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Subject: $700Billion, Bail Out draft proposal as it stands today.....
RockyMTNClimber    9/22/2008 5:49:10 PM
ht***tp://www.nytimes.com/2008/09/21/business/21draftcnd.html?_r=1&oref=slogin 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 purchase
 
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RockyMTNClimber    ht***tp://corner.nationalreview.com/post/?q=M2IxN2FiNjgzZjQwM2ViMjExMmY4OTYyYTgyYzM3NjA=   9/22/2008 5:51:49 PM

Sunday, September 21, 2008


The Bailout   [Yuval Levin...]

Everyone should read the actual text... of the proposed bailout plan the administration is sending to Congress. It?s clearly not a final version (the part about only purchasing from financial institutions headquartered in the US has already been changed, as Kathryn notes... below), but it?s the essential shape of the proposal. See if you can read through the whole of it without concluding that everyone in Washington has lost their minds.

I?m not an economist, and I wouldn?t pretend to be one, but just as an observer of Washington, and as someone who has worked on the Hill and at the White House, it is simply apparent from this draft that this program will get completely out of control very quickly. It gives the Secretary of the Treasury essentially unlimited power to use $700 billion to make purchases the scope of which is defined very loosely and vaguely. It even says:

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.

Even if Hank Paulson were the all knowing god of economics, would it make sense to give this kind of power to the treasury secretary for the next two years just forty days before an election? Shall we go through our mental list of who an Obama administration (or a McCain administration for that matter) is likely to put in that post? And doesn?t it make sense to establish some kind of process for deciding how specifically to use the money? To put in place some criteria of prioritization? Some real-time oversight?  Isn?t transparency crucial to the proper functioning of our modern financial system? And how is everyone in both parties suddenly satisfied that this approach is the only one that could work?

Most of us are in no position to question the view, espoused by just about every economist heard from in the past few days, that some serious action is called for and soon. But the way this is all being pushed through, and the character of the proposal itself, are deeply disconcerting.

 
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RockyMTNClimber    Who will benefit?   9/22/2008 6:06:29 PM
I guarantee you that the people who caused this problem will get the first opportunity to buy these securities at pennies on the dollar. ie: Big Bank A who has contributed faithfully to Dodd, Biden, Barry Hussein, and company will sell a Billion Dollars worth of marginal mortgage notes to the newly created $700-Billion Bailout agency for say $1 billion. The $700Billion Bailout agency will then sell the same portfolio back to the Big Bank A for $100million (thus "liquidating" the bad notes). This transaction will not be arms length, it won't be based upon the marginal market price for the "liquidated" notes, and it will be based upon the same political cronyism that caused this problem to begin with. The US taxpayer will loose $900million in the transaction (financed by the PLA, Saudi's, and other reliable friends of Washington).
 
What happens to the "liquidated" bad notes? Big Bank A will sell them off for about $700million (their 1 billion dollar original value less the 30% of bad notes inside of the portfolio), Big Bank A will loose their bad portfolio, have their stock values supported by the US taxpayer, and pocket their $600 million profit (Of course a significant percentage will be set aside for use in future political contributions). I predict allot of politically connected beltway vultures will suddenly get into the mortgage securities trading business......
 
Check Six
 
Rocky
 
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VelocityVector    Rocky   9/22/2008 9:31:32 PM
It's a pretty sick joke on the US taxpayer.  We absorb the risks but do not participate in the upside reward post recovery, as this is being reserved for the malfeasants, cronies and other large investors.  If instead Treasury would force the sale of these companies through share acquisitions instead of debt buys, the taxpayer would benefit when the shares appreciate and pay dividends, which they will.  In addition as majority holder Treasury would dilute the payday those large investors and management types could potentially reap thus meting out a just punishment.  The taxpayer would spend less going in and the same level of stability could be achieved.  Now, we're just setting our country up for a repeat later on.

v^2
 
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PowerPointRanger    Typical   9/23/2008 12:16:10 AM
Well, President Bush is going out the way he went through his administration: throwing around a lot of tax-payer money and expecting people to love him for it.
 
Like most folks in Washington, he forgets just all that money is coming from.
 
 
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RockyMTNClimber    3 questions not asked here....   9/23/2008 11:30:02 AM
 
The scariest component of this "bail-out" is the broad authority given to the executive branch in this legislation. If used sparingly I suppose that it could all just work out. I don't for a minute trust this administration to make the right calls here and I positively shiver at the thought of a Robert Reich's use of this kind of power (Barry Hussein's big time economic adviser and midget friend of Bill who helped get US into our last genuine recession). These problems are the direct result of Federal intervention in the markets and it is kind of like allowing a bank robber to set up bank security after the hold-up. Me thinks it won't work too well.
 
