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Kill The Bailout! (Michelle Malkin: Ten Reasons To Oppose The Bipartisan Rape Of American Alert)
Michelle Malkin.com ^ | 9/28/2008 | Michelle Malkin

Posted on 09/28/2008 10:33:18 PM PDT by goldstategop

I listened in on a phone conference this evening with anti-bailout conservatives, congressional staffers, and other Hill insiders. With only one exception, the groups and individuals on the call all opposed the bailout in its current form. They also concurred that this deal is worse than the one Paulson proposed — on constitutional, policy, and fiscal grounds. Phone calls to congressional offices continue to show overwhelming public opposition to the massive, unprecedented government giveaway.

Nevertheless, GOP House Minority Leader John Boehner and the House Republican leadership have thrown in the towel. Make room for them on the couch with Gingrich and Pelosi. Boehner called the deal a “crap sandwich,” but told House Republicans he’ll vote for it.

Are you going to swallow this crap? Is your congressional representative?

Here’s a deeper whiff of the “crap sandwich.”

One staffer on the call this evening zeroed in on the concern many of my readers and I had about the fast-tracking of the second wave of the trillion-dollar-plus “rescue.” In practice, he said, the provision amounts to “an automatic trigger with no action by Congress.”

Some accountability.

Another staffer raises alarm bells about the unfettered authority the bill gives to Treasury Secretary Paulson to define “troubled assets” any way he pleases — way beyond mortgages:

TROUBLED ASSETS.—The term ‘‘troubled assets’’ means— (A) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary determines promotes financial market stability; and

(B) any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress.

Blank check, anyone?

The Heritage Foundation is still gravely concerned about the constitutional questions raised by the bill — an issue underscored by Sen. Jim DeMint.

I’ve already made my case that Treasury Secretary Paulson is not to be trusted and must be contained.

The bailout bill does the opposite.

SALE OF TROUBLED ASSETS.—The Secretary may, at any time, upon terms and conditions and at a price determined by the Secretary, sell, or enter into securities loans, repurchase transactions, or other financial transactions in regard to, any troubled asset purchased under this Act.

…APPLICATION OF SUNSET TO TROUBLED ASSETS.—The authority of the Secretary to hold any troubled asset purchased under this Act before the termination date in section 120, or to purchase or fund the purchase of a troubled asset under a commitment entered into before the termination date in section 120, is not subject to the provisions of section 120.

SEC. 107. CONTRACTING PROCEDURES. (a) STREAMLINED PROCESS.—For purposes of this Act, the Secretary may waive specific provisions of the Federal Acquisition Regulation upon a determination that urgent and compelling circumstances make compliance with such provisions contrary to the public interest. Any such determination, and the justification for such determination, shall be submitted to the Committees on Oversight and Government Reform and Financial Services of the House of Representatives and the Committees on Homeland Security and Governmental Affairs and Banking, Housing, and Urban Affairs of the Senate within 7 days.

The diversity racketeers’ minority contracting shakedown, which I flagged yesterday, is alive and well in the bill:

ADDITIONAL CONTRACTING REQUIREMENTS.—In any solicitation or contract where the Secretary has, pursuant to subsection (a), waived any provision of the Federal Acquisition Regulation pertaining to minority contracting, the Secretary shall develop and implement standards and procedures to ensure, to the maximum extent practicable, the inclusion and utilization of minorities (as such term is defined in section 1204(c) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 1811 note)) and women, and minority and women-owned businesses (as such terms are defined in section 21A(r)(4) of the Federal Home Loan Bank Act (12 U.S.C. 1441a(r)(4)), in that solicitation or contract, including contracts to asset managers, servicers, property managers, and other service providers or expert consultants.

Section 110 is the Democrat-backed “Assistance to homeowners” plan — driven by one of the bill’s key stated goals of “preserving homeownership.”

GENERAL.—To the extent that the Federal property manager holds, owns, or controls mortgages, mortgage backed securities, and other assets ecured by residential real estate, including multifamily housing, the Federal property manager shall implement a plan that seeks to maximize assistance for homeowners and use its authority to encourage the servicers of the underlying mortgages, and considering net present value to the taxpayer, to take advantage of the HOPE for Homeowners Program under section 257 of the National Housing Act or other available programs to minimize foreclosures.

(2) MODIFICATIONS.—In the case of a residential mortgage loan, modifications made under paragraph (1) may include— (A) reduction in interest rates; (B) reduction of loan principal; and (C) other similar modifications.

Yes, in the quest to “preserve homeownership” at all costs, it appears the government will be determining the value of homes directly in the marketplace — not only reducing interest rates but also loan principal.

