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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The hubris of some of these people is astounding. How is it that the head of a governmental or business operation for that matter, that while on his watch, the operation loses $700 billion, yet he has the unmitigated gall to threaten his superiors or the stockholders, to reimburse him for lost of the money, while taking no responsibility whatsoever for the lost, that allegedly, he may have profited from ,by the way, While at the same time he poses as just an innocent bystander. What galaxy do these people come from. That's almost like a robber going in and robbing a bank and then returning eight years later to accuse and badger the bank teller for not giving up enough money during the robbery, to last the bank robber for eight year. This bailout scenario makes about as much sense as that scenario does.You talk about hubris,and gall, this situation takes hubris over the top to a level of insanity. But watch and see, these guys will pull out every trick of the trade to perpetuate this farce and escape from reality , to the detriment of everybody including themselves. This BAILOUT scenario could not even qualify to be a TV REALTY SHOW!
So basically, the proposed $700 billion is a slush fund?
Was there a fire at the Reichstag? I seem to have missed that emergency. Would like a report back BEFORE Christmas, though.
First the bailed out banks sell their worthless crap mortgages for full price to people who can't afford to buy gas -- the American people, then they take the money and buy up everything worth owning in America -- companies like Intel and TIme Warner, midwestern farm land, western timberland, etc. at fire sale prices when the economy goes to hell.
They are after all the utilities and especially your water companies, electrical companies. If there is no tax base sufficient to pay for services, they'll have to sell to major corporations.
They want the roads and bridges too, for toll roads.
It seems nothing is considered beyond their reach.
Ahh, the rich elite.
It appears that they'd like to blame this all on subprime mortgages, the default of home buyers. I listened to Paul Muolo on NPR, July 8, 2008, he's the executive editor of National Mortgage News, he puts the blame then on Wall Street. Just how much did Wall Street make on bundling and selling these mortgages, just how much was made on betting in the derivatives market, that 400 trillion market. Just how much of those not in the top 1% are somehow in that market. There's no way that subprime mortgages, people who at best are taking out a mortgage for $200,000, on an actual piece of property, not some bet, there's no way that the initial paper is causing this catastrophy. I heard an economist say last Friday, wait till the derivatives market crashes, Buffet calls it financial weapons of mass destruction. They're just trying to get the taxpayer to pay now, push it through, before we find out just how crazy these people played with our financial system. Why couldn't they just have gone to Vegas, because what happens in Vegas, stays in Vegas.
They said they leveraged them 30 to 1. So for every mortgage, they sold it 30 times.
Now how many poor "sub prime" people do you think got 30 mortgages on his one home?
So we're buying 30 mortgages, one of which will be paid back and we "eat" the other 29 for lunch.
My Republican friends also oppose this stupid bail-out plan.
JERRY
Mr. Stewart,
I agree with almost everything except the "Major Revisions" part.
Basically, we're getting a story like:
"Well, I'm sorry I drank 2 fifths of Chivas, and then drove my $120K Rolls into your picket fence. It's not my fault that your 6-year-old was playing on the sidewalk, that's your problem as an irresponsible parent. And the fact that the leaking gasoline burned your house down wasn't something under my control. So pay me for the Chivas and the Rolls, and we'll loan you the money to replace your fence."
Should we argue about whether we're going to pay Wholesale or Retail for the Chivas?
Congress should spank Paulson and say "Come back with something reasonable before we even waste the taxpayer's money debating this absurd proposal".
"Major Revisions" is EXACTLY what Paulson wants. He can cry his tears about how watered-down the result is (I even had to pay for the Chivas!!!) and get MUCH MUCH MUCH more than any sane person would agree to.
Sounds great Hale but the Democrat majority will find a way to pass it. Maybe they will sneak in a way for people to keep their houses that don't deserve to in many cases.
Those like myself that pay my mortgage will get nothing while the bums that don't will get a free handout.
America is a great place isn't it, we reward the irresponsible and punish the responsible.
Up and down the line the person who is personally responsible with his own money gets taken advantage of by the cozy relationships between corporations and members of Congress. What frosts me most about this is the timing, it has ROVE written all over it, create a crisis just before an election.
