Read It and Weep for the USA 33 comments
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The New York Times has the Text of Draft Proposal for Bailout Plan. Given this is legislation, under fair use terms, here is the complete draft. My thoughts follow.
LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY
TO PURCHASE MORTGAGE-RELATED ASSETS
Section 1. Short Title.
This Act may be cited as ____________________.
Sec. 2. Purchases of Mortgage-Related Assets.
(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.
Sec. 3. Considerations.
In exercising the authorities granted in this Act, the Secretary shall take into consideration means for--
(1) providing stability or preventing disruption to the financial markets or banking system; and
(2) protecting the taxpayer.
Sec. 4. Reports to Congress.
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.
Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.
(a) Exercise of Rights.--The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.
(b) Management of Mortgage-Related Assets.--The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.
(c) Sale of Mortgage-Related Assets.--The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.
(d) Application of Sunset to Mortgage-Related Assets.--The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.
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
Sec. 7. Funding.
For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.
Sec. 8. Review.
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.
Sec. 9. Termination of Authority.
The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.
Sec. 10. Increase in Statutory Limit on the Public Debt.
Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.
Sec. 11. Credit Reform.
The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.
Sec. 12. Definitions.
For purposes of this section, the following definitions shall apply:
(1) Mortgage-Related Assets.--The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.
(2) Secretary.--The term “Secretary” means the Secretary of the Treasury.
(3) United States.--The term “United States” means the States, territories, and possessions of the United States and the District of Columbia.
Weep For The Taxpayer
Notice that this bill raises the national debt. Notice that the bill is supposed to take into consideration "protecting the taxpayer".
The reality is this bill does not and cannot protect the taxpayer. Rather this bill only promises to take the taxpayer into consideration. The Treasury will indeed take the taxpayer into consideration, then immediately discard any such ideas.
Inquiring minds are also noting "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."
The idea behind the above statement is to allow for a continual dumping ground such that there will always be $700 billion in toxic garbage held under this program. As soon as any asset can be unloaded by the Treasury at cost, another toxic loan is eligible to be assumed on the books of the Treasury. This process can last for as long as two years.
Unconstitutional Provisions
Pay particular attention to section 8.
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.
Essentially the law will state that whatever the Treasury does it is above the law. Such a provision is undoubtedly unconstitutional.
It's time to Weep For The Free Market (or rather what little free market the US had left).
Weep For The Unites States of America
At taxpayer expense, Bernanke and Paulson are willing to bail out their banking buddies at enormous expense to the average taxpayer of this country. Bernanke and Paulson both should be fired. Instead Congressional sheep will baa 'yes' to this bailout and Bush will baa 'yes' when he signs it. It is a sickeningly sad that day for America that Congress will go along with this proposal that makes theUS Taxpayer A Giant Dumpster For Illiquid Assets.
$700 billion will be wasted by this program, and it is $700 billion the US does not have to waste. I ask that everyone vote against any congressman who votes for the passage of this bill.
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gloriapoole-RN.com. Thanks.
The ultimate result of this plan could be to drag the US treasury credit rating down to junk bond status, so we will be a Subprime Nation.
That does not mean subsidizing bad investment and contractual actions by the money center banks and investment banks.
For instance, what kind of collateral are being put up for loans by the Fed ? (for example, the loans to JP Morgan and Lehman). How is the U.S. government going to participate in recovery of equities in the financial sector (if and when ).
If the U.S. government simply hands the money over, no questions asked, the whole process ends up sounding like an extortion, or payoff.
i will however give credit to bush for his corporate fraud task force - that and the dept. of justice have done a good job and did restore some faith in the system.
As for me, I approve of the plan as written except that I would want more oversight written in. There is an urgent financial crisis. It can be ameliorated by rapid action.
As to the Democrats' wishes to protect 'Main Street', I'd rather that they pass Paulson's plan first, assess the crisis and then pass a subsequent plan to assist 'Main Street'. As I said, deal with the crisis as rapidly as possible.
Deep down everyone knew that the financial "laws of gravity" were being violated by the real estate market. Like a ball tossed up in the air, "hey, there is no evidence of gravity half the time."
Paulson, Bernanke, Greenspan, et. al. suspended their professional disbelief when it was their job specifically not to. In the non-banking private sector, a.k.a The Real World, they would have been fired long ago.
Everyone, everywhere (Mish being one exception) parrots the line, "the alternative is much worse" - when is someone going to demand evidence that this is the case? Are we just going to do this on faith? Faith in the same people that predicted "the economy is sound" as far back as last Friday?
The free market is supposed to be self correcting. Isn't this what the market was doing until this past Wednesday?
Let the system collapse, allow these banks to fail, maintain the relationship b/t risk and consequence. Nothing is "too big to fail"... not government, not the $USD, not the global financial system.
Alternative proposal? Do nothing. Allow the natural course of events to unfold... messy? yes. painful? yes. Is short-term anarchy preferable to a never-ending string of bailouts at the taxpayer's expense? yes, absolutely.
Continued, unquantified bailouts of the world's wealthiest institutions is the worst possible course of action. All available evidence up to this point in history is clear... postponing the inevitable only makes matters worse.
oh and by the way kudos also to the IRS for shutting down and prosecuting the fraudulent tax shelters peddled by so called 'prestigous professional firms'.
It is not the job of he Amrican taxpayer to bail out anyone. If these institutions are grown up enough to collect billions in revenue, they are grown up enough to lose billions in revenue.
I honestly do not feel our economic system will melt down if this all fails and we should demand more of an explanation. I feel there is good money out there to buy distressed companies at bargain. The world WILL keep spinning and a natural correction will take place.
I also feel the justification and scare tactic of "the alternative to bailout is far worse" is eerily similary to the leaders of Fannie Mae and Freddie Mac who refused to change their lending standards. Their scare tactic was "taking away homes from the American people" if they were to be held more accountable.
Our leaders and complete system in this country are trash.
I truly believe we are watching our country disintegrate as we speak.
America had the competitive edge with Europe and China, precisely because of its investment banking. America can fund futuristic technology better then any other country because of it far sighted investment banks. So the first attack was launched on investment banks by drugging then with cheap returns and taking extreme bets with instruments they all did not understand.
The second step is get the Govt to commit to saving all Americans and corporations, although technically impossible, by bailing out and getting saddled with debt that will take several generations to pay if the mortgages assets continue to correct another 20 percent.
What is needed is a return of the equity rescue by investors who need to be confident that the US govt will not interfer by wiping out equity. Reality is no amount of bailout or loan can save this country. Only equity have the scale to rescue this country. So what is needed is confidence that the capitalist system must be respected and regulated fair play
Good luck and God Bless
And secondly, can I just mention how angry it makes me that Paulson gets away with saying that this plan will be 'cheaper' for the taxpayer than any other?! How the &***%$# does he know? NO one knows what it will cost, and it will take years to really see the full, horrible impact. By then, B&P will be sunning themselves at their foreign beach houses somewhere.
Its not the end of the world with this 'bailout'. It allows the economy to move on, ringfences the problem and provides a systematic way of resolving the problem.
The problem with America is that it has to eat humble pie with this proposal and Paulson has so bravely admitted that it was a humbling proposal. The US was the most vehement in opposing then Malaysian prime minister (Dr Mahatir) when he instituted capital controls to protect the Malaysian currency, banned short selling and set up a state owned vehicle to bail out the Malaysian banks. Likewise, Indonesia, Japan, Korea, Thailand had similar plans.
Life for these countries have moved on since. And for the people, it was a well deserved lesson and the result was much stronger balance sheet and a less reckless attitude to leverage.