Reader Robert calls attention to another micro-meddling section:

SEC. 124. HOPE FOR HOMEOWNERS AMENDMENTS. Section 257 of the National Housing Act (12 U.S.C. 1715z-23) is amended— (1) in subsection (e)— (A) in paragraph (1)(B), by inserting before ‘‘a ratio’’ the following: ‘‘, or thereafter is likely to have, due to the terms of the mortgage being reset,’’; (B) in paragraph (2)(B), by inserting before the period at the end ‘‘(or such higher percentage as the Board determines, in the discretion of the Board)’’; (C) in paragraph (4)(A)— (i) in the first sentence, by inserting after ‘‘insured loan’’ the following: ‘‘and any payments made under this paragraph,’’; and

(ii) by adding at the end the following: ‘‘Such actions may include making payments, which shall be accepted as payment in full of all indebtedness under the eligible mortgage, to any holder of an ex6 isting subordinate mortgage, in lieu of any future appreciation payments authorized under subparagraph (B).’’

Robert asks: “Is this about renegotiating mortgage rates of existing mortgages? Did I just get screwed for paying a point to lock in 5% fixed rate when my %^&*# neighbor went with no points adjustable rate? How the hell is this fair? I want his new rate and MY POINT BACK!”

Hold The Mayo rightly calls the bailout bill $700 billion worth of lipstick on a pig.

Here are the relevant portions of the draft (all emphasis mine):

Section 103. Considerations.

In using authority under this Act, the Treasury Secretary is required to take a number of considerations into account, including the interests of taxpayers, minimizing the impact on the national debt, providing stability to the financial markets, preserving homeownership, the needs of all financial institutions regardless of size or other characteristics, and the needs of local communities. Requires the Secretary to examine the long-term viability of an institution in determining whether to directly purchase assets under the TARP.

Section 107. Contracting Procedures. Allows the Secretary to waive provisions of the Federal Acquisition Regulation where compelling circumstances make compliance contrary to the public interest. Such waivers must be reported to Congress within 7 days. If provisions related to minority contracting are waived, the Secretary must develop alternate procedures to ensure the inclusion of minority contractors.

Section 109. Foreclosure Mitigation Efforts. For mortgages and mortgage-backed securities acquired through TARP, the Secretary must implement a plan to mitigate foreclosures and to encourage servicers of mortgages to modify loans through Hope for Homeowners and other programs. Allows the Secretary to use loan guarantees and credit enhancement to avoid foreclosures. Requires the Secretary to coordinate with other federal entities that hold troubled assets in order to identify opportunities to modify loans, considering net present value to the taxpayer.

Section 110. Assistance to Homeowners. Requires federal entities that hold mortgages and mortgage-backed securities, including the Federal Housing Finance Agency, the FDIC, and the Federal Reserve to develop plans to minimize foreclosures. Requires federal entities to work with servicers to encourage loan modifications, considering net present value to the taxpayer.

Section 124. Hope for Homeowners Amendments. Strengthens the Hope for Homeowners program to increase eligibility and improve the tools available to prevent foreclosures.

I’m neither a lawyer nor an expert at interpreting legislative language, but I see all that adding up to a continuation of the federal government using the banks and the mortgage industry as a massive welfare program…

…The quotes above are from an early draft. I have every faith that the final legislation will be far worse.

I concur.

One last howler for now. The enormously conflict-of-interest-plagued Paulson, who gets unfettered authority to hire whomever he wants and contract with whomever he wants, will get to determine regs and guidelines on conflicts of interest:

SEC. 108. CONFLICTS OF INTEREST. (a) STANDARDS REQUIRED.—The Secretary shall issue regulations or guidelines necessary to address and manage or to prohibit conflicts of interest that may arise in connection with the administration and execution of the authorities provided under this Act, including—

(1) conflicts arising in the selection or hiring of contractors or advisors, including asset managers; (2) the purchase of troubled assets; (3) the management of the troubled assets held; (4) post-employment restrictions on employees; and (5) any other potential conflict of interest, as the Secretary deems necessary or appropriate in the public interest.

Fox, meet henhouse.

The House vote is reportedly set for sometime tomorrow between noon and 12:30pm Eastern. Latest word from a Hill staffer is that the Senate will try and squeeze in a vote before sundown (when the Jewish High Holy Days begin).

There is still time to make your voice heard: 202-224-3121.

This is not a done deal. Via Roll Call late tonight, have an airsickness bag ready when you read how House GOP leaders are now adopting the b.s. rhetoric of the Democrats (e.g., not calling this pig of a bailout a bailout):

The House is making unsteady progress toward a final deal on a $700 billion bailout package for the financial markets, with both parties warily eyeing each other for signs that they will commit enough votes so a bipartisan victory can be declared.

Both the House Republican Conference and House Democratic Caucus spent hours cloistered in closed-door sessions Sunday night as Congressional leaders tried to gather support for the package within their own ranks by putting outstanding questions about it to rest.

All eyes are on the House Republicans, who threw talks on a deal into disarray Thursday when they abandoned bipartisan, bicameral negotiations with the White House.

Rank-and-file GOPers trickling out of their more than three-hour meeting Sunday night said the final bill is more palatable to Republicans than previous proposals, but it is unlikely that there will be a unified floor vote on Monday.

The bill filed tonight is “a giant improvement” over previous proposals, namely because it considerably reduces taxpayer risk, House Minority Leader John Boehner (R-Ohio) told reporters after the meeting.

