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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I understand that we are in the midst of a financial crisis right now; however, the constitutional crisis is much graver. We are still under an administration that has been making every attempt to strengthen the Executive branch and weaken the Legislative. Take away the power of the purse and any oversight on it, and we have no Congress left.
This may seem 'out there' but here goes...
What if Congress were not to adjourn. What if they told the President, "We'll keep working in Washington D.C. through this crisis, and when you need something, you ask. We will consider and let you know."?
They would not be able to go back home to handle their re-election campaigns, but wouldn't you vote for your Reps and Senators if they put this crisis ahead of their personal goals? I would.
Note: I am a true Independent and, thereby, have been hesitant to post on a Democratic site. However, I'm tired of seeing the supreme law of this land dismantled by people who swore to uphold and defend it. I guess it's time to pick a side.
I think you are really on to something here. This should not be decided before the election. The Iraq War resolution was put before the Congress just before an election and the decision was hurried and disastrous.
Fire at will, Ponderamos. Good post. The Huffington Post is happy to have you.
That bit about not reviewable "by any court of law or any administrative agency" makes me wonder if Paulson & Bernanke are acting in good faith -- or if they're simply assuming that in order to get their Wall Streeet executive and board member brethren to participate they must have pre-emptive immunity from crimes they will commit in the future and must have protection from civil actions by shareholders for gross neglect of their fiduciary duty?
They certainly know the moral character of those Wall Street "Masters of the Universe" better than I, and I wonder how I can get one of those "get out of jail free for all things I'm about to do" cards?
Fine analysis Stewart.. How this is done is crucial. Congress will not allow Section 8 (curiously an old military expression for being crazy) to stand, for myriad reasons. And "privatizing" the government takeover of Wall Street is absurd on the face of it. Send the guards home, the inmates are now going to run the prison.
But in all of it, your mention of how Bernanke intends to set a purchase price for distressed securities is the red flag. Buying up securities that the "perfect arbiter", the free market does not appear to be able to value at some arbitrary price that seems to assume value not in evidence is tantamount to theft. These security purchases must be made with the fact in mind that the purchase of them will "make" the market. And if that power of market making is not used to create value for the public as it would for a private concern making the same move, it should definitley be viewed as a welfare check for Wall Street.
I greatly enjoy your posts, Herrington.
Thought I might note that Section 8 is also a voucher program to assist very low income households in renting privately owned housing. All in all, Section 8 gets a very robust work-out.
Ha, nice catch. I am familiar with the Section 8 program in housing.
I have decided not only to oppose this deal, but to oppose ANY deal- especially one that has anything to do with any member of the Bush Crime Family. I would rather see the ugly bottom rather than bail out and enrich NeoCONservatives to any extent.
I want a total repudiation of Friedmanomics. I see the trolls still pushing this like those 'true believer' Nazi war criminals who went to the noose spouting the big lie and all the little lies.
I am also tired of hearing how it's 'all our fault' , because it is not. I do not owe anyone one red cent, didn't borrow any money during the bubble and didn't overpay for a McMansion in a gated community. I say screw 'em all- most of the sheeple suckered in on subprime were social climbing whites rushing into gated communities or white-flight suburbs who fancy themselves Republicans. Since they are so 'eye for an eye' and 'law and order', let's let them stew in their own financial stew and see if Joel Osteen or some other snake oil prosperity preacher can con God into healing their checkbook.
Amen, bro, and pass the ammunition. I don't want to sound self righteous, but I will pay off my 15-year mortgage 10 years early next month. I did it by making 2-4 mortgage payments each month and I have not taken any vacations or bought any crap that I don't need and can't afford over the past 5 years. Americans used to do this sort of thing all the time. Tighten your belt, sacrifice, and, voila, you own your own house. So why should those of us who have been frugal, responsible, and intelligent bail out those who were irresponsible spendthrift morons? I also want to quote a plank from the 2008 Republican Party platform: "We do not support government bailouts of private institutions. Government interference in the markets exacerbates problems in the marketplace and causes the free market [sic] to take longer to correct itself." Word.
I've decided I can support the bailout on one condition: Bush and Cheney both resign and allow Nancy Pelosi to assume the Presidency for the remainder of the term.
We all know that's not going to happen, so I can not support the bailout.
Great analysis, Blackbird. I assume you are calling for a Bush/Cheney resignation only because it's too late to demand Clinton/Gore to resign. If you would take off your ideological mud-colored glasses for a second you would realize that a large part of this problem is the push for lenders to provide "affordable" mortgages.
The other half is clearly due to Henry Paulson and his crowd creating "markets" in these sham securities and trading them in volumes far beyond their ability to support them with liquidity.
Does anyone doubt that one of Hammerin' Hank's first bail-out targets will be Goldman Sachs? Conflict of interest anyone?
