Sunday, September 21, 2008

Bailout Selling Taxpayers Out

As details emerge about the proposed government bailout of the financial industry is nothing more than a blank check, with no concern for the taxpayers funding the whole thing. Like the PATRIOT ACT rammed through Congress, the Treasury Department and moneyed interests more generally are attempting to force this bailout into law before anyone has a real chance to work through the implications of the bill. If the bill isn't passed by the end of next week, they say, the economy will go over a cliff, so just vote for the darn thing before noticing its shortfalls.

For example, the bill, as proposed, involves absolutely no oversight on the part of Congress on the actions of the Treasury Secretary, Hank Paulson. To remind you, Hank Paulson's job before being Treasury Secretary was being Chairman and CEO of Goldman Sachs, one of the five (now 2, after Bear Stearns and Merrill Lynch were bought and Lehman Bros. went out of business) big Wall Street investment banks. So we're definitely talking about the fox guarding the henhouse here.

Let's have a look at some troubling portions of the bill, shall we?
Sec. 2. Purchases of Mortgage-Related Assets.
(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:

(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;
Section 3109 of Title 5 deals with contracting consultants and doesn't, so far as I can tell, restrict those contracts in any real way. So Paulson can, on behalf of the US government, sign any contract he wants.
(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;
Great, so the former head of a Wall Street investment bank can designate Wall Street banks, or anyone else he wants, to oversee the transfer of taxpayer dollars to other Wall Street banks. Awesome plan.

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.

Paulson gets three months and $700 billion to do whatever he wants, and then only has to testify before the same body that kept failing to change anything about the Iraq war despite years of evidence that the Bush Administration was screwing up royally. In order to pass another bill, after this one, to rein in Paulson's authority, you'd have to convince 60 senators that things weren't going well. Good luck with that...

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

Just so we know how much money we're dealing with. Look at all those zeroes!

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.

Wow, really? So we're just abandoning any glimmer of such quaint oddities as judicial review, checks and balances, etc.?

But even more disturbing than what is in the proposed bill is what is not. As anyone in Washington can tell you, bank lobbyists have had far more than their share of influence over the regulations and other laws governing the financial industry. It is this influence which prevented (or reversed, in the case of the Gramm-Leach-Bailey Act (as in Phil Gramm, McCain's chief economic advisor)) the sorts of regulations which would have kept banks from getting into such trouble that they needed bailed out.

Now, the banks are negotiating not from a position of strength from lobbying and campaign contributions, but out of $700 billion worth of weakness. Now is the time (to borrow a line from Obama) for the government to put into place those regulations necessary to keep the greed which has caused this mess from happening again. Democrats, according to the Wall Street Journal, are trying to force those companies which want to sell their bad assets to the Treasury to agree to salary and bonus limits for CEOs. They also want to give bankruptcy judges the power to alter the terms of mortgages, giving people a chance to stay in their homes. And yet, per the Journal:

House Republican staffers met with roughly 15 lobbyists Friday afternoon, whose message to lawmakers was clear: Don't load the legislation up with provisions not directly related to the crisis, or regulatory measures the industry has long opposed.
If ever Republicans were going to ignore lobbyists and do what was right for taxpayers, it would be now, but the Administration and Republican allies are pushing for a "clean" bill without any regualtions. But by coughing up the cash now and then talking about new regulations later, we give away the best chance we have to actually get meaningful regulations passed. Taxpayers (that's you and me) and the media must put pressure on lawmakers now to keep them from surrendering, from a position of strength, to the banks.

You can bet your bottom $700 billion that if we screw this up, you can forget there ever being enough money for health care reform or anything else a new administration might want to do. Let's get it right.

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