“At the end of the day, there really is no taxpayer risk in this bill,” Boehner said, referring to mandated insurance provisions in the package.

Asked how many Members will vote for the bill, Boehner said he didn’t know but that GOP leaders “are working on it. … I made it pretty clear to our Members that we are supporting this.”

House Minority Whip Roy Blunt (R-Mo.) described the plan as a “work-out of the problem” instead of a “bailout of the problem.”

Tell your congressional rep: Don’t swallow this crap. Cut it.

***

Via FreedomWorks, 10 reasons to oppose the bailout. Click to sign their petition. Memo to House GOP leadership. It’s a bailout, not a “workout,” no matter how much lipstick you put on it:

Ten Reasons to Oppose the Wall Street Bailout

1. NO REFORM: The plan attempts to mask, rather than reform, imbalances in credit markets and in U.S. economic public policy. The plan props up reckless and failed banks by buying “troubled assets” instead of focusing on real reforms that go after government sponsored culprits Fannie Mae and Freddie Mac, and sustainable policies that will increase the availability of private capital and expanded economic growth.

2. TREASURY POWER GRAB: The plan raises Constitutional concerns by dramatically expanding the power of the current and future Treasury Secretaries, giving the government agency power to directly purchase assets from for-profit financial and non-financial firms.

3. STUNNING PRICE TAG: The $700 billion bailout figure is as much money as the combined annual budgets of the Departments of Defense, Education and Health and Human Services. It amounts to $2,300 for every man, woman, and child in America.

4. INCREASES NATIONAL DEBT: Instead of cutting spending elsewhere, Congress will borrow all $700 billion on global capital markets, and the bill raises the national debt ceiling to a staggering $11.3 trillion.

5. GLOBAL BAILOUT: The plan includes taxpayer purchases of distressed assets from foreign banks.

6. HURTS RESPONSIBLE AMERICAN BANKS: The plan punishes responsible U.S. banks by keeping reckless, insolvent investment banks in business. As BB&T CEO John Allison wrote in a letter to Congress on Sept. 23rd, “….this is primarily a bailout of poorly run financial institutions…. Corrections are not all bad. The market correction process eliminates irrational competitors.”

7. FLAWED PROCESS: Members of Congress and the public will have less than 24 hours and no hearings to discuss and understand the impact of this sweeping plan. This rush to pass a wildly unpopular plan without benefit of significant public debate and input will also undermine its legitimacy and effectiveness.

8. BY WALL STREET, FOR WALL STREET: Treasury Secretary Paulson, the architect of the plan, was formerly the head of Goldman Sachs, one of the firms responsible for the mess and a direct beneficiary of the bailout. Further, the advisers managing the bailout auctions and assets will be Wall Street firms and will likely receive billions of tax dollars in fees.

9. OTHER OPTIONS NOT EXHAUSTED: The idea that taxpayers will make money on the bailout is not credible. There are ready buyers for these “troubled assets” — Merrill Lynch sold its entire portfolio of mortgage backed securities in July– provided the price is low enough. If a profit was possible, private speculators would readily buy these troubled assets.

10. MORALLY OFFENSIVE: The plan violates basic principles of American capitalism and honest governance by creating a system of “private profits, socialized losses” that transfers money from taxpayers directly to Wall Street investment banks. Free market capitalism only functions if individuals and firms are held accountable and are allowed to both succeed and profit, and also to sustain losses and even fail.

***

The Republican Study Committee has put out on analysis. The committee points out that the bill “increases the limit statutory debt limit from $10.615 trillion to $11.315 trillion, an increase of 6.6%. If enacted, the 110th Congress will have presided over three debt limit increases—a total of $2.33 trillion or 26.2%.”

The full analysis follows:

The Emergency Economic Stabilization Act of 2008

Summary: The Emergency Economic Stabilization Act (H.R.__) provides the Treasury Department with the authority to purchase illiquid, troubled assets on the books of private financial institutions, in an effort to resolve the current financial crisis. The highlights include the following:

*

Purchase Authority: Provides $700 billion in purchase authority at any one time to Treasury to purchase “troubled assets from any financial institutions,” of which $250 billion would be made immediately available and another $100 billion once the President certifies that Treasury needs the authority. The final $350 billion is authorized, but Congress could halt the authority by passing a joint resolution disapproving the action (under fast-track procedures). However, such joint resolutions require the signature of the President to take effect. While provided in installments or “tranches,” the bill provides the full $700 billion, as initially requested by the Administration to calm the financial markets.

*

Troubled Assets: Broadens the Treasury Department’s original request for mortgage-related assets to a larger class of “troubled” assets.” Such assets are defined as “any residential or commercial mortgages any securities, obligations, or other instruments that are based on or related to such mortgages” and “any other financial instrument that the Secretary…determines the purchase of which is necessary to promote financial market stability” (emphasis added). This definition significantly expands the scope of the purchasing program to potentially many more classes of securities (e.g.., those backed by car loans, credit-card debt, etc.).

