Now We See It: The White House Bailout Proposal

It's the shortest bill I have ever seen.

We will, no doubt, spend the rest of the week analyzing it and watching it transform as it moves through Congress.

Here are some tentative, initial thoughts

Section 2:

(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.

I would guess that this has to be one of the biggest peacetime transfers of power from Congress to the Administration in history. (Anyone know?). Certainly one of the most concise.

The Treasury Secretary can buy broadly defined assets, on any terms he wants, he can hire anyone he wants to do it and can appoint private sector companies as financial deputies of the US government. And he can write whatever regulation he thinks are needed.

I understand that they wanted freedom to respond and an ability to move quickly, but to designate the Treasury Secretary full power to oversee the, uh, Treasury Secretary's decisions seems unusual. Especially given that Congress only gets a report twice a year:

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.

This graph really stands out:

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.

Whoa.

So, for the next three months, and then an additional six months after that, the Treasury Secretary can do anything he deems appropriate without anybody anywhere looking it over.

That seems like an awful lot of absolute power. Am I wrong? Is this typical bureaucratic langauge? Or is this as strange as it seems?

The key two paragraphs are, of course:

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

and

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.

How much sympathy are we supposed to have for the union autoworker who made a good living in Detroit, then spent his money on a foreign car?

Stupid and greedy, we abandon our own manufacturing, our own true source of income.

We line up at traps like Wal-Mart to surrender our factories, jobs, money, and children to an adversary: The People's Republic of China--communist, totalitarian, but strangely committed to manufacturing.

Now, just to stay alive--perhaps--we borrow $ trillions from China, surrendering our decision making and what little independence we had left.

Sleep well, my fellow Americans.

When you're ready to wake up, you might want to take a look at "Dollar to the Giant" on YouTube:

http://www.youtube.com/watch?v=TUj8leZxmK8

Sent by George Krainovich | 3:03 PM | 9-20-2008

I know what the upshot will be for me as a retired taxpayer- unknown risk! What will be the upshot for the regulators and fund managers who allowed or created this mess? This is too big for those people to go scot-free!

Sent by Eric Estes | 3:26 PM | 9-20-2008

This does not seem to be that far out of line with history:

"(b) The Administrator may appoint and fix the compensation of such experts and their appointment may be made and compensation fixed without regard to the civil service laws, or the Classification Act of 1923, as amended, and the Administrator may, in the same manner, appoint and fix the compensation of such other officers and employees as are necessary to carry out the provisions of this Act...

...The Administrator may, under rules and regulations prescribed by the President, assume control of the administration in any State or States where, in his judgment, more effective and efficient cooperation between the State and Federal authorities may thereby be secured in carrying out the purposes of this Act."

Federal Emergency Relief Act of 1933

Sent by KAR | 5:50 PM | 9-20-2008

fThanks for Planet Money. It helps. Question: Is it possible to use this disaster as a step toward solving the larger issue of the vast discrepanacy between rich and poor?
I do not want to see my taxes used to sustain or re-establish the grossly inequitable status quo ante. Some proportionality should be observed; let those most responsible for the disaster bear the biggest share of the tax burden to fix it.

Sent by Neill Clark | 6:14 PM | 9-20-2008

So, the language of the bill says, "The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:..." Does this mean that the Secretary can and will retroactively confiscate salaries, bonuses, and other compensation paid over the past several years to executives of the failed companies who made the bad decisions that caused this mess? I hope so, but somehow I doubt it.

Sent by EveT | 7:19 PM | 9-20-2008

This is crazy, it creates a 700 billion dollar slush fund for the department of the treasury.
The money paid back for these purchases should not go back into the fund but into the treasury. The money should be used only once and returned.
If you believe for one second that the banks don't know the value of the mortgages they want to sell to the Government, you're crazy. They are probably in the back room printing up new ones just for this sale. I sure hope there is more accountability than with the contractors in Iraq. I recommend the Government only loan money against the mortgage until the true value is determined by local tax offices. I would make the bank boards individually sign certifications on the current value of the mortgages under penalty of prison if it is falsified. Let's not buy any more pigs in a poke. We shouldn't allow the government to pay more than 50 cents on the dollar for the assets purchased through this fire sale. They should add a transaction tax to stock trades and require a stock to be held 24 hours before it can be resold to assist in administering the cost of this bailout.

Sent by Ray | 7:40 PM | 9-20-2008

We have to protest this unprecedented blank check. Write to your congressman and senator. don't let them get away with this.