I will vote for Obama if Nancy and Harry resign. I bet a lot others would too.
One basic piece of logic has been lost in this fear mongering about the great depression 2.0.
The houses are already built. And houses are tangible items that people actually want. If these banks fail and have to sell these houses at a firesale it would only hurt for a short time.
Don't bail out the banks. Let them fail. Use the money to recreate the economy by investing in infrastructure for better transportation, energy, and water desalination.
I believe this issue to be a threat to our constitutional republic. The $$$ amount is staggering ,however it could be used as a pretense for an even worse event: The cessation of constitutional rights to preserve Continuity of Government .
Under the new National Security and Homeland Security Presidential Directive (2007). If congress does NOT act , section G of this directive under the guise of "Continuity of Government" allows the president to to force it down our throat, and more.
Full text is here: http://www.whitehouse.gov/news/releases/2007/05/20070509-12.html
Section G in the implementations portion states:
(g) Protecting and stabilizing the Nation's economy and ensuring public confidence in its financial systems
This crisis would grant the president powers well beyond what is constitutionally legal . In my opinion America could become a dictatorship for the duration of said crisis. And considering this administrations record on the Iraq war, we could be in for months or years of continued Bush rule.
The directive is there, I pray it is not invoked.....
I just read in my local paper the Salt Lake City Tribune that my US reps are against this. Thank God. I hope they stand firm and vote no. It's junk and nothing will change. It stinks to high heaven. Let Wall Street bail themselves out. The only bill I want to see is one that puts regulations back in place so this doesn't happen again!!!
Ron Paul is on CNBC right now, asking Bernake where is this money going to come from ? China?
Are you going to make it out of thin air?
Very good.
Give em hell Ron
Sen. Pete Domenici is speaking - vote yes for this package even if it costs you your election. see Cspan2 - this has got to be the most bizaar situation since - i don't even have a precedent to pull from.
Vote nov 4 - convince obama to wait on this bailout - call your reps tell them you don't agree withthe bailout..consider this -the current adminstration has had this proposal for 2 months...pre-october surprise...
be sure not to wear any campaign material when you do vote - some states consider t-shirts - buttons etc. as campaign material...you could lose your right to vote. Wear something BLUE is okay...everyone will get the message.
I intend to vote wearing sackcloth and ashes, with a white hood over my head and an owl perched on my shoulder.
It appear that users of HP are following your advice & contacting members of the congress to oppose the overly generous bail out & giving Hank Paulson power to act as economic czar. When W sends Cheney to individual Republican members of the congress to talk up this power grab & give away, the measure is in deep trouble.
People need to march on the Capital and demand answers from their representatives. Call them! Go to their office! This legislation can not pass, and furthermore, anyone who was involved with creating it should be immediately removed from office. This is a threat to our national security. They are taking our Constitution and flushing it down the toilet--and doing it the Bush way, through FEAR! He says that if they dont act NOW the world will implode. Our representatives should be ashamed of themselves for even considering this attempted hijacking of our Constitution.
As the Republicans project their own stupidity onto the public, it's amazing to see how stupid they really are. The national dumbing down through the idiot box has been frightfully effective but thank god it's hasn't reached the level the repubs think it has, at least for the time being.
The ability to manipulate through high def tv is a terrifying future prospect. Sanity doesn't begin until the box is banished.
A quick synopsis of what this buyout does:
It is simply an offer, for the federal government, to buy the bad loans from financial institutions at market rates so they will feel confident about offering more loans to each other (and the American people) but does nothing for the people directly. Again...it is simply to instill "confidence" for the banking industry. Nothing more.
I think I would have a great deal more confidence in the banking industry were I not being told that they needed seven hundred billion taxpayer dollars to remain in business.
Investment banking is different.
Nobody has discussed who will be buying the "distressed assets" from the government, and at what prices they will be sold.
I would be willing to bet that Paulsen will pay 50 cents on the dollar, then sell it back for 10 cents.
How about some rules regarding inside deals, huh?
Poulson gave the congress a 3 page bill that told them nothing. It turns out the bail out is for overseas companies, healthy companies, bad paper, etc. The list is endless. This stinks to high heaven. I say contact your US reps and tell them to vote no to this piece of junk. Let Wall Street bail themselves out. As for people who took liars loans out, well go to their lenders and work it out themselves. For those of us who were responsible, why should we be held responsible?? I say we shouldn't be. The Bush WH has used this rush tactic to many times and look where that has lead. Say no to this bail out.
EXactly. There is a precedence for this in that bailouts in past have led to insiders buy assets at firesale prices. So guess who would end up owning a large portion of RE and would become the major Lords over thier renter Pee ons.
Another thing Buffet is a JA but he is smart to invest in Goldman Sachs because they just might get to control the 700 billion. Which is essentially a hand inside our own treasury
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