*

Insurance Component: Requires the Treasury Department to establish a federally-backed insurance program, similar to the Federal Deposit Insurance Corporation (FDIC), for holders of troubled assets, if it utilizes its purchase authority (which it is expected to do). Treasury would guarantee up to 100% of the timely payment of principal and interest on certain classes of troubled assets, presumably those worth more than the ones which will be immediately purchased. A risk-adjusted premium would be assessed to holders of these assets to self-finance the program through the participants. The total amount of assets insured by the program, minus the premiums, would offset the purchase authority available to Treasury. However, it is unclear whether the insurance program would be set up quickly or effectively (with a large enough class of assets) to ensure that it can be used to substantially offset Treasury’s purchase authority.

*

Private Firms as Financial Agents: Authorizes Treasury to designate private financial institutions as its agents to carry out such duties as may be required in exercising its new authority. The bill directs Treasury to solicit bids from a broad range of qualified firms and to “take appropriate steps to manage conflicts of interest, including requiring potential firms to indentify and disclose… potential conflicts.” The FDIC would be among the candidates chosen to manage the purchased assets.

*

Priorities: Requires the Treasury Secretary to exercise its authority in a manner that will protect the taxpayer, provide stability and prevent disruption to the financial market system, the need to help families keep their homes and to stabilize their communities, etc. (in that order).

*

Executive Compensation: Sets executive compensation limits on two classes of firms, 1) those which the federal government directly takes over “AIG-style” and 2) those who sell $300 million or more in assets to the federal government, so-called “high-volume sellers.” For those firms directly taken over, the Secretary would establish limits on compensation for taking unnecessary and excessive risk, a prohibition on “golden parachute” payments, and a process for recouping any incentive payments made to “senior executives” (top 5 executives of a public company) based on earning statements later proven to be materially inaccurate. For high-volume sellers, the legislation would also ban golden parachute payments and lower the current deduction for executive compensation from $1 million to $500,000. Many conservatives may be concerned that, while aimed only at participating firms, this change to tax law sets a dangerous precedent since liberals have pushed for years to lower this deduction. It should be noted that the limit on the deduction itself is one of the main reasons for corporations to structure incentives-based compensation that may cause corporate actors to take excessive risks to boost share prices.

*

Reverse Auctions: Requires the Secretary to use methods, such as auctions or “reverse” auctions, in purchasing firms’ troubled assets, in order to minimize the cost to taxpayers. Treasury intends to use a process whereby it indicates its intent to buy a certain class of troubled assets and competing firms provide the terms for which they would sell. If the process works, Treasury would choose the seller with the lowest sticker price. When these assets are later sold, the proceeds would flow into general revenues. However, some conservatives may be concerned that this process may not work in practice because: 1) all sellers have an incentive to hold onto to their assets until the government offers an inflated price over what the market would currently bear (since firms are undercapitalized and there is a limit to the losses that they can sustain by selling their assets at market or below-market rates), and 2) the classes of assets are not particularly large or homogenized, since many of these securities are so complex and unique, perhaps making it difficult to attract a large pool of willing sellers to drive down prices.

*

Warrants: Requires the Treasury to receive warrants for non-voting, common or preferred stock in firms that sell more than $100 million in troubled assets to the government. A warrant is a certificate that entitles the holder to purchase securities at a certain price. Giving the federal government a warrant to shares of participating firms provides a mechanism for taxpayers to recoup a portion of the initial price if share prices increase and the shares can later be bought and sold for a profit. However, it also sets a dangerous precedent in that it allows the federal government to own shares in private companies, if the warrant is exercised instead of being sold. While the warrants could only purchase non-voting shares, minimizing any authority that comes with such ownership, some conservatives had recommended that the federal government only be able to sell these warrants and never exercise them. This would have allowed for similar levels of taxpayer recoupment without setting a dangerous precedent of the federal government inevitably owning large swaths of the U.S. financial sector.

*

5-Year Recoupment Plan: Requires the President after five years to determine whether taxpayers have suffered a net loss as a consequence of the purchase program, and if so, to submit a legislative proposal to recoup that amount from participating firms. There is nothing in the bill to ensure that the President’s proposal is considered or passed by Congress, casting doubt on the efficacy of this provision—a variation of the Blue Dogs’ initial proposal to place an indiscriminate tax on the entire financial sector, regardless of whether a firm’s assets where purchased by the Treasury. But to the extent that this provision does lead to legislation, some conservatives may be concerned that it could result in a tax increase.

*

Market and Program Transparency: Requires the Secretary to make information regarding each purchase available to the public in an electronic form, including a description, amounts, and pricing of such assets. The language also requires the Secretary to make public the mechanisms for purchasing troubled assets, the methods of valuing assets, the process for hiring asset managers, and the criteria for identifying troubled assets for purchase.

*

Debt Limit: Increases the limit statutory debt limit from $10.615 trillion to $11.315 trillion, an increase of 6.6%. If enacted, the 110th Congress will have presided over three debt limit increases—a total of $2.33 trillion or 26.2%.

