Before I Hand Over a $700 Billion Check, How About Some Balances?

When the government bailout of the financial industry was first announced, we were told more details would be forthcoming. The weekend has passed, and we still have few details. We're being told that there is a big threat, things have to happen quickly, and we give the Administration broad powers and trust them to do the right thing. When have we heard that before? Rather than being steamrollered again, Congress should demand some accountability rather than giving Treasury and Hank Paulson unfettered powers.

To the extent we have more information than we did on Friday, the proposal has become vaguer. Instead of mortgage-related securities, Treasury now would be authorized to purchase "any financial instrument." Instead of the buyout being limited to institutions with headquarters in the United States, Treasury could buy "any financial instrument" from an entity with "significant operations in the United States."

I'm basing those characterizations on what I have read and heard from the media. Another strike against transparency is that the text of Treasury's proposal that was so easy to find over the weekend has disappeared from the mainstream media sites. We don't know how the current proposal stands, and I hope that is remedied soon. Someone will probably post a comment perhaps linking to the current text of the proposal, but that still does not explain why it suddenly has become so difficult to find.

Although I have a number of concerns about the proposal, one step that would go a long way would be to give effective congressional oversight over Treasury's actions in implementing the buyout plan. As it currently stands, Treasury can buy what it wants from who it wants. There would be reports to Congress, but the initial proposal was short on specifics on what would be in those reports. Moreover, we now have seen two successive presidential administrations that invoked executive privilege with ever-increasing frequency. We currently have an administration who flaunts congressional subpoenas. What is to say Treasury will not later invoke claims that its actions should be free from investigation, using whatever excuse it later finds convenient?

Whatever bill passes, Congress should ensure that it contains specific provisions giving it powers to review Treasury's actions, including the power to compel Treasury officials to give testimony and turn over any documents related to their actions in the bailout. Checks and balances -- now there is an idea.

Comments

[Patches]

It looks as though Dodd and Frank are trying to get a Bankruptcy Amendment in there. Letting BK Judges modify mortgage contracts to keep people in their homes. If the government is going to buy all of those loans anyway, seems to me a good way of sorting thru them. Maybe by Thursday?????

MSN story link.

http://www.msnbc.msn.com/id/26835745/

[asphaltjesus]

A frankly stunning bill generated by the Secretary of the Treasury is here: http://www.economicpopulist.org/?q=content/text-bail-out-act-congress-take-action-now

Simply shocking....

[Mike Dillon]

http://calculatedrisk.blogspot.com/2008/09/bailout-proposal.html
"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."

Anyone else at all nervous about this?

[Angie Littwin]

I agree that the sentence in the last comment is terrifying. Isn't also unconstitutional? My memory of administrative law is somewhat fuzzy, but it would seem to be an impermissible delegation of congressional authority at the least.

[O. Max Gardner III]

Mr. Paulson, can you spare a dime? On second thought, could you make it $700 billion?

O. Max Gardner III

In 1932, a dime was worth almost $1.60 in today's money. Today, $1.60 won't even buy you a fancy cup of coffee at McDonald’s much less a latte or a cappuccino at Starbucks.

My dad was 10 years old in 1932 and my Grandfather was Governor of North Carolina. We were deep in the midst of the Great Depression and the State was struggling day-by-day to make ends meet. It was hard and my Grandfather had started his “Live at Home” program. In that same year, E.Y. Harburg and Jay Gorney composed the song that came to epitomize the Great Depression: "Brother, Can You Spare a Dime?" Following the current bloodletting on Wall Street, we may be looking for a new song to sing soon, but we aren't bumming for dimes anymore. We now want your trillions, mister.

I was in Rochester, Minnesota, this past weekend for a medical tune-up at the Mayo Clinic. Following out-patient surgery on Tuesday, I was looking for a distraction and went to the Mega Cinema Sunday afternoon. The movie I saw was "Burn After Reading," which is what I wanted to do after I saw the Sunday paper and learned that Treasury Secretary Henry Paulson was telling Congress that the only way to avoid another Great Depression was to make him king and give him $700 billion.

I am not sure why Paulson is even asking Congress for this money since on his own he has already “loaned” $30 billion to bail out Bear Stearns, used $200 billion to save Fannie and Freddie, and just spent $85 billion to save the Great AIG Insurance Company. What I do know is that he wants this money from you and from me. Make no mistake about it—this is our money and any losses we incur will result in more taxes for all of us. Plus, the hidden tax will be the massive loss in the purchasing power of the US Dollar.