Sent by akak | 7:50 PM | 9-20-2008

No review by Congess or the Courts? That sounds like a recipe for total corruption and slavery for the good people of the US. Get ready to be sent to the FEMA camps (at gun point)if you don't like it. This is treason!

Sent by Chazoo | 9:52 PM | 9-20-2008

The fall of democracy and the beginning of fascism in America. Get out while you still can.

Sent by dotmafia | 12:05 AM | 9-21-2008

Please note this section:

"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"

Notice that it doesn't say $700b maximum, or imply any kind of fiscal limit. It only says $700b outstanding at ANY ONE TIME. So technically, they could be these securities at 80 cents on the dollar, sell them back to bankers at 10 cents, rinse and repeat, and claim they need more money from congress to calm the markets.

The greatest heist in history.

Sent by Erik B | 12:52 AM | 9-21-2008

Dear Congressman,

I'm writing to inform you that I think it is wrong for the government to attempt to to prop up the Tulip Market with yet another taxpayer funded $700 billion dollar Tulip Market bailout.

Clearly people just don't think Tulips are worth as much as the people who got stuck holding bags of them would like them to be. In fact, the more you talk about it, the more people actually become disgusted with Tulips and want to think about something else entirely.

Why don't you guys just go home to your own Tulip gardens and have a nice weekend?

Yours truly,

Sent by mango | 1:15 AM | 9-21-2008

Stop. Bush will use this to take the country down. He hates America. I don't know why but he does. Think Grover Norquist...drowning the country in a bathtube. They HATE this country. They hate democracy. They hate anybody who cares about others. They're sick.

Sent by Paula | 2:59 AM | 9-21-2008

"(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;"

Among everything else wrong with this bailout, it also seems to be setting the stage for a new breed government contractors... Imagine companies with names such as "Blackwater Financial"...

Sent by more disaster capitalism? | 10:10 AM | 9-21-2008

Hank Paulson is attempting the greatest power grab since Roosevelt tried to pack the Supreme Court. Maybe even greater than that. It is certainly a coup...a coup de grace for America as we know it.

Sent by Damdifino | 11:09 AM | 9-21-2008

Proposed section (c):

For purposes of this section, "financial institution" shall mean a financial institution in which no individual employed by the institution is paid more than $300,000 in salary or otherwise in the 3 years following the purchase of assets and in which no individual employed by the institution has a net worth greater than $10 million at the time of passage of this Act. Notwithstanding the foregoing, a financial institution that would qualify, but for the $10 million limitation, may qualify if all assets in excess of $10 million of its employees are donated to supporting veteran's health care within 30 days of the passage of this section.

Sent by ODB | 11:28 AM | 9-21-2008

Unregulated spending authority in a time of crisis is NOT acceptable!

http://www.floodthelines.com/toomuchpower/

Sent by AP | 11:43 AM | 9-21-2008

Why has the WSJ taken down the page with the text of the bill?

Sent by Sherri Hines | 12:38 PM | 9-21-2008

Lots of questions. How will the additional new debt affect the next President's plans? Because of the additional debt, will other government programs be forced to be cut? Will taxes need to be raised to deal with the additional interest on the debt? I see this as an enormous problem especially for the Democrats because there may be little money available for non-military programs after all the non-discretionary payments (interest on the debt, Medicare, Social Security) and the wars are paid for.

Sent by Jim | 12:59 PM | 9-21-2008

What does it mean to designate a financial institution as a financial agent of the government?

Sent by Connie | 2:18 PM | 9-21-2008

Mr. Davidson is correct. Try looking back to 1934 for a similar "transfer" that failed.
Any representative who votes for this is, I believe, guilty of treason pursuant to the oath they took to defend the Constitution of the United States of America. Telephone your reps and tell them so. Clog those telephone lines. Don't be fooled: powers transferred to the executive stay there.
By the way Sec. Paulson, as long as you are printing Federal Reserve Notes to "protect the taxpayer" you surely no longer need anyone's taxes and can set up a printing press in all major population centers to hand out FRNs upon request.

Sent by Roberta | 3:43 PM | 9-21-2008

"How much sympathy are we supposed to have for the union autoworker who made a good living in Detroit, then spent his money on a foreign car?"

The problem isn't the brand of the car he bought, it's the party he decided to start voting for. Beginning in the 70s, the GOP convinced more and more people to move to the right. They broke the coalition that held labor, the poor, and the middle class together against the rich by using racism, abortion, gay rights, false patriotism, and lots and lots of money for political campaigns and "think tanks". Even the Democratic Party got on the $$$$ train, reluctantly perhaps, but now both parties are committed to a system wherein big money calls the shots. WE killed the New Deal and now we're going to pay for it.