*

Foreign Banks and Financial Authorities: Defines a participating financial institution to include foreign banks if “established and regulated under the laws of the U.S. or any State…and having significant operations in the U.S.” A central bank or institution owned by foreign government would generally be excluded. However, the Treasury would also be required to coordinate with foreign financial authorities and central banks to establish similar programs in other countries, and to the extent that such foreign institutions lend money to firms with troubled assets that have failed or defaulted, they would be made eligible.

*

Oversight Board: Establishes a five-person Financial Stability Oversight Board, including the Chairman of the Federal Reserve, the Treasury Secretary, the Director of the Federal Home Finance Agency, the Chairman of the SEC, and the Secretary of Housing and Urban Development, to review the exercise of authority under this legislation and make recommendations to the Treasury.

*

Bank Losses on GSE Stock: Allows banks to treat losses on shares of preferred stock in Fannie Mae and Freddie Mac as ordinary losses to offset ordinary income, not as capital losses (which is capped). This provision is targeted at many community banks who hold GSE preferred stock and sustained heavy loss after Treasury placed Fannie and Freddie in conservatorship.

*

Discharge of Mortgage Debt: Extends for two years the exclusion (set to expire on January 1, 2010) from a taxpayer’s gross income any discharge of indebtedness income, as long as the debt is for the acquisition, construction, or substantial improvement of the taxpayer’s principal home (in addition to certain refinancing).

*

Affordable Housing Earmark: Does not include the provision proposed by Democrat negotiators to earmark 20% of any funds recouped from the disposition of the purchased assets for the Affordable Housing Fund, whose funds flow to many non-profit entities such as ACORN or La Raza. It should be noted that this provision was not part of the original Treasury plan.

*

Mortgage “Cram-Down”: Does not authorize bankruptcy judges, as part of creating plans for debtors facing foreclosure to repay their subprime or nontraditional (e.g. interest-only) mortgage debts to reduce or delay adjustments to adjustable-rate subprime or nontraditional mortgages, set a new, fixed interest rate, extend repayment periods, etc.

*

Foreclosure Mitigation: Directs the Secretary of the Treasury, as an owner of mortgages underlying troubled assets, to implement a plan to maximize assistance to homeowners and to encourage servicers of the underlying mortgages to take advantage of foreclosure prevention programs. In addition, the language requires the Secretary to consent to “reasonable requests” (undefined) from loan servicers for mortgage term extensions, rate reductions, principal write-downs, increases in the proportion of loans within a trust, or the removal of other modification limits.

*

Expiration of Authority: Terminates the Secretary’s authority to purchase and insure troubled assets on December 31, 2009, but allows for extensions until two years after the date of enactment. These sunset dates do not apply to the Secretary’s ability to hold purchased assets, since many of these assets may still not be able to be sold by that point.

*

Mark to Market Accounting: Restates current law that authorizes the SEC to suspend mark-to-market accounting with respect to any class or category of transactions. The bill also requires the SEC to study the impact of mark-to-market regulations on the balance sheets of financial firms and the advisability and feasibility of potential modifications. Some conservatives may be concerned with the lack of stronger language, requiring the SEC to promulgate new rules that allow firms to better reflect the true economic value of the mortgage-related assets on their books.

*

Exchange Stabilization Fund: Requires the Secretary to replenish the Exchange Stabilization Fund for any funds used to provide a temporary guarantee program for the money market fund industry and bars it from ever being used that way again.

Conservative Concerns: No one would argue that the question before Congress of whether to give Treasury the authority to nationalize mortgage-related and other troubled assets is an easy one. Financial markets are clearly in turmoil, and many large—previously thought to be impregnable—financial firms have and may fail in the weeks to come. Many experts and news reports also warn that without some federal action to bolster market confidence there will continue to be either stagnation in the capital markets or worse, a run on all depository institutions. No one wants those fears to be realized.

However, many conservatives may be concerned that authorizing the Secretary of Treasury to purchase up to $700 billion amounts to an indirect tax of $6,034 per American household, and it will likely forever change the landscape of the nation’s free-market system. Institutions, policies, and precedents—right or wrong— enacted in crisis tend to become permanent fixtures.

As Luigi Zingales, a professor at the University of Chicago, writes:

The decisions that will be made this weekend matter not just to the prospects of the U.S. economy in the year to come; they will shape the type of capitalism we will live in for the next fifty year. Do we want to live in a system where profits are private, but losses are socialized? Where taxpayer money is used to prop up failed firms? Or do we want to live in a system where people are held responsible for their decisions, where imprudent behavior is penalized and prudent behavior rewarded? For somebody like me who believes strongly in the free market system, the most serious risk of the current situation is that the interest of few financiers will undermine the fundamental workings of the capitalist system. The time has come to save capitalism from the capitalists.

Some conservatives may believe that Treasury is right, and given the present circumstances, the risk of inaction is so grave as to warrant such new authority. Others may indeed wonder whether in this moment of crisis, America is on the brink of something far worse—forfeiting its free-market system by placing an implicit guarantee on all economic failure. The message to rational actors with a bail-out of this magnitude is that your profits will be private but your losses socialized. But the system often does not work that way, at least not for long. If losses are socialized, it is likely that profits will soon be on the way, meaning Americans will no longer be free, not just to fail, but to succeed.

