Bailout Act
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Bailout Act Text
* 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.
_______________ Please notice the following points:
1. the broad reading of the Secretary's power: so long as s/he claims to be acting pursuant to this statute, there is no limit nor review of their authority.
2. It appears that entering into crony-capitalist, no-bid contracts a la Iraq and New Orleans, are part of the authority.
3. The Secretary's power is unreviewable, not by the legislature, not by any administrative agency, and not by the Courts.
Analysis of Bailout Act
Going through the text and reading the initial reviews I want to briefly point out several key points. I won't go into too much detail as a lot of other articles have been posted already.
1. From 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.
Read it again. The Secretary gets to make all the decisions and they can not be reviewed or questioned BY ANYONE, not even the courts.
2. From Section 12 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.
How the hell did commercial mortgages get involved in this. This is an outrage to say the least.
3. From Section 10. 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.
Yup, the Debt ceiling just got raised...this time to $11.315 trillion (the current debt is about $9.6 trillion). Paulson has been given the authority to go out and spend $700 billion with NO oversight and NO review.
4. From Section 6.
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
Note the open ended nature here. Although the purchases are limited to $700 billion, the little line at the end says "outstanding at any one time. So in theory at least Paulson could buy $700 billion in mortgages, sell them for say $400 billion, and then be right back to the beginning, able to buy another $700 billion. This looks like the mother of all blank checks.
5. From Section 3. 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.
Note the Secretary shall take into consideration "protecting the taxpayer". That's it! He only has to take it into consideration. He doesn't actually have to do it!
Summary:
What a MESS!!!!! The US dollar will be toast. The taxpayers are screwed. The people who made this mess remain at large, with no penalties.
This is a total sell-out, corporate socialism of the worst kind, and even so, it may not work. It relies on the Treasury being able to sell even more debt...to whom may I ask? China? Russia, Saudi Arabia? American institutions no longer have the financial flexibility to take on thsi volume of debt, and I question whether some of the other nations do either...at least without a major kick higher in interest rates.
Less insane solution letter
My Letter to my senator
Dear Senator Obama-
Chances are most if not all of the major commercial and investment banks are insolvent. Not one of them is opting out of the do-not-short list, and they don't seem to have the confidence in their survival to opt out of the L3 asset swap program Secretary Paulson is proposing.
It is also very likely that acutely dangerous systemic risk already exists, not merely from direct lines of credit among the banks, but especially from credit default swaps, which if activated by more than one large bank default would probably bring down many others. Remember, though, that this systemic risk is highly concentrated in the top 25 or so banks in the world, and does not jeopardize the 6,000 other community banks in the U.S.
Third, it is also highly probable that as this recession worsens, and as housing values continue to sink, forcing more foreclosures, the large banks will be even closer to collapse.
Having worked for many years in the banking industry and been closely involved with risk management and derivatives, I can tell you that it looks like catastrophe is already here.
What Sec. Paulson wants you to believe is that catastrophe is approaching, but it can be averted if only Congress acts urgently to give him the extraordinary authority he is requesting. The implication is if you don't give him $700 billion in borrowing authority within a week, markets will collapse and it will be all your fault.
We've seen this drill before, with the Patriot Act and with the Iraq War authorization. The scare tactics, the urgency, the implied threat of blame for any failure - this is what the Bush administration does. Some of you in the Senate were able to stand up to this pressure, and that type of strength is desperately needed now.
If insolvency is here now for the big banks, the last thing you want to do is throw $700 billion of money that is not yours at bailing out the banks who created this disaster. You'll need every bit of that money to protect the taxpayers and their deposits in these banks when these financial companies are thrown into the bankruptcy courts. You'll need that money to make sure consumer deposits are protected with insurance, and you'll need it to keep the healthy parts of these banks that deal with consumers and businesses functioning until they come out of bankruptcy.
And forget about comparing Paulson's plan to the RTC. These L3 assets aren't homes, condos, or commercial real estate that can be easily sold at the right price. They are bits of paper giving the bond holder the right to some small portion of thousands of mortgages, a right that is shared with all the other investors, who are required to agree on what is done with foreclosed properties in the pool. This is one of the reasons no one wants to buy this stuff, and no one will for many years until it is crystal clear what the final losses will be.
Once you give Paulson the authority he seeks, he will buy these securities at 65 cents/dollar, then quietly auction them off at a nickel each. It will be "unfortunate but necessary" to revitalize the banking industry, even though you will discover the banks won't be lending after this is all over to any but the finest credits. You will have rewarded the banks for their calamitous decisions, stuffed the taxpayers with huge losses, squandered your remaining ability to shore up the FDIC, not prevented the big banks from collapsing anyway, done nothing to help the community banks that will constitute the new banking system in this country when these problems are solved, and in the end made the situation much worse.
If you want to do something practical, require the SEC to go into these banks, open up their L3 holdings to public scrutiny, auction off a sampling of these securities, and apply those prices to the L3 portfolios of all the banks. In this way we will know which banks are insolvent. You won't need to go through this charade of having the Treasury take ownership of these assets, because the core of the problem is not that these assets are clogging up bank balances sheets, as Paulson says (which is tantamount to saying, by the way, that no one will buy them). The core of the problem is that there is no transparency about these portfolios and their real worth. Congress doesn't need $700 billion of our money to create that transparency, and if it shows as I suspect that many of these banks are insolvent, that's why we have bankruptcy courts. You can certainly protect the banks from bank runs while they are in bankruptcy.
Paulson is basically rolling you and the rest of Congress into giving him unprecedented power to protect his friends on Wall Street. This decision you are making is probably as momentous as the Iraq War resolution. Don't fall for this bailout disguised as the only way to prevent Armageddon. Armageddon is already here - at least for the big banks - and it needs an entirely different solution. Spend our money protecting us, by ensuring the FDIC is properly funded, by throwing these too-big-to-fail banks into bankruptcy if they truly are insolvent, by preserving the healthy parts of these banks while in bankruptcy, and bringing them back out again so they function under much better safety and soundness regulations. We've had airlines functioning properly and safely for years while in bankruptcy, and there is no reason we can't do the same with banks.
Please, please, do not fall for some useless compromise or bipartisan agreement that gives the administration what it wants in the end. Kill this proposal here and now, protect us from this bailout, and deal with the real problem - the insolvency of the major banks, not the paper that is supposedly blocking their lending capabilities.
Sincerely, Numerian September 21, 2008 - 12:26am
Second Analysis - The most insane / ludicrous part of the Bailout Act
Text of the Bailout Is Authoritarianism At Its Worst
The text of the Bailout Act is out. And Section 8 is egregious:
* 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.
Call your Congressman or woman and demand that this will not stand, otherwise Congress will have literally just ceded its last bit of power, that of the purse.
Like Stirling said, this is pretty Constitutional, if you ask me.
Nota bene: As a Conservative friend of mine just said in an email, "It's not good at all. It's basically a transfer of the unlimited power of the Executive in wartime to spending matters. Taken to its logical extreme, it's the end of Congress."
Third Analysis - They Can't Be Serious
This can't mean what it looks like it means. Because if it does, it's pitchfork and torch time, and I think I can say, based on the diverse political inclinations of the people who have emailed it to me, handing out 700 billion dollars under this deal could result in a fully bipartisan, mass public lynching:
as if this wasn't clear enough
* 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.
Here's more, this part terrified my conservative friend because he reads it to mean they're going to hire cheap, illegal immigrant labor with impunity. He's right, in the sense that this allows the fed to hire anyone and give them any status, and not only can no one do anything about, no one will even know about it:
* (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 ...
by DarkSyde
