Treasury's Plan Is Breathtakingly Awful 52 comments
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Okay. Let's leave no room for ambiguity here. The Treasury's draft plan for saving the world is breathtakingly awful. It would give the Secretary of the Treasury entirely unchecked discretion over up to 700B dollars. Even that "limit" has a loophole big enough that you could drive a truck through it, so the Secretary could in effect spend up to 1.8T dollars, right up to the newly raised Federal debt ceiling, without further Congressional action. This act would be such a wholesale delegation of the power of the purse that I wonder whether it is even constitutional. Of course, the act explicitly puts the Secretary's actions beyond any judicial review, so perhaps questions of legality or constitutionality are merely academic. (Paul Campos shares these concerns.)
As Paul Krugman has pointed out, for the plan to help insolvent institutions, the Treasury would have to overpay for these assets. Yves Smith unearths an account that Secretary Paulson has acknowledged this fact in private, although he won't cop to it on the Sunday talk shows. It is almost old-fashioned to raise questions about whether or not the former Wall Street banker will offer sweetheart deals to his industry (an industry that has harmed the American economy more deeply than most people realize). Just as big lies boldly asserted can trump plausible untruths nervously defended, overt corruption on a massive scale (but "in the public interest") might leave a lot of naysayers dumbstruck. It becomes the way we do business. Of course, none of Dean Baker's progressive conditions, none of Brad DeLong's dealbreakers, not even my plea for a little transparency are incorporated into the proposal.
The oldest technique for the usurpation of power by the executive from the legislative is the manufacture of a state of emergency. That is not to say the present financial crisis is not actually an emergency. But the how the crisis is understood by legislators and the range of options by which it might be addressed have been set by Messrs Paulson and Bernanke. They have presented a single option, one more radical than seemed reasonable even at the height of the depression. (ht Brad DeLong)
It is worth noting that Paulson and Bernanke have thus far proven themselves to be capable technocrats. (Although, as Dean Baker points out, they've been awful prognosticators.) There's a lot to disagree with in how the dynamic duo have handled the torrent of crises that began last August. But they have acted aggressively and creatively, and in their ad hoc interventions so far, they've gone to some lengths to create upside for taxpayers and to squeeze miscreants at least a bit. Until reading the text of the Treasury's proposal and stewing on it overnight, I was inclined not to fight too hard. I saw things as I'm sure legislators see things: Something must be done, a megabailout is disagreeable and imperfect, but it's something that we can do quickly, and it's what our experts, whom we trust, recommend. Let's fiddle at the margins to get it done as best we can.
But the proposed text flipped a switch in my brain. This is not, as Senator Schumer put it, "a good foundation of a plan that can stabilize markets quickly”. It is a raw arrogation of power. My trust, my willingness to extend the benefit of the doubt, has evaporated.
This is overreach. This is bad.
See also... Glenn Greenwald, John Hempton, Sebastian Mallaby, David Merkel, Robert Reich, among many, many others, I am sure.
For a contrary view, check out the always thoughtful knzn. I disagree pretty strongly, but he's always worth reading.
FD: I am short broad stock indices, which seem to like the prospect of a bailout, so opposing the plan might seem self-interested. But I am longer precious metals and I'm short long-maturity Treasuries. My guess (and of course it is only a guess) is that those positions would do well under the plan.
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www.nytimes.com/2008/0...
Anyways, this is what brought me out of my apathy, getting turned on to an amazing man fighting for us, Karl Denninger who put up this 10 min video that lays out what happened to our financial system from banks down to us these past 5 yrs in a comprehensive, logical manner;
www.youtube.com/watch?...
Here is the SOLUTION he posted today, September 21, 2008. Very important - Watch this:
www.youtube.com/watch?...
Again this solution is a document you can read through and has been submitted to the senate this weekend. It has been hand-signed and distributed to each member of the Senate Banking Committee and hopefully is considered there.
This is the solution & the best, realistic shot at starting to address & fix the problems we are facing today. All I ask of you is to check out the videos, consider it, think about it, discuss it, share it with others, distribute it please. At the very least this will create much needed discussion amongst us for a realistic solution today or at the very best it will lead to the first step in many to halt a finacial collapse & stop a government shutdown on the people, preserve our ability to financial prosperity and ability to get a job (a good paying one in this country), and provide an example for others to follow. It can lead to a much brighter future for our ourselves, our families, and friends.
Please tell me what you think and copy/paste this to others you know.
Thank You,
Pete
(I had not had any communications with Karl Denninger, however since he moved me to get out of my seat & do this, I copied and pasted this message to him and I hope he appreciates this message as a token of respect to the message he is fighting to get out to the rest of us).
Given that the global financial turmoil could turn into a global economic implosion,the broad powers given to the Treasury are the
necessary evil in order to address potentially systemic financial Armageddon.
Mr.Paulsen ,as a banker certainly comprehends the issues and the necessary resolutions of the problems.
Perhaps some mistakes will be made but there is no doubt in my that the "stability plan" will be effective in addressing the "financial bleeding" .
The time for concern was two years ago.Now the expressed concerns are waste of time.
Proposed solution is effective and with time may have effective zero cost.
Failure to implement this solution will lead to a systemic failure and global economic implosion.