Specifically, many conservatives may have the following concerns with the legislation, because the plan:

*

Fails to adequately penalize the debtholders and shareholders (including many of the executives themselves), who should bear the risk of any losses, and indirectly infuses capital directly onto the books of these financial institutions. *

Alters fundamentally the nation’s free-market system in that it broadly socializes firm’s money-losing mortgage assets and places the U.S. on a slippery slope whereby profits may also be nationalized. *

Cedes massive authority to Treasury. Given the fact that the Presidential election is a mere six weeks away and a new Secretary will take office in January 2009, lawmakers have absolutely no idea what individual will ultimately be exercising this vast new authority over the long-term. *

Sets up Treasury to pay inflated prices for assets. Since there is nothing in the proposal that forces the financial institutions to sell their assets at a discount rate or event at all, many of these owners may simply wait on the government to increase their bid, leading to more inflated prices than the market would currently bear. *

Creates the potential for an enormous bureaucracy that will be needed to administer the purchase and insurance programs. *

Increases the federal deficit and national debt. The new mandatory spending, will cause a massive increase in the national debt and an immediate (although smaller) increase in the federal deficit. These annual deficits are funded by selling government bonds purchased by a host of large investors, including foreign countries. However, there is a limit to the amount of bonds that a government can float without adverse financial effects. *

Aids financial institutions that may not pose a systemic risk. Some companies, such as AIG, may truly pose a systemic risk to the entire market. However, there is no requirement under the proposal that a company truly be “too big to fail.” Instead, any financial institutions with mortgage-related assets would be eligible.

Additional Background: On Friday, September 19, 2008, the Treasury Department requested broad new authority to calm U.S. financial markets and purchase illiquid mortgage-related assets from various financial institutions. According to extensive press reporting, the Administration took this action after a series of repeated federal interventions were unsuccessful and a panic began to spread throughout financial markets.

The market for commercial paper, or short-term corporate bonds, tightened as institutional investors increasingly valued ready cash. These investors, namely money-market funds, continued to hoard cash in preparation of an expected run on their funds, which began as investors withdrew roughly $144.5 billion (compared to $7.1 billion the week before). In many cases, these investors fled to short-term government bonds, accepting little-to-no rate of return in exchange for the knowledge that their cash was secured. One money-market fund, Putnam Prime Money Market Fund, shut down because too many investors sought to take their money out at one time, and another, Reserve Primary Fund, announced that it would suspend redemptions temporarily. Administration officials feared that such a lack of confidence would spread.

The case of Reserve Primary Fund is instructive, because it was this money-market fund which seems to have set off the run due to the amount of corporate debt it held in Lehman Brothers. Lehman Brothers had filed for Chapter 11 bankruptcy protection the day before with more than $613 billion in debt. Between 2004 and 2007, this debt had been used in part to purchase almost $300 billion in securities backed by residential and commercial mortgages, otherwise known as mortgage-backed securities or MBS, which have been significantly devalued since the downturn in the housing market.

These “toxic” mortgage-related assets have been virtually unmovable from the portfolios of many financial institutions, such as Lehman Brothers, in part because the market has no idea what they are worth. This underlying predicament led to the Treasury Department’s request for blanket authority for the federal government to purchase them—taking them off portfolios, instilling confidence and capital in those firms who had previously held them, in order that lending and borrowing can resume.

Committee Action: The legislation has not been considered by any congressional committee.

Cost to Taxpayers: A CBO score is not yet available. However, the funding authorized is not subject to appropriations and constitutes mandatory spending. The bill treats the cost of purchasing the assets under the provisions Federal Credit Reform Act of 1990, ensuring that the net-present value of the purchased securities will be scored instead of the initial outlays. This treatment recognizes that the securities have some value (even if less than the purchase price), but value which may not realized until they are sold. Under credit-reform scoring, the cost of the initial outlays is offset by an estimation of what the eventual sale of the assets will return in receipts, and it is this figure which will impact the federal deficit. Given the uncertain value of many of these securities, it is unclear whether CBO will have the necessary information to accurately score the legislation’s long-term fiscal impact.

Furthermore, Sec. 204 deems all costs arising under the legislation an emergency for purposes of the Congressional budget process.

Does the Bill Expand the Size and Scope of the Federal Government? Yes, substantially as the federal government would now be purchasing billions of dollars worth of troubled securities.

Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates? A CBO score is not yet available.

Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax Benefits/Limited Tariff Benefits? A Committee report designating compliance with clause 9 of rule XXI is unavailable.

