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Why Congress Should Oppose the Bail-Out Package
Below are the reasons Congress should reject the package unless there are major changes to the bill. Simply put, as it stands the bill will grant far too much power and authority to the Treasury and will screw the US taxpayer while rewarding companies for incredibly bad decisions.
Let's go through all the arguments against this package.
Let's start with the text of the deal:
(a) Authority to Purchase.--The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.
(b) Necessary Actions.--The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;
(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;
(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;
(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and
(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.
Note all of the authority given to the Treasury secretary. He buys and sells securities at terms he deems necessary. He appoints firms to be "financial agents of the government." He creates any vehicles used to deal with this mess. In short, he is given a huge swath of power to handle this mess.
Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.
He makes literally no reports to Congress. After three months and then "semi-annually thereafter." That is way too much time between reports. Also note there is no mention of what information he is supposed to present to Congress. The Treasury Secretary could come into Congress with nothing -- no reports, not facts, no stories to tell -- and be in compliance with this act.
Sec. 6. Maximum Amount of Authorized Purchases.The Secretary's authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time
Did you catch that? There's a great little language shift. The Treasury Secretary's authority is limited to $700 billion outstanding at any time. That means he could buy $700 billion -- then sell some at a loss -- and then buy more to get back to $700 billion. This is a revolving credit line, not a firm upper limit. It's conceivable the Treasury could but and sell trillions of dollars under this authority.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
Excuse me? What country are we living in? Paulson could grant total authority to, say, Goldman Sachs (his former employer) and we the taxpayer would have nothing to say about it.
Folks, this is a boondoggle for several reasons.
1.) There is no oversight. Period. No one should be given this amount of power without any check and/or balance.
2.) Why this huge dollar figure?
"One of you mentioned that you will use about $50 billion dollars a month. If that's the case, and you're certainly not going to use all $700 billion immediately, and as you can see there are a lot of questions about whether this will work, we understand you've done your best and you think this will work best, but it's clear we're in uncharted waters. But what about doing this in tranches? Why couldn't you ask us for $150 billion, and on January 15th or January 20th we would come back, we would assess how this worked and grant some more money if it's really working?"
He's asking for 25% of the 2007 federal budget in one fell swoop. That's a ton of cash.
3.) Bernanke's statement regarding purchase prices yesterday is pure crap:
``Accounting rules require banks to value many assets at something close to a very low fire-sale price rather than the hold-to-maturity price,'' Bernanke said in testimony to the Senate Banking Committee today. ``If the Treasury bids for and then buys assets at a price close to the hold-to-maturity price, there will be substantial benefits.''
Really? I've been involved with finance for 15 years, and I have never heard this distinction before. When I was a bond trader, I do remember getting calls at the end of the month asking for bids on bonds because clients had to mark their portfolios to market. But I don't remember anybody every saying, "let's mark this to "hold-to-maturity." This distinction is bullshit, plain and simple.
This is a huge boondoggle waiting to happen. If we give all of this authority to the Paulson we will live to regret it in a big way. And so will our children.
A friend of mine (New Deal Democrat over at Economic Populist) made an observation. Over the weekend we saw people in Congress "shocked" by what was happening. Paulson and Bernanke also qualify as the "deer in the headlights" for this mess. In other words -- everybody who should have seen this coming is now shocked we're in this mess. The only people to get this right were the bloggers -- or as NDD says, the "dirty hippies." Now, these same people who have gotten nothing right over the last year are desperately seeking money to help stave off a disaster. These people have no credibility on this issue. None. Nada. Zip. Zero.
Please call your Senator and Representatives and tell them to vote no on this piece of legislation unless there are major revisions.
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Hale, isn't it high time we examine monetary policy?
these plutocrats are meandering around mechanics.
do nothing = severe, painful, 1-2 year recession
infuse 1 trillion into the "economy" of fiat money = decade or longer greater depression.
that is where we are. no way around thoe two options.
unless we return, even in a phased approach, to sound money and only congress issuing it.
the only other path the two options on the table lead to is a larger centralized bank/currency like the EU, which is heading in the same direction.
keyesian fails.
look to hayek.
