If the Bush administration has its way, anyone harmed by the Treasury Department's handling of the $700 billion Wall Street bailout might have no remedy.
Draft legislation proposes sweeping powers for Treasury Secretary Henry Paulson to buy and sell mortgage-related securities however he sees fit. Aside from requiring periodic reports to Congress, the bill provides no oversight of the bailout's management -- and specifically bars any court or agency from reviewing it.
There is no mention of any accountability in this bill. Much like the problem that got us in this mess -- no oversight -- the exact same problem continues throughout the bailout.
Let's look at some other glaring problems:
Treasury will have authority to issue up to $700 billion of Treasury securities to finance the purchase of troubled assets. The purchases are intended to be residential and commercial mortgage-related assets, which may include mortgage-backed securities and whole loans. The Secretary will have the discretion, in consultation with the Chairman of the Federal Reserve, to purchase other assets, as deemed necessary to effectively stabilize financial markets
Like -- what other kinds of assets? How about a car owned by the president of the IMF? That's an asset, isn't it? This is way too broad an authority to anybody.
Reporting. Within three months of the first asset purchases under the program, and semi-annually thereafter, Treasury will provide the appropriate Congressional committees with regular updates on the program.
So -- twice a year we get to hear how out tax dollars are spent. That will probably mean it will be accompanied by some report. But that's it. That's just not enough.
To qualify for the program, assets must have been originated or issued on or before September 17, 2008. Participating financial institutions must have significant operations in the U.S., unless the Secretary makes a determination, in consultation with the Chairman of the Federal Reserve, that broader eligibility is necessary to effectively stabilize financial markets.
Basically, the Treasury Secretary has the ability to determine anybody is eligible if be sees fit. It's hard to see Bernanke disagreeing on anything Paulson says.
The bottom line is this bill is replete with statements of "The Treasury Secretary's discretion". That's just not going to work when somebody wants $700 billion.
I would encourage you to please read what others have written. Every major econ blog has a post (usually two or more) on this very important bill.
5 comments:
I've read plenty of articles on how we got into this mess, and several on what should be done to get out of it, and a lot of people are shouting that we have to act NOW or really bad things will happen, but I haven't seen anything outlining specifically what really bad things will happen, and to whom they will happen if investment banks are made to live with their own poor investment choices.
How would such a scenario likely affect the average American?
The U.S. Congress was stampeded by the Bush administration (using false arguments) into attacking Iraq.
Are we seeing a replay of that stampede, only this time with the economy?
Granted, the economy has a big problem (just as it is true the U.S. was attacked on 9-11-01), but do the problems warrant handing over $700 billion+ dollars to the Bush Administration to do with however it wants? Didn't we learn what the Bush Administration does with our money when it gets its hands on tons of it? It literally lost billions in Iraq, and gave millions to Cheney's former employer Halliburton. Will Goldman Sachs (Paulson's former boss) be the next Halliburton?
Toxic legislation for toxic investment schemes.
Seems about par for the course to me.
I wonder how Section 8 (how appropriate) will stand up in light of Marbury v. Madison.
I’ve been looking for the adult in this whole credit cleanup mess. Yes, we know that something needs to be done. What is especially alarming, however, is that suddenly, Secretary Paulsen is acting like a used car salesman in wanting a decision tomorrow. Requesting the blessing of Congress of oh, only about 700 billion dollars from our Federal Reserve, and right NOW, is very telling. It signals alarm and helplessness on the part of the officials we expect to have a handle on economic matters.
Here’s what the adult needs to do now:
1. Find out the true value of the financial mess that needs to be bailed out. About $700 billion is not good enough. We need to know WHO will be bailed out and what the ACTUAL COST WILL BE. To say we don’t have enough time to determine this is crazy. No bank would make a loan if they don’t know whom they are making the loan to or the amount they are loaning. Our Federal Government cannot make a loan of this proportion without this information. If we have to close down the markets for two weeks or two months in order to find out, so be it.
2. Set up regulations on the institutions that are to be bailed out. Among these are of course, restrictions on the amount of compensation to be given to the CEO’s who allowed the bad decisions that drove them to insolvency. No money will be used for political lobbying is another necessary regulation.
3. A fund must be set up to insure that diligent homeowners will not have their mortgages foreclosed due to inflated interest rates or the failure of the economic policies that allowed this major crisis. All mortgage holders who are earnest in wanting to keep their home mortgages must be given the opportunity to refinance at a rate that is fair.
4. Regulations on future lending practices need to be completely examined, loan packaging, stock market practices preventing naked selling and restoring the uptick rule, regulations on other shoddy behavior of hedge fund managers all need to be addressed, but not as part of the immediate crisis.
Let’s be adults about this. Surely America can withstand this financial crisis. Surely we can be calm and thoughtful in making these decisions. We do not need to hurry into a frenzied, sloppy attempt to correct a situation that has been a long time in coming and will take a long time to repay. There is always time to think through a situation and come to a rational decision.
Now that Goldman has eliminated 3 of its top competitors, its promoting a bill that will bail out most of the toxic bonds IT has bought or will buy at a discount and have the taxpayers redeem them at full value. That should make Goldman another $500 billion.
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