Constitutional Authority: A Committee report citing Constitutional authority is unavailable. House Rule XIII, Section 3(d)(1), requires that all committee reports contain a statement citing the specific powers granted to Congress in the Constitution to enact the law proposed by the bill or joint resolution. [emphasis added]


TOPICS: Constitution/Conservatism; Crime/Corruption; Culture/Society; Editorial; Government; News/Current Events; Philosophy; Politics/Elections
KEYWORDS: 2008election; bailout; bipartisanrape; capitalism; citizenuprising; conservatism; corporatewelfare; couchwithpelosi; crapsandwich; killthebailout; michellemalkin; peoplepower; republicrats; socialistbailout; wallstreetmeltdown
Long but good! We're about to get reamed by the bipartisan elite that's selling Middle America down the river to make good on their campaign contributions from Wall Street fat cats. The conventional wisdom is the votes are their to pass it. If there is a citizen uprising, it can be killed! We can bring the out of touch Washington elite to their knees and make them put country first. Its time to stop being liberals or conservatives and to start being Americans. KILL THE BAILOUT! Tell Obama, McCain, Pelosi, Boehner, Reid and McConnell you want NONE of it. And let Bush and Paulson know too, you don't appreciate them using your hard earned dollars on behalf of the most extravagant corporate welfare giveaway in American history. Let's stop them before our country is raped!

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

1 posted on 09/28/2008 10:33:23 PM PDT by goldstategop
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To: goldstategop

Bookmark


2 posted on 09/28/2008 10:38:54 PM PDT by dragnet2 (We are witnessing the biggest expansion of government in American history)
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To: goldstategop
As I've stated many times in the past it is becoming increasingly difficult to distinguish the GOP from the Democrats because the latter has been intent over the years to expand its voter base to include socialists. House Republicans throwing in the towel is only more evidence the GOP has been incrementally taking on the political ideology of the RATS to the point where they are essentially one party.
3 posted on 09/28/2008 10:40:04 PM PDT by Man50D (Fair Tax, you earn it, you keep it!)
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To: goldstategop

Correction: Latter should read former.


4 posted on 09/28/2008 10:41:21 PM PDT by Man50D (Fair Tax, you earn it, you keep it!)
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To: Man50D
Correction: We have a Republicrat big government party. Obama and McCain are both liberals. They just differ in what aspects of government to expand. And they both want to reward Wall Street and La Raza at the expense of Middle America.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

5 posted on 09/28/2008 10:43:53 PM PDT by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives In My Heart Forever)
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To: goldstategop

INTREP


6 posted on 09/28/2008 10:50:25 PM PDT by LiteKeeper (Beware the secularization of America; the Islamization of Eurabia)
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To: goldstategop
And they both want to reward Wall Street and La Raza at the expense of Middle America.

It's not that they want to reward Wall street. They are bailing out Wall street to control Wall street with more regulations as evident in the new legislation. Control a large portion of money flowing through the U.S. economy and you achieve that much more power to control the masses.
7 posted on 09/28/2008 10:54:23 PM PDT by Man50D (Fair Tax, you earn it, you keep it!)
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To: Man50D
That's the whole point of socialism. If you can control people's bank accounts and mutual funds, you can control their votes. No wonder the politicians are grinning from ear to ear. Its like a dream come true for them!

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

8 posted on 09/28/2008 10:56:56 PM PDT by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives In My Heart Forever)
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To: mombyprofession

to study and bring to the attention of our congressmen.


9 posted on 09/28/2008 11:05:11 PM PDT by FreedomHammer (Just ring? ... let freedom ROAR!)
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To: goldstategop

They keep saying that they’re protecting the taxpayer - that Wall Street is financing this - where do these dufusses think Wall Street gets their money from? How stupid do they think we are!


10 posted on 09/28/2008 11:06:51 PM PDT by fellowpatriot
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To: fellowpatriot
From us! Either that or they print money to cover the liar's debts.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

11 posted on 09/28/2008 11:08:07 PM PDT by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives In My Heart Forever)
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To: goldstategop

I agree no bailout.


12 posted on 09/28/2008 11:11:10 PM PDT by ColdSteelTalon
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To: ColdSteelTalon
If people could stop it, great! I'm just resigned to the fact we're gonna get reamed, if people are not angry enough to stop it!

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

13 posted on 09/28/2008 11:13:15 PM PDT by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives In My Heart Forever)
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To: goldstategop

Bump for future read. I’m guessing every line is worth reading here.


14 posted on 09/28/2008 11:13:27 PM PDT by Freedom_Is_Not_Free
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To: goldstategop

    Give the private sector reasons to solve the current crisis.

  1. Liquidate Fannie Mae and Freddie Mac

  2. Give incentives to private sector to buy assets:

    1. Pass legislation that assets purchased by private sector will have no income tax or capital gains tax on any profits made on assets held to maturity.

    2. Allow tax deduction against ordinary income from all other souces for associated losses on those assets.

    3. Allow tax credit of 10% against associated losses on those assets.

    4. Allow current stockholders of those GSEs to use their stock at book value up to 15% of the purchase price of buying some of those assets.

    5. Mandate that purchases are for packages of loans, not individual loans.

    6. No government backed guarantees for those assets.

  3. Stand back and get out of the way to avoid being crushed in the stampede by the private sector rushing to buy those assets and solve the current crisis.