Yes, agreed Keynesian fails. Pumping fiat money into the economy is not the answer. f I believe fiat currency is dangerous. If someone found a huge diamond mine and flooded the market with diamonds the value of the diamonds would plundge leaving those who owned diamond poorer. And, if you have saved your dollars while the fed pumps more money into the world your dollars are worth less. This is a form of legalized theft which Ron Paul has been warning us about for years.
Paul also warned us that Freddie-Mae and Freddie-Mac would fail a long time ago. Barnie Frank said Freddie-Mae and Freddie-Mac were in good financial shape when Ron Paul was warning us about their collapse. Most of the bureaucrats just laughed and mocked Ron Paul. It turns out he was right and they were wrong. So, who are we going to listen to now : Ron Paul or Barnie Frank?
Is this a poor joke? Another quick sign this blank check or else Bush con?
NO BAILOUT!! IT'S A SCAM!
ALWAYS LISTEN TO RON PAUL & DENNIS kUCINICH FOR THE TRUTH.
Most of the world doesn't know about the 65 Trillion Dollar Credit Swap Defaults still looming. It dwarfs the mortgage crises.
The info is on http://coinage.me
Where the flaws are articulated in detail unlike anything you see on the news, such that you can understand them and so the workings are not obfuscated with complexity. A detail solution is provided to fix the foundation, which everyone else speaking about the problem seems to lack.
Many people only see the appearances they do not see the fundamental flaw in the system itself.
you've got it. the ill is keyesian economics.
look to hayek and our constitution. the answers lie within.
END THE FED
We don't know if all of that is tied to the US economy, but it is something to be concerned about.
Like the rush to war, they're ramming this one through. And the Democrats in Congress
want us to believe the details and corrections can be worked out later? Is this supposed to
restore confidence? By now, it may be a done deal in the House.
...Just wondering, in the end, will the president be adding any signing statements?
This proposed bail-out is socialism the rich. If they make us scared and fearful enough they will probably get the bail-out just as they got the Iraq war by using fear tactics. Most people will probably buy into it and feel good about it at first , but a few years down the road it will come back to bite us and then it will be too late, just like the war in Iraq is coming back to haunt us now.
The bad lending practices of the banks were partly caused by the community reinvestment act and other bad govt. policies in the first place and the high price of gas was caused by the war, maybe the banks aren't to blame. The politicians that we elect who promise us presents under the tree if we just vote for them are to blame. We are to blame also, for electing them and not educating ourselves about true economics like taught by the honorable Walter Williams at George Mason University. But, I guess we can't help it if 90% of our colleges teach "Keynesian economics" and tell us that Roosevelt saved us from the depression.
We just got to hang in there and grin and bear it , I guess. Or, better yet vote LIbertarian! LWCA!
Agree with the first part fellow "dirty hippie", the second party...
I was there, in the middle of the GREED, the greed that propelled CEOs, COOs, and other Execs to take massive risks, because they knew it would be someone else's problem. They knew there were no laws to prevent them from getting millions of $$$ for BAD performance. They also know McCain and Bush will bail them out, but how long can we keep providing Corporate Welfare?
Let's just end the Iraq war and shut down the Pentagon for a year. That should cover it.
Dems will cave, as usual, but this may actually be one time when Senate republicans will be against something coming out of the White House. Stil, I'm guessing enough of them will cave, too. And everything they say they are trying to prevent will still happen. Especially unemployment.
Say a resounding NO to the $700B bailout -- I think Bush, Cheney and McCain should retrieve the billions in cash of our tax dollars they sent to enemies of the USA and Israel in the middle East in plastic garbage bags and use that money for their bail out. I also think this trio along with Gramm and all their other croonies should chip in the billions from their personal bank accounts towards their proposed bailout plan.
I fully expected such a big NUT would have been allocated by the democrats to provide quality healthcare to our families. American children of the working class desperately need quality health care as well as those dying of cancer because doctors refuse to provide adequate treatment for lack of money and healthcare coverage.