Sent by BobN | 3:58 PM | 9-21-2008

Fascism. Will the Secret Service (originally part of the Treasury, now DHS) start arresting people for (insert crime here)? The bill explicitly states "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."
Wake up, people. This could be the end of the USA under the Constitution. Don't be surprised if the elections are canceled...

Sent by Anon | 4:55 PM | 9-21-2008

As the weekend wears on, I'm not sure I "get" what Paulson is trying to do. The problem is bad securities that don't have a reliable market value, so institutions keep failing as those values recede, evidently toward zero. Now, the feds are going to buy those securities. There has been mention of an auction. That strikes me as a big risk; if the auction goes low, a bunch of financial institutions get a load of bad news. And their stock goes down. And the crisis gets worse. What am I missing here? I suppose the hope is there won't be any more drops, but if this is the risk, why won't some institutions refuse to participate in the first auction? And if the first auction goes low (how couldn't it, with a guaranteed buyer), why doesn't all hell break loose?

Sent by Bill Chaloupka | 8:03 PM | 9-21-2008

So IYO the culprit is the blue collar American worker not the big CEOs/CFOs who not only received million and millions of dollars for a lousy performed job - and no, I don't think the bought American cars either - but moved millions of American jobs to China. So, all those "rich" Detroit workers lost their jobs and now live only God knows how. Are you for real or you are one of those big shots who ruined our country?

Sent by Rick | 8:26 PM | 9-21-2008

The US is the world's largest debtor. China is the world's largest creditor. We have no longer have any money. China has $1.8 - $2.5 trillion in foreign currency reserves alone.

If you don't like China having all the money, do your part and stop giving it to them.

Most people talk about money and say we need more of it to solve our problems.

Few people know where money actually comes from. Try asking. You'll get blank stares or ignorant nonsense.

Money comes from productivity. A country has to make something and sell it in order to prosper. This can be agriculture, mining, oil--but mostly it's manufacturing. America's factories built America's historical wealth and established the credit we're living on today.

Services support productivity. Services rarely create actual wealth.

When the United States was a manufacturing nation, we had money. Fifty years ago, roughly 60% of our population was employed in manufacturing. Currently it's less than 10%--and still shrinking. China is the manufacturer now, so they're making the money.

But a manufacturer is of no consequence if consumers won't purchase its goods. Ultimately, the consumer makes the decisions. Every advertiser and politician clamoring for attention is after the same thing: your dollars and mine. They add up.

We are not as insignificant and voiceless as we're so often led to believe. Americans need to realize how powerfully we ordinary citizens influence the economy, how loudly we speak, every time we go to the cash register and cast yet another vote against ourselves, against "Made in USA."

We need to support our own economy and the economies of our ethical, reciprocal trading partners--not China's. When American consumers send their money to China, it comes back to us in the form of loans so we can buy more Chinese stuff.

As we've seen, these China-manufactured "bargains" are turning out to be the most expensive consumer goods the world has ever seen.

So stop blaming. It's our choice. It's been our choice all along. Let's admit at least this much. Then let's build American and buy American at every opportunity. We need the money and our kids deserve a future.

At the risk of repeating myself--again--I'd like to recommend "Dollar to the Giant" on YouTube.

http://www.youtube.com/watch?v=TUj8leZxmK8

Powerful and insightful. It's amazing how artists can often see things our "experts" cannot.

Sent by George Krainovich | 11:37 PM | 9-21-2008

@Bill
I'm no expert! As I've read my understanding is as follows: There is only one organization that can buy and hold these 'toxic' securities, the US government. Financial groups can then remove the bad securities from their books and re-capitalize. More capitalization means more business activity means more jobs means more consumer spending and home purchases. When the housing inventory corrects, prices stabilize then the securities held by the US Government can be sold to interested parties. The faster the inventory corrects the less it will cost in interest (taxes- or money that could have been put to better use). But at some point it will be a total loss a.k.a Japan just as you mentioned.

Sent by robert | 2:06 AM | 9-22-2008

Wow, the U.S. Constitution was written specifically to PROTECT the citizens against unelected, unrestrained, non-reviewable, big government power. Most of the powers were intended to remain with the people, their ELECTED representatives, or the States. This legislation (as well as many others) is so unconstitutional it is scary. Even scarier is that too many people don't take the time to learn about what their government is doing, or won't do anything about it. You can bet every one of my elected representatives is going to hear from me today!

