cannot build a safe, just, and prosperous society while we leave so many young people behind.
At present there is not a political agreement to make the necessary investments to bring about substantial school reform. The U.S. government and your state government will not make the necessary investments to improve education, nor to improve health care or to rebuild the economic infrastructure until we stop investing over 850 Billion dollars in the war in Iraq and Afghanistan and whichever military intervention follows. Funding choices made at federal, state and local levels directly affect our children.
The conservative/ media emphasis on accountability for schools, and Bill Maher’s talking points are a distortion. We know which schools need improvement, and we know how to improve them..

The problem is to provide the resources, including well prepared teachers with adequate support, needed to make the current schools successful. We face a choice between providing high-quality schools only for the middle and upper classes, and underfunded, understaffed schools for the poor. Or, we can also choose to work together to improve schools that are presently failing.

Duane Campbell
Director. Democracy and Education Institute – Sacramento
http://sites.google.com/site/democracyandeducationorg/

Stimulus dollars sent to schools

March 9, 2009
U.S. to Nation’s Schools: Spend Fast, Keep Receipts

By SAM DILLON
Arne Duncan, the secretary of education, sent a message to the nation’s school officials last week: Heads up! We’ll be sending you billions of dollars by month’s end. Spend the money quickly but wisely. And keep receipts; we’ll be asking.

The message, which went out Friday in documents e-mailed to governors, state education commissioners and thousands of school superintendents, provided the first broad guidelines for how the Education Department intends to channel $100 billion to the nation’s 14,000 school districts over the next few months. The expenditure is part of the Obama administration’s economic stimulus package.

Some $44 billion will be made available to states before the end of this month, Mr. Duncan said, in the hope that layoffs can be averted. Hundreds of thousands of job losses in schools had been projected for the fall because of growing state budget deficits caused by a steep drop in tax revenues.

More school stimulus money will be distributed in the spring through the fall, the documents said, after states apply for the financing and provide Congressionally mandated “assurances” to Mr. Duncan that they are complying with federal education laws.

“Spend funds quickly to save and create jobs,” a five-page guidance document sent to the education officials said. It also urged educators to use the money in the stimulus package, known as the American Recovery and Reinvestment Act, in ways that “improve school achievement through school improvement and reform.” It also warned them to keep records of expenditures.

The guidance admonished educators to spend the stimulus money, which is temporary, in ways that would minimize the dislocation that could follow when it ran out in two years. Some department officials are describing the exhaustion of the stimulus money in two years as a “cliff” over which school districts could plunge if they do not spend the money wisely.

The money to be made available to states this month includes $5 billion in Title I financing, for disadvantaged students; about $6 billion for disabled students; and about $33 billion in fiscal stabilization money, which governors are to use to replenish education programs slashed in recent years and to prevent cuts to state education budgets for the coming school year.

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