Listen, Viking, I am the one who is being punished. I have worked hard my whole life, paid off my house, lived modestly and saved for my retirement. The greedy basta**s on wall street are going to take me down with them. I am retired, so there is not much chance that I can get a job and start over. One of the WH deputy press secretaries let slip that the Administration has been studying this plan for several months! So just why is it that Congress has to hurry up and pass this legislation giving the Treasury Secretary 7 billion dollars with NO oversight, and NO control over how it is spent. This thing is beginning to smell like all the other ploys that this administratioin has pulled. I hope that the congress does not pass anything until they get some controlls over the thieves in the White House.
You gotta love guys like Viking who still insist on somehow laying this multi-trillion dollar, international, economic meltdown at the feet of working class Americans.
When Greenspan lowered rates to nearly zero in the early 20003-4 days, he told the bankers to go out and make loans any way they could. This administration was relying on a housing boom to hide their insolvency, and what better way to make the GDP look positive than to pump it up with billions and billions in new consumer debt?
The real upside to the plan was this crisis we face now, when home owners are thrown out of their houses and the banks get them back to sell again. Ignorant and unsophisticated home buyers were lured into predatory loans by bankers, who then sold the paper to the securitizers who spread the debt around the globe. Who was greedy? Who broke the Law? Who stands to get the biggest payday in history from the very American Citizens they ripped off?
This scam was planned from day one--just like attacking Iraq was a part of Cheney's program since before the elections. The "Bubble" is being burst and the buyouts given because that is how the international banks make their blood money, and enslave entire countries and their people.
This is the first I heard that the administration has been studying this plan for months. If this is true then this is surely a SCAM and a whole lot of people should go to JAIL!
Any long term fix must include must include downpayment, income and credit standards for all government backed loans. If a bank wants to issue a "sub-prime" loan, it must do so on its own with no government backing!
"A brief history of the Fannie Mae and Freddie Mac mess is in order. Back in the days when a Bank or Savings and Loan approved a home loan, they did so with lending standards that had historically led to only safe loans. They had to because they kept the loan and were responsible if it failed. These standards included 3 major parts.
First, the mortgage payments could be no greater that a set percentage of your income, usually about 40 percent.
Second, a down payment was required of about 10 percent or above so the new owner would immediately have some equity in the home.
Third, A good credit rating was required to prove you had a history of paying your bills.
Some adjustments could be made, for example people that had poor credit could get a loan with a larger down payment so if the loan failed, the bank could still resell the house and cover the loan."
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Fourth, the Mortgage should be at a reasonable rate, say 6-7%.
Dito
The Secretary of the Treasury is an appoinment by the Executive branch. He was never elected to anything. Where does he get off deciding what is to be done with OUR money. I am 100% certain the bail-out will happen. How it happens is another thing entirely. Why do we not LEND these financial institutions the money with interest. The companies get themselves in order and then repay the Treasury with interest. An independent team appointed by the Congress oversees where the money goes and how it is spent once it gets there. They approve or disapprove where Paulson wants to distribute the money. They also report to Congress monthly and if there is any hanky-panky, the funding stops DEAD. And lest we not forget, executive compensation is limited and no bonuses until the money is fully repaid to the taxpayers.
I can dream, can't I?
I wish I could say STOP! You're scaring me!
But really, Bonddad - please don't stop! You are indeed scaring me - this is not what I had in mind when I started trying to learn economics - but we can't exactly close our eyes and hope it all goes away. We also can't close our brains and give theTreasury a huge wad of money for nothing specific, with no warranty, no oversight, no deliberation, and no idea what will happen to the money, the economy, or even Wall Street. At least when we sent a huge wad of cash - pallets of US bills - to Iraq, anyone with a brain knew it would vanish into thin air (and it did). Handing over $ 700 TRILLION bucks to the guy(s) who helped get us in this mess will buy a lot of nice vacations, planes, and dinners for them, but the rest of us will be no better off - and will probably be worse off - than before.
I'm in KY, and I'll admit that something I never thought would have happened has happened. I actually agree with one position Bunning has taken (no bailout). Eek! Maybe the sky really is falling!
This is a wonderful, excellent post, but I don't think that you needed to go to the effort to write all of this.