Sent by Paula Bradley | 7:25 AM | 9-22-2008

The Big Picture:

http://www.theominousparallels.blogspot.com/

Love "Light" and Energy

_Don

Sent by Donald F. Truax | 8:53 AM | 9-22-2008

Senate Banking Committee contact form. Wrote to say NO to the Dictatorship of the Treasury Secretary.

http://banking.senate.gov/public/index.cfm?FuseAction=Contact.Form

Sent by The Ale and Quail Club | 9:29 AM | 9-22-2008

I think the Fed needs to do something but a blanket bailout is not the answer. First, we should not reward the banks that caused the problems. They had the opportunity to screen applicants for mortgages vis a vis their debt load and failed to do so. all the banks wanted to do was to make the points and spread, and pass on the risk to the pools. If a bank receives a Fed bailout, the salaries of officers should be limited; the money should be transferred to the bank on a collateralized loan (or repo) basis. That is, the bank needs to pay interest to the govt, just as it would to a depositor. The Fed can put the bond back to the bank when times improve.
Second, now the investment banks that structured and sold these bonds to the public want to supervise the whole bailout. Hello? Is anyone home? that is like the fox guarding the hen house.

Sent by Holly Reiter | 2:18 PM | 9-22-2008

Nice comment Holly- I heard an intersting comment on the Sunday Chat shows along the line of your last thought. For the S&L bailout they put the people responsible for the collapse in charge of the trust fund because only they knew "where the bodies could be exhumed". Sad but true.

Sent by robert | 2:54 PM | 9-22-2008

-------------
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.
-------------

That is easily explained.

The current Statutory Limit on the Public Debt is $10,615,000,000,000. That is, the the U.S. national debt ceiling is currently limited to 10.615 trillion dollars by law. This bill gives the Treasury Secretary $700 billion to work with, and also increases the national debt limit by the same number to 11.315 trillion.

Sent by Jesse | 3:14 PM | 9-22-2008

there is a difference between communism and fascism. and this, friends, is the latter.

Sent by lainy | 9:50 AM | 9-23-2008

I am against the bailout. I think the US Treasury should lend the agencies involved the money to get the bad loans off their books at very high interest. I believe in doing one thing at a time and, given the way this administration has railroaded Congress over and over again, such as going into Iraq, I really don't trust what they are doing and don't believe throwing that much money at the problem will solve it. They are saying if we don't do the bailout we will have a recession. We already have a recession. They say that Main Street will be adversely affected but we already are. They say that we will lose jobs due to inability to borrow. I think borrowing is what got us into this mess and would like to see less of it. The jobs we have lost are due to corporate greed outsourcing American jobs in order to improve the bottom line. We will have a recession or a depression anyway and will continue to lose American jobs. I think we should stop what we are doing and get rid of this toxic administration and take on the toxic loans and derivatives piece meal.

Sent by Lenore Krivo | 8:06 PM | 9-23-2008

Think through this: we have to borrow money from others, like nations we dont trust (and owe the principal and interest, then give the money to firms who where not careful with THEIR OWN money and not careful of money from their investors: what makes anyone think that the way these banks/firms act will dramatically change because of the proposed bailout ?
In actualilty, our government is CONDONING ineptitude (which certainly wont change how these banks/firms operate) instead of letting true capitalism to run its course

Sent by Fred K | 12:15 AM | 9-24-2008

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. This is a pure, unadulterated, shock-doctrine power grab. I would guess that this has to be one of the biggest peacetime transfers of power from Congress to the Administration in history. (Anyone know?). Certainly one of the most concise. Sure reads like it. Is our Republic dead?

Sent by solicitor in bulgaria | 4:47 AM | 9-24-2008

I do not accept no oversite and review.We need check and balances over the Treasury Secretary.I propose if thisis taxpayer money, to be accountable for the people.Obama for President and Biden VP must be elected.

Sent by Theresa B. Felmery | 1:24 PM | 9-24-2008

Check out the following link "Has anyone ever wondered who owns the federal reserve?" http://52.thelastoutpost.com/articles/federalreserve/phonecalltothefed

Sent by Sharon | 12:30 PM | 9-25-2008

We have to make some hard choices. Let's limit the bailout to only those delinquent mortgages that were given to illegal immigrants, deport the illegal immigrants, then offer their homes and jobs to those legal residents who could not get jobs at or above minimum wage because of illegal immigrants who were employed below minimum wage!

Sent by Jim Simonetti | 6:28 PM | 9-25-2008

No bailout without inclusion of benefits to homeowners in default or foreclosure.

Sent by Mary Menzies | 11:39 AM | 9-27-2008