What the latest bailout plan means…

September 21, 2008

By Chris Martenson. Reproduced (without permission) from the excellent ChrisMartenson.com. Head over if you haven’t already.

Now that the details are out, we can safely state that the US political and financial leadership has completely sold out the taxpayers and have done so in a manner that is startling both in its recklessness and its brazenness.

The reckless part I will spell out in the details below.

The brazen part is in how this is being spun out as if the entire plan were hatched in hurried rush, at the last minute, after events forced the issue.  This is the spin, but it is completely false.

Because many financial commentators ranging from Roubini to Roach to Calculated Risk to myself foresaw these events, we can be completely confident that these events were both anticipated and planned for long in advance.  The only question was how they were going to be ‘sold’ to the public.  What better way than in the midst of a “massive financial panic” that required urgent action?

And now that the details are out, the plan is even more insidious than I ever dreamed.

On Friday  the news started to leak out  that perhaps $500 billion was the, uh, ‘floor’ for the bailout and that it might be up to 60% larger than that:

 

Quote:

WASHINGTON (Reuters) – The U.S. Treasury will propose a $500 billion to $800 billion government program to take toxic mortgage-related assets off the books of U.S. financial firms, banking industry sources said on Friday.

The sources said the government would acquire residential and commercial mortgages and mortgage-backed securities under the proposal, which needs Congressional approval.

A Treasury spokeswoman declined to comment.

 

So it looks like we are being ‘softened’ up by Extremely Large Numbers coming in quick succession so that we’ll be too numb to argue when the real plan comes out.  For the record my solution would have been very different.

Instead of buying these failed assets off of the banks for $500 billion, I would have preferred to see the banks receive $500 billion in loans, which they’d have to pay back from profits over time, while they retained the failed loans on THEIR books as a reminder to be more careful next time.  Same cost to the government, but a very different message sent to reckless lending institutions.  

And here’s the critical elements from the real plan released yesterday (Sat., 9/20) (hat tip to Lemonyellowschwin for posting this in the comments yesterday).  Full details are all the way at the bottom.

 

Quote:

(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.

 

OK – this starts out kind of like I expected.  The definition is a little vague, unfortunately, having stalled at mortgage “related assets”.  I would have preferred that they spelled this out because then we could have assessed which institutions were going to be helped out the most.   Certainly these could have and should have been spelled out.  This is vague enough to leave open the prospect that practically anything could be defined as “mortgage related” and I am certain we will see this provision abused.  100% certain.

 

Quote:

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 

 

Whoa!  Stop!  What is this “at any one time” language??  This means that $700 billion is NOT the cost of this dangerous legislation, it is only the amount that can be outstanding at any one time.  After, say, $100 billion of bad mortgages are disposed of, then another $100 billion can be bought.  In short, these four little words assure that there is NO LIMIT to the potential size of this bailout. This means the $700 billion is a rolling amount, not a ceiling.

So what happens when you have vague language and an unlimited budget?  Fraud and self-dealing.  Mark my words, this is the largest looting operation ever in the history of the US and it’s all spelled out right in this delightfully brief document that is about to be rammed through a scared congress and made into law.

But certainly if the combination of vague language and and unlimited budget will create the conditions for further fraud and abuse, at least we live in a nation of “checks and balances”, right?

Wrong.

 

Quote:

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.

 

This language literally took my breath away when I read it.  I am now beyond shocked at what is openly transpiring before our very eyes.  I can think of NO legitimate reasons(s) for the right of review to be stripped away right from the outset.  The illegitimate reason I can think of pertains to the vast riches that are going to flow into the pockets of the well-connected as a result of this act of piracy.

Many such people became fabulously wealthy as a result of picking up real estate assets for pennies on the dollar during the S&L crisis and that model has being reproduced here.

You can count on it.  

This is just another straw thrown onto an already collapsed camel the confirms the fact that the US political system is broken and that the rule of law no longer applies within the US.  

My final comment; if it looks like a looting operation, smells like a looting operation, and behaves just like a looting operation, it might just be a looting operation.

More on this later.

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