Once Paulson and the White House proposed a financial sector dictatorship outside of any Constitutional, court or legislative authority, I DO NOT BELIEVE THAT THE CONGRESS SHOULD WORK FROM THAT to reach compromises and agreements.
The entire bailout was immediately illegitimate and Paulson and his crew could not be trusted from then on, and impeachment hearings for the President and Vice President should have begun on Monday and been completed by tomorrow resulting in the removal of all of them.
Period.
The government is broken. The financial sector is broken. There is no solution to any of it with the President and Treasury Secretary and others that we presently have as leaders.
I agree, Impeachment of Bush and Cheney is the answer. WE THE PEOPLE need to act now, before Congress adjourns.
Unless it has ALL the provisions the dems want, I seriously hope they say thanks but no thanks to that $700B bridge to no where.
don't you understand that ANY infusion of a fiat currency into our system will kill our dollar?
so...fine.
unfortunately, we're faced with a. a severe recession that could last 1-2 years...pa
we need to examine the federal reserve's EXISTENCE.
look to our constitution, the answers are there.
Perhaps George W. Bush really is "a uniter, not a divider" after all.
Americans of all parties and political persuasions seem to be coming together to fight his most outrageous ever attempt to redistribute the wealth -- from the many to the few.
Yep you nailed it, this was just Bushes way to redistribute wealth.
Since Paulson would be able to use this money as he sees necessary and none of his decisions would be reviewable by ANYONE, what is stopping him from just pocketing 700 billion dollars and saying "problem solved"?
This IS the Bush adminstration, you know.
silly partisan, tricks are for kids....
"Allow me to issue and control a nation's money and I care not who writes its laws!". Amshell Rothschild
FROM THE TEXT OF THE PROPOSAL:
"Necessary Actions.--
"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."
So, if the Secretary determines that he needs to keep the money and that he needs to kill you to keep you from blabbing, that is authorized by the proposal, and your next-of-kin will have NO LEGAL STANDING for either criminal or civil prosecution of your murder.
Actually, as written, if Paulsen got what he asked for, anyone who challenged him could be legally executed if HE deemed it was "necessary to carry out his authorities".
Also, since ALL acts of Congress are "reviewable" by the supreme court vis-a-vis constitutionality, it would seem that this bill is unconstitutional on the face of it.
My guess is that it gets passed by Congress, and signed into law, with some minor concessions that don't get followed, and the Constitution of the United States is finally totally obscured with that last brown smear from the Bush Administration.
"I love the smell of burning parchment in the morning! It smells like Republican Victory!!!"
The core problem is that our economy is based on consumer spending rather than production. This is not a sustainable path. We need a new Civilian Conservation Corps, which would employ those without jobs, and teach them skills that will be viable in a nation focused on sustainability. They would then help people learn the techniques needed to survive in the years ahead. Reuse, recycle, compost, mulch, grow your organic food. Utilize Solar, biochar.
Whether or not the Bailout is passed, the economy is shot. It isn't based on reality. The reality is, our country is well on it's way to being a third world country.
If the bailout passes, the dollar will become almost worthless. If it doesn't pass, the bad banks will fail, and by extension, many will be lose jobs, and opportunities. Either way, our country is rushing headlong to a major depression.
If we buy into this bogus bailout, we are doomed for generations to a life of debt servitude. Just say no to more debt. Debt is not wealth.
Bad Banks will fail yes, but that is just nature taking its course. By weeding out the weak aka culling the herd, only the strongest survive to breed. There are quite a few strong banks out there to fill in all the gaps the weak banks leave.
So the Economic Armagedon the Mainstream Media is trying to sell you is no different than Noise that surrounded the passing of the Patriot Act days after 9/11, or the Grave and Gathering Threat Saddam Hussein posed in Iraq with mobile chemical labs, and Mushroom clouds. Now we have this BS and too many people are eating it up the same way they did the other garbage.
PLEASE WAKE UP
The Bailout is needed on Mainstreet not Wall st. Freeze Home foreclosures and set up a pool of funds state by state to help homeowners refinance their mortages. That should help stablize home values and neighborhoods, and as a result stregthen the bad paper that is out there.
Bailing Out Wall Street is TRICKLE DOWN ECONOMICS, and know that IT DOES NOT WORK
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