All The King’s Horses… September 23, 2008
Posted by changenickel in Congress, Politics, banking, disaster, financial.trackback
I’m currently listening to Paulson and Bernanke testify in front of the Congressional banking committee right now. Congress is going to push through patch work legislation in a matter of days that should take months of deliberation and refining.
What is happening right now on the Hill is a classic definition of Disaster Capitalism. The current proposal in front of Congress is to authorize the Fed to receive over $700 billion to deal with the current banking crisis. This proposal has little to no oversight and little assistance for the everyday person. More importantly, this legislation if passed will give the Executive branch an unprecedented amount of financial power. Congress would in effect be relinquishing their own power and duty to the American people over our money and oversight of its use. It will be Congress’ fault if they relinquish even more power to the Executive branch. This is unheard of in the history of the Republic.
If the current financial crisis scares people the response from Congress should terrify everyone. This could prove to be the worst response to a crisis ever.
or it is the best calculated response… it all depends on the agenda, doesn’t it?
just what has all the “actions” of the FED, Paulson, Bernanke, Bush + Congress told us in the last few months? shouldn’t those actions paint a horribly ugly picture for us: they are wiping out the middle class with one inflationary move after another.
it really is too bad that most Americans has not a clue on how banking actually works and what these moves are actually doing, and then asking again: for what purpose?
From Rob R.:
Congress should NOT give the money to the broken banking industry that got us into this mess. Congress should instead distribute the $700 billion to all of us individual tax payers! It would be much better than the measly stimulus checks the government sent out earlier this year. The US citizens could then use OUR MONEY to make these fat cat bankers apply for loans and of course charge them crazy high interest rates so that we all could recoup our initial investments plus earn more than enough to retire and live happily ever after.
I’m scared. I’ve been scared for a week now.
Good post.
Here are the bullet points of the proposal I stole from the SF Chronicle.
Bailout Proposals
Key elements of the $700 billion bailout plan submitted by the Bush administration to Congress, plus changes sought by Democrats:
Bush Plan
Give the Treasury secretary broad authority to buy up to $700 billion in virtually any kind of bad asset – including credit card debt or car loans – from any financial institution in the United States or abroad in order to stabilize markets.
Raise the $10.6 trillion statutory limit on the national debt to $11.3 trillion.
Allow the Treasury secretary to buy, hold and sell the assets in any way he sees fit. That includes the ability to go outside normal government contracting practices to hire private companies to manage them.
Give the government power to designate financial institutions as “financial agents of the government” and require them to carry out any “reasonable duties” that entails.
Require the administration to report to congressional budget, tax-writing and financial services committees within three months of using the authority and every six months thereafter.
Instruct the Treasury secretary to consider both providing market stability and protecting taxpayers in using the bailout power.
Shield program from judicial review.
Program expires two years after enactment.
Democratic Changes
Closer oversight, including an emergency board to keep an eye on the program, with two congressional appointees and a special inspector general appointed by the president.
Limit the kind of troubled debt that the government can buy to mortgage-related investments.
Require that the government get shares in the troubled companies helped by the rescue.
Create a means to help prevent foreclosures on the mortgages acquired as part of the bailout.
Change the law to give bankruptcy judges the authority to rewrite mortgages to lower homeowners’ monthly payments.
Place limits on the executive pay packages of companies that unload their bad assets on the government.
Limit the program to financial institutions with “significant operations” in the United States and exclude foreign central banks and companies owned by foreign governments.
Expires at the end of 2009.
Source: Chronicle news services
New Powers
The bailout plan submitted to Congress seeks vast powers for the Treasury secretary to purchase troubled assets from financial institutions over the next two years, to hire people to manage that portfolio and to issue regulations to stabilize the mortgage market as the secretary “deems necessary.”
US Financial Chief:
The plan essentially rewrites the job description so that the Treasury secretary is not only the overseer of the government’s tax revenue and fiscal policies domestically and abroad, as before, but also in effect becomes the chief executive for the nation’s financial system.
Huge Line of Credit:
Under the plan, the secretary would have a credit line of $700 billion from taxpayers – more than the Pentagon’s annual budget – to go into financial institutions and buy, hold and ultimately sell troubled assets.
2-year Program:
The powers would be for two years, but that could be extended: Treasury Secretary Henry Paulson has said the problems with mortgage loans will most likely last years. And the entire program would be sheltered from court review.
Although I am really upset that this has occured. This package is needed – Yes, oversight is need – but the financial system is broke and if congress does not act quickly – Our 401k and savings will be “0″ and our homes will be worth lesser and lesser each day. Your choice….
It is not that I don’t believe something needs to be done but I have listened to one “expert” after the other over the past couple of days and they have no idea of the scope of the problem. Therefore we don’t know if a $700 billion dollar infusion will be enough or how effective the current plan will be. Seems to me this plan was cooked up in someone’s basement like crack. Feels good for a few minutes then you crash! This situation reminds me of other legislation that was rushed through Congress like the War Resolution Act and the Patriot Act. We know where those two gems got us! So let’s do something but let’s do it carefully, comprehensively (how about helping people who are defaulting on loans?) and smartly (oversight???).
1. $700 billion was a “back of the envelope” arbitrary number that Henry came up with. its actually closer to $5 Trillion. (Swiss investor Marc Faber, known for a long track record of good calls, believes the damage may come to $5 trillion (Bloomberg News))
2. it is not a “liquidity crisis” it is an “insolvency crisis”. Ben+FED pulled $125 billion of “slosh” (liquidity) from the markets last week. was it done to intentionally put pressure on the banks to expedite the “bailout”? I call blackmail.
3. if the bailout plan (in this guise) happens, your 401k will be inflated into nothingness, anyway. A reckless excess of fiat currency begat this problem. a reckless excess of fiat currency will not solve this problem.
4. on an up note, I am proud of congress. even if there were a few people who voted “no” to save their spineless hides in the next election. unfortunately, there is still a chance that we wont HAVE a next election.
5. welcome to the Titanic: over the bow we see tips of icebergs, barely comprehending what lurks beneath the surface that will sink this “unsinkable vessel” and a bonus: life rafts only for the rich and powerful…