Quoting from another fine National Review Online article at:
   ht***tp://article.nationalreview.com/?q=ZDNkOTc5ZTY4YTlkMDkyMDY3MmI1NTk5ZjZmZDkxY2U=
 
Three questions we might ask are:
1. Is it needed?
2. Will it work?
3. Is it the moral thing to do?
 
I for one would love to see an in depth discussion of the process here complete with flow charts and accountability. I am a big boy who deals with accounting numbers all day long. Taxpayers have a right and a responsibility to get a peek at this shenanigans. I can handle the review and so can the rest of my countrymen (and countrywomen). Absent a real discussion of the minutia of this proposal, I consider it a ill concieved, panic response, that will launch US down a slippery slope that will result in absorption of the financial markets into the USG. In this case the cure is a bullet through the patient's head to stop the growth of the tumor.
 
Bad idea.
 
Check Six
 
Rocky
 
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FJV    Grrrr   9/23/2008 12:40:27 PM
Most of the TV, news media and the internet media are selling me BS about the subprime crisis. (as usual)
 
They make it appear as if the US is giving away that 700 Billion without any strings attached. This is not what is actually done. It is more complex and nuanced than that.
 
Source:
"http://en.wikipedia.org/wiki/Subprime_mortgage_crisis"
"http://en.wikipedia.org/wiki/Subprime_crisis_impact_timeline"
 
"On March 16th 2008, JP Morgan Chase announced that it would buy Bear Stearns for $236 million or $2 a share, those same shares a year earlier were trading at around $150. Later, on March 24th 2008 JP Morgan Chase increased the offer to $1.2 billion or $10 a share and five days later the acquisition was approved. In order for deal to go through JP Morgan Chase the Fed to issue a nonrecourse loan of $29 billion to Bear Stearns This means that the loan is collateralized by mortgage debt and that the government can't go after JP Morgan Chase's assets if the mortgage debt collateral becomes insufficient to repay the loan."
 
Notice the word loan in the paragraph? Now that's quite a different story from what the news is implying !
 
I'll be honest, I cannot tell you wheter the measures taken are stupid or smart. I would have to do a lot of difficult grinding background research to actually make some sensible statement. I would have to develope a detailed knowledge of how these loans work. What I can see though, is that the aforementioned media are dumbing down what is really happening to the point of that their stories are of no use to me.
 
 
 
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Wicked Chinchilla       9/23/2008 12:58:36 PM
I saw this yesterday and it made me mad as all hell.
 
700 BILLION dollars with NO oversight?  NONE?  Thats BS.  It gives way too much power to the treasury with this money and without any type of review.  These people we are gift wrapping our children's futures to already lost how many trillions and we are going to hand them a blank check blind folded?  I dont think so.
 
It also sets dangerous precedent for specifically writing laws without over sight.  Its a horrible, horrible bill.
 
To top it all off, today when Paulson was asked why they needed all of the 700 Billion now, all at once after they had stated they were going to use it in installments Paulson could not answer the question.  THAT has me mad as well.  They are demanding this insane amount of cash without any good justifcation or reason.  No one in this country should be comfortable with that. 
 
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Jeff_F_F    Time for a backlash   9/23/2008 1:28:25 PM
Maybe a depression is exactly what we need--or at least, what we can use--to take back control of this country. The last one gave FDR the opportunity to create the massive executive bureaucracy that is creating the problems we are experiencing under the pretext that it was what was needed to get the country out of such a depression and prevent them in the future. Now we see the possibility that this paradigm is going to be the very thing that drives us into a new depression. Consider the following information about what Americans believe, and contrast those beliefs against the actions of our government.
 
44% of Americans oppose the plan while only 25% support it and,
While 35% of Americans think it will help the economy even though it might be the wrong thing to do, 30% believe it will actually hurt the economy
 
Just 7% of Americans believe that troubled financial firms should be bailed out, while 65% believe that the firms should be allowed to go bankrupt.
(www.rasmussenreports.com/publi...)
 
If the financial situation continues to deteriorate or does not dramatically improve over the next year or two, you can bet that there will be some seriously unhappy people out there. Maybe enough to either force one or both of the two major parties to change things, or to allow a 3rd party to draw enough support to replace one of them.
 
 
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serpentx777    .   9/23/2008 3:59:11 PM
Those theories about the coming collapse of America are looking pretty real.
 
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RockyMTNClimber    A funny from: politico.com   9/24/2008 11:31:28 AM
 
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