On the other hand ,implementing the proposed program will contribute to a major economic rebound and unprecedented stock market rally.
More importantly it will keep Americans working.
will move house prices up again, (with all other prices of course) ...
There is no accounting in the bill because Paulson is the most accountable/liable for this toxic paper.
He created derivatives on derivatives while at Goldman, all roads lead back to King Henry.
Long live the King!
Prepare for the wholesale criminalization of all manner of political activity; the only way this kind of usurpation of power by the executive can persist is with aggressive clampdowns on dissidents. This too will be rushed through a compliant congress under the guise of some emergency ("domestic terrorism" seems a good bet).
Thomas Jefferson, I believe, wrote that from time to time the tree of liberty must be fertilized with the blood of tyrants. In November we have the opportunity to "spill their blood" peacefully by kicking out every single member of the House of Representatives, and 1/3 of the Senate. In my opinion, anyone who votes for an incumbent this year is absolutely as much of a treasonous monster as the 535 people who currently sit in office. And yes, that includes McCain and Obama. These people are actively working to destroy YOUR life and YOUR potential prosperity in order to line the pockets of their campaign contributors. That is the simple, unavoidable truth. Vote them out.
I don't care if you are a short seller, democrat, republican or hari krishna.
Giving one guy (that helped contribute to the mess) unchecked authority to bailout financial service firms is BS.
Merrill Lynch was able to sell a huge pile of their bad assets (prior to the BofA acquisition) at 15-20 cents on the dollar -- proving the assets are liquid at the right price.
Henry Paulson spent the summer of '07 telling us the subprime debacle was well contained. He spent the summer of '08 telling us that Fannie/Freddie were well capitalized and in no need of a bailout.
Now Paulson is telling us he is going to buy assets that are clogging up the system.
(1) if the banks were willing to sell at a price that would yield the taxpayer a reasonable profit, smart money (Buffet, Blackstone, Carlyle, etc) would have already done it
(2) if Paulson offers a "fair" price (where the taxpayer neither profits nor loses), there is no reason for banks to want to participate. There is already liquidity at these prices
(3) Paulson will need to drastically overpay for the assets. This is the only scenario in which the banks are "helped". It also results in hundreds of billions in losses to be paid for by the taxpayer.
And just to add insult to loss, Paulson wants to be named defacto dictator. Able to spend taxpayer money however he sees fit, without any oversight.
Throughout the history of Wall Street, the "big names" have changed many times -- so I really wasn't worried that, once again, the big names are changing. Its a little scary while it is happening, but in the end it has historically worked out for the best...
...but now I am really scared for the markets and for America. We don't need a dictator, period. We don't need an ex-Goldman CEO bailing out his crony friends at taxpayer expense.
This is a disaster.
I'm no longer sure it's such a daft question, particularly if you put what is planned into the broader context of post-9/11 curtailments on personal freedoms. Boiled down to basics, is Congress not handing between $700B and $1.8T to one unelected and unaccountable individual to spend as he chooses, based solely on the armageddon scenario put to them by this same individual? Things are certainly bad, but I doubt anybody writing on or reading SA has any more idea than I do whether they really are bad enough to justify what must surely be one of the most significant tears in the fabric of American democratic accountability since the redcoats were (quite rightly) booted out. We might argue about whether or not 'coup' is too emotive a word, but quite clearly something very profound is happening to the American system of democracy this week. For those of us overseas who - despite Iraq, Bush and one or two other 'missteps' - still admire what the United States and (most of) her people stand for, it is deeply worrying.
Sorry folks, you will not be allowed to destroy the American financial system to fund an even bigger yatch for your cruises to the Caymans. You wanted it to be about raw firepower and confidence, fine it is about faw firepower and confidence. And we have it, you don't.
Give it up already. Nobody cares what you whiners think anymore.
This isn't about free markets. Its about FREE anything. Its another case of the erosion of our rights and our way of life by an administration and its party apparatus and its stooges and bureaucrats who are interested in one thing and one thing only - unlimited power for themselves and their business partners.
And they will manipulate, and lie, and intervene, and fail to disclose the truth, and do all the things that totalitarian governments do to "protect" their citizens.
They spy on us "to keep us safe", they lie about the reasons to go to a monstrous, costly war to save us and our children from what they knew to be a lie (costly in lives and grievous injuries, in so many sad tragic ways besides the obvious huge financial cost) and now they want to "save" the American people, the taxpayers, from the financial armageddon that they themselves let get out of control through denial, and lack of transparency, and greed, suddenly the administration spin machine says it is "to save the American people, to save the taxpayer".
Save us from whom? Ourselves?
I'd rather be saved from THEM.
If they had cared a good goddamn for the American people, for the taxpayer, we would never be in this position in the first place.
This is in fact the latest step in the enslavement of the American people by big government and big business, the latest piece of the American myth to be stolen from its citizens, and make no mistake, when they take something, its gone for good.
We the People and our US Constitution are heading down a long, slippery slope here, and our government is not our ally.
I do not think we can survive much longer if they continue to save us from ourselves.
Keep your eyes and ears open citizens, its a long way to the election. If they can't succeed in saving us from ourselves, they may just decide there's no reason to have an election at all.
We are on the brink of a police state, and these are evil, terrifying people we are up against.