The Democrats and a few Republicans in the Congress have expressed doubts about giving Paulson $700 billion with no strings attached, with no oversight, and with no review in any court or anywhere else for that matter of any decision he makes regarding the use of this money. Such objections appear to be reasonable since any way you count it (and it would take you a very long time to count it) this is a lot of money! One of those expressing concern, Sen. Bernie Sanders from Vermont, proposed that a tax surcharge of 10 percent -- the kind FDR called for during World War II -- be imposed on the wealthiest Americans (making more than $1 million per couple per year). Such a surcharge would raise $300 billion, and take a little from those who have benefited the most from Bush-McCain tax cuts that have widened the gap between rich and poor. "If this bailout is necessary, it should not be middle income or working families who have to pay for it," Sanders said. I don’t know about you but something sounds fair about this to me.

Sanders is right that the middle class is doing too much: Just as the housing bubble deflates the equity that represents the only savings plan for many families, Americans are being saddled with debts while Wall Street gets absolved of them. Americans are losing their homes at the rate of almost 10,000 per day but Paulson is saying forget them we must do all we can to protect the Wall Street CEO’s bonus money and to save their companies from bankruptcy. I don’t know about you but something seems wrong with this picture to me!

If Washington approves Paulson's bailout, the nation's debt limit will climb to $11.3 trillion. And if you think that's a big number, you're right! The Earth is 93 million miles from the sun. To travel 11.3 trillion miles, you would have to go from the Earth to the sun -- and back -- 62,000 times. Boy voyage folks because from my point of view this looks like a helluva lot of traveling and with the current price of gas we are talking maximum fuel charges here.

Another way to look at the Bush-Paulson bailout is to take that 11.3 trillion and divide by 300 million -- the number of Americans -- and you get $37,666 per person. Multiply that by the size of your household and, voilà, you get your family's share of the new national debt, not counting your VISA or Master cards. In my house, with two people and ten dogs, I figure that my share of the post-Wall Street collapsed debt will be about $397,000. My dogs eat lot of Purina. This does not include my grandchildren and their college bills.

I am willing, of course, to support my family, my dogs and my grandchildren, but I can't afford to carry them and Wall Street, too. My bubble is bursting, baby. So I have decided to act like a Wall Street Genius.
I am throwing my loans on the Wall Street bailout pile. As a result, I have drafted the following letter for immediate delivery to Hank Paulson. I say immediate because this is a major emergency for me.

Dear Secretary Paulson:

Please accept this $227,000 in future educational loans to be incurred by me to defray the cost of higher education for a few of my brood. (Don't worry; I won't send any of my dogs to college; and I will ship any future youngsters to off-shore oil fields as soon as they are able to lift a wrench. Drill, baby, drill! ) Sorry, but I have pulled a Fannie Mae. I am unable to funds these toxic loans without considerable hardship to myself, and I know you wouldn't be any happier to see me suffer than you were to see the big rascals squirm on Wall Street. So, now that you have ministered tenderly to them, I feel confident you will do the same for the Gardner’s, and eliminate my burden of these future college junk loans. My paltry $227K won't make a dent in your $700 billion bailout, but your acceptance of my debts will help ensure that my grandchildren can eat while I am doing my patriotic part in helping rescue Wall Street by putting my taxes where your mouth is. Thanks for your kindness,

O. Max Gardner III

P.S. Country First!

Oh, I almost forgot something, Hank. I was thinking of a song from the Depression -- the original Depression. My Grandfather used to sing it:

"Once I built a tower, up to the sun,

"brick and rivet and lime.

"Once I built a tower, now it's done --

"Brother, can you spare a dime?"

Remember it, Mr. Secretary? Wow, I hope things don't get that bad again. But I'll tell you something; a dime was worth something back then: $1.60 in today's money. Almost a buck-sixty, why don't we round up and call it two bucks? Can you lend me two bucks, Hank?

Or would a billion be easier?

Yours in debt, OMGIII

[Patches]

I like your song max. I think more people than you think are whistling or at least humming to that same tune.

[brian]

Could you please cross-post the following comment from Prof. Alan White. It concerns an intriguing alternative to the bailout. See http://pubcit.typepad.com/clpblog/2008/09/another-idea.html .

Thank you.