Why $700 billion when Paulson said it may not be needed all at
once. Why not oversight by an independant group that will make sure
the money is used for what they say, and adjust if neccessary? Why
Paulson as the guy who makes all the money decisions, even if he
has some experience? Why no punative action on CEO's? And I don't
buy the stuff about they won't come on board, because if they want help
they will. Why the rush? If this goes to the President with changes, will
he get what he wants with signing statements? This may not work. What
happens in 6 months? What about Hedge Funds and LBO's?
The current plan to bail out the tycoons is yet another campaign in the Bush mafia's "Shock and Awe" strategy. These national traitors think we'll buy their "pig in a poke" just as we did their war against Iraq. See Naomi Klein's thesis on shock doctrine, then kill your television.
OMG! Did I just say "pig in a poke"? I hope I haven't offended anyone!
Is there a "Keating Five" style debacle underneath the rush
for solution? Maybe we need a little more time for investigation.
Did you see how the Republicans behaved at their convention - laughing at ordinary people, saying "we don't care, we are fine whether we get the presidency or not, it's you who always has to pay the price of our blunders" - talking of blunders, we have some big blunders here perpetrated by welathy individuals and corporations who were entrusted to be good, honest and responsible managers - and what do they do?, they mismanage on a monumental level - it is the wealthy and the corporations of the wealthy that are being rescued here, not the ordinary person - classic ARM TWISTING tactics are being used and TIME IS OF ESSENCE trick, "we must get it done like yesterday" - NO BAILOUT, NO BLANK CHECK for IRRESPONSIBLE PEOPLE - let us first get some sense into these SOB's - Democrats, stop being KLEPTOCRATS and WOBBLYCRATS - for once show TEETH that can BITE - let these SOB's fry in their own fat - Public Independent Watchdog Committees MUST be involved in any bailout process, the country's best PATRIOTIC economic brains MUST be involved before a PENNY is approved - first, let them feel the PAIN that we all have been feeling for such a long time
Hale,
This is one issue where I believe that the Right and Left of American politics can agree on, if for different reasons.
The ultra-Lefties think that it does not go far enough to help out the underclass, and the ultra-right are against socialism in any form.
As a moderate member of the vast right-wing conspiracy, I believe that something can and should be done by the government.(They did, after all, get us into this mess by interfering on an ever-increasing basis with the free market economy) But I believe that this plan goes too far for the reasons you noted above and more.
Personally I believe that a short recession would do less harm than a long depression, and I feel that the deal as written would serve to keep property and home values artificially inflated for a longer period of time. After that time, due to inflationary forces within and outside of our control, the values would have farther to fall, with greater economic impact, and do far more damage than simply letting the institutions fail due to the unnecessary risk they took on hoping for a great reward.
McCain's request today to postpone the debates is another effort at distraction. It's the same principle as 3 card monte. Distraction so that the face card, distraction so that the ball under the cup is lost in the shuffle. Joe Biden's speach today put McCain on notice, and I think that he's not prepared to engage Obama without coming across as out of touch and Bush III.
At least Paulson is not asking to be Treasury Secretary for life.
Or will that be in a signing statement?
Heck no, Paulson will never have to work another day in his life.
Wall St. should start selling "stock bonds" to American people via the government.
WW2 sold War Bonds and people bought them, knowing they would get a return and not lose their shirts in the aftermath.....
Bondad--
What do you think about having the investment bankers at the institutions that are participating in the bail-out return 10 years of their bonuses to a pool, to be used as the first installment of the bailout.
Then, once we see if it has ANY effect on the economy, we can decide whether to give them taxpayer money?
Seriously.
Excellent point. I wrote yesterday to my congressman and both senators. I included that specific point. In addition I wrote since I am a citizen and hence, own part of government, I consider myself to be a venture capitalist and want 25% of the profits FOREVER. Lasty, I pointed out that all of the executives and high government officials should be relieved from their duties, no bonus, no pension, no benefits.
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This is a great deal.
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For a couple trillion we get the public repudiation of 30 years of Republican Orthodoxy.
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It will now be much easier to justify trade policy, Industrial Policy, Medical Policy and Cultural Policy.
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Over the long term, the taxpayer will be repaid a hundredfold.
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