Bailout Bill Defies Will of the People

Monday, 29 September 2008, 10:18 pm
Column: Michael Collins

Bailout Bill Defies Will of the People

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White House and Congress Suspend Democracy To Help Wall Street

Michael Collins
"Scoop" Independent News

(Wash. DC) The White House and Congressional leaders from both parties announced a tentative bill to bailout failed financial institutions. The bill is a response to the $700 billion initially request by the White House last week. The bill allocates $250 billion to start with a total authorized of $700 billion. The money will cover the losses of distressed Wall Street firms facing bankruptcy due to bad investments, primarily in risky real estate securities known as subprime securities and "derivatives."

There were no provisions announced to bailout citizens facing foreclosure or help with their bad investments.

Congress plans vote on the legislation today, Monday, Sept. 29, if the leadership gets their way.

Calls to Capitol Hill are reported to be 30 to 1 opposed to legislation that bails out the rogue Wall Street investors. Public opinion polling has shown a majority opposed to the legislation, unless the question contains the unproven assumption that the economy will collapse in a few days without a bill. In a remarkable show of opposition to the bill, 1,200 marched down Wall Street Friday. There were also protests in Chicago and Ohio plus more planned for Monday, Sept. 29.

Sept. 25, 2008 Wall Street bailout protest Video

This public stance developed in spite of dire warnings of a national and global collapse of the economy should the legislation fail to materialize. These predictions are not universal, by far. A public appeal by 200 economists opposes the congressional rush to judgment, summarized in these terms:

" --- we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come." Story: McClatchy Newspapers, Sept 25, 2008, Open letter & signatures

Concerns about Proposed Bailout Bill

The original bailout proposed by the White House gave the Secretary of the Treasury unlimited discretion in doling out $700 billion and barred any Congressional or judicial review. The new legislation calls for "consultation" with the following entities. Please note that not one of those to be consulted is an elected official and that Congress is out of the loop.

"(b) CONSULTATION.—In exercising the authority under this section, the Secretary shall consult with the Board of Governors of the Federal Reserve System, the Corporation, the Comptroller of the Currency, the Director of the Office of Thrift Supervision, and the Secretary of Housing and Urban Development." Title I, Sec 101, (b) "Consultation" page 7, lines 18-23 and pages 15, lines 23-24, and page 16, lines 1-9.

The people get involved in the decision making process, presuming Congress is listening. Sec.115. Graduated Authorization to Purchase (pages 40 - 49) provides an option to overrule any particular bailout. Congress has 15 days after a purchase notice by Treasury to introduce a joint resolution disapproving of the bill. The resolution has a tight window to passage, three days, and is subject to a presidential veto. The "fast track" aspects of this guarantee the same types of hurried votes characterized by a majority of members failing to even read a proposed bill (e.g., The Patriot Act).

The bill requires that the Secretary of the Treasury report to Congress no more than seven days after a commitment to purchase a failed financial institution or at $50 billion dollar disbursement intervals. Title 1, Sec. 105, Reports, (b) Tranche Reports to Congress, (b) Timing, page 19, lines 7-24 and page 20, lines 1-10. The only direct option Congress has is the above mentioned "Joint Resolution of Disapproval."

The bill addresses overpayment for troubled firms with the intent of preventing "unjust enrichment." This is done "by preventing the sale of a troubled asset to the Secretary at a higher price than what the seller paid to purchase the asset." Title I, Sec 101, (e) Unjust Enrichment, page 9, lines 15-18.

What if the price the seller paid for the asset was an inflated home price in a down real estate market at the time of a bailout? By paying higher than market value prices, not limited by the bill, "enrichment" would be guaranteed.

Even if that there were a real prohibition that failed firms not make out under this bill, there is an open gate to enrichment, firms in "conservatorship or receivership."

"This subsection does not apply to troubled assets acquired in a merger or acquisition, or a purchase of as sets from a financial institution in conservatorship or receivership, or that has initiated bankruptcy proceedings under title 11, United States Code." Title I, Sec 101, (d), page 9, lines 18-23.

Thus, there can be what would be considered "unjust enrichment" if a firm just declares Chapter 11 bankruptcy.

How long will it be before people compare this generous bankruptcy provision for billion dollar firms with the draconian bankruptcy reform bill passed by Congress in 2005?

What if the Public Knew This?

On Saturday, Sept. 27, Gretchen Morgenson of the New York Times reported a remarkable story that may further shake public confidence in the bailout and the man in charge, Secretary of the Treasury, Henry M. Paulson. The Secretary held a top level meeting at the New York Federal Reserve Bank with "the nation’s most powerful regulators and bankers." There was only one Wall Street executive in the room, Lloyd C. Blankfein, CEO of Goldman Sachs, the investment banking firm Paulson ran as chief executive before joining the Bush administration.

Discussed at the meeting was the fact that AIG owed Goldman Sachs $20 billion and was about to default. Following the meeting AIG was bailed out to the tune of $85 billion dollars. Paulson's former firm, Goldman Sachs, clearly benefited as a result of the AIG bailout.

How would citizens react to that, were it presented as part of the bailout debate?

They would probably be furious and demand that there be careful consideration and deliberation of this bill. They might even determine that it was blackmail with the people who caused the problem threatening a world financial meltdown if they don't get their way. Then they would connect the dots between the bailout and the head dispenser of funds, Secretary of the Treasury Henry Paulson, former CEO of Goldman Sachs. This firm received huge financial benefits from Secretary Paulson before this bill was even conceived.

The will of the people is just "collateral damage" if members of Congress determine that details like democracy and honesty are less important than the instructions of their leadership and the Wall Street firms that created this problem in the first place.

Contact for your member of the House or Representatives.
House Committee on Financial Services Web Site (for original House bill and updates on legislation)
Original House Bailout Bill Archived
"A Cascade of Ruin" The Money Party (part 6)
The next disaster: AIG’s Dangerous Collapse & A Credit Derivatives Risk Primer by Daniel R. Amerman, CFA, Sept. 17, 2008

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