  4. Investigate and file charges against elected officials and top executives responsible for this mess.

  5. Publicly name those elected officials and top executives responsible for this mess - LOUDLY and often.

      Advantages:

  1. Least cost to taxpayers

  2. Stabilizes economy

  3. Gets the govement out of the mortgage business

  4. Postpones any cost to taxpayers and stretches it out over years.

  5. It will sink the obama campaign. :-)

  6. It will drive the democraps nuts, LOL.


15 posted on 09/28/2008 11:27:24 PM PDT by RebelTex (MOLON LABE!)
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To: goldstategop

I am afraid this “crap sandwitch” is a done deal. The voting will go Monday and I don’t think there is much we can do to stop it.


16 posted on 09/28/2008 11:46:48 PM PDT by jonrick46
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To: jonrick46

Why is no one talking loan instead of bailout?

That way it sounds like we will get our money back instead throwing it down a hole.


17 posted on 09/29/2008 12:19:37 AM PDT by JimBianchi11 (The 2A is the cornerstone of our free society. Those that don't support it, oppose it.)
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To: JimBianchi11

bttt


18 posted on 09/29/2008 12:31:05 AM PDT by RebelTex (MOLON LABE!)
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To: goldstategop
I just heard on Fox that the House vote will start 7:00 AM Monday morning. This is so early that most will not have read the bill. It looks like a railroad job so typical of the DemonRATs. I hope the Republican wake up Monday morning and say wait a minute!
19 posted on 09/29/2008 12:31:27 AM PDT by jonrick46
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To: jonrick46

The more we email and call about our opposition the better chance we have of it not passing. Even if it is a done deal, the more senators and representatives that vote in opposition to it, the less chance the democrats have to say it was a bipartisan supported bill. I personally think that there will be a few democrats that are up for election that may not vote for this bill either, if they want to get back in office, as they know all too well that the public does not support this bill. I haven’t met even one democrat who supports this bill either!


20 posted on 09/29/2008 12:32:36 AM PDT by Flamenco Lady
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To: goldstategop

here’s a reason to support it:

WILL STOP PANIC THAT LED PEOPLE TO GO FOR OBAMA!


21 posted on 09/29/2008 12:43:58 AM PDT by YoungRenaissanceMan (Current Personal Poll: McCain Wins 278-260 OR Obama Wins 273-269 OR The Chaotic 269-269 Tie Occurs)
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To: goldstategop
If provisions related to minority contracting are waived, the Secretary must develop alternate procedures to ensure the inclusion of minority contractors.

Oh...I get it now. Why don't they just cut to the chase and exile all white males to Alcatraz(?)

22 posted on 09/29/2008 2:03:39 AM PDT by The Duke (I have met the enemy, and he is named 'Apathy'!)
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To: All
Investment banking firm Goldman Sachs has managed to ride out the current crisis while a number of its competitors have vanished. Perhaps GS has luck, or better management, but they have another asset going for them — lots of allies in Congress.

Goldman Sachs bankers have been the country’s top political campaign contributors this year and have given $29.5 million in contributions since 1989, according to the Center for Responsive Politics.

GS “invested” in this year's race.......John McCain took $208,000 from GS employees, making GS his fourth-largest source of income, and his top 5 contributors all come from Wall Street.

However, Barack Obama has more than tripled McCain’s take, hauling in over $690,000, making GS the largest single source of contributions for Obama. Citigroup and JP Morgan Chase come in #3 and #4 for Obama as well. Interestingly, over the last 20 years, Goldman Sachs has favored Democrats over Republicans by almost 2-1. They’ve produced over $4 million in this cycle alone, 73% of which went to Democrats. Over $1.1 million of that went to Obama and Hillary Clinton alone.

How well connected is Goldman Sachs? Current Treasury Secretary Henry Paulson ran it as CEO from 1998 until he took his current position.

Clinton’s Treasury Secretary, Robert Rubin, was co-chair at GoldSachs. The White House chief of staff, Josh Bolten, was an executive in their London offices. With Congress deliberating about putting $700 billion in taxpayer money at risk, the contribution patterns of the beneficiaries of those contributions certainly seems interesting.

ABC News reports that GS spent more than $43 million in lobbying and campaign contributions over the last twenty years.....especially active in this cycle: The embattled Goldman Sachs and its employees have spent more than $43 million dollars on lobbying and campaign contributions to cultivate friends and buy influence in Washington, DC since 1989, according to an ABC News analysis of campaign finance records compiled by the Center for Responsive Politics.

23 posted on 09/29/2008 6:52:55 AM PDT by Liz (Taxpayer: one who works for the govt but doesn't have to take a civil service test. R. Reagan.)
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To: Liz

I wonder how much Paulson is going to get under the table for buying all of GS bad loans, if the bailout passes.

Kill or suspend the ‘mark to market’ rule. The president could do that in an executive order for National Security. That would immediately provide all the liquidity needed and solve this mess. No bailout needed.


24 posted on 09/29/2008 10:29:39 PM PDT by RebelTex (MOLON LABE!)
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To: RebelTex
I wonder how much Paulson is going to get under the table for buying all of GS bad loans...........

You got that right.......he's on his knees as we type.

The president could kill or suspend the ‘mark to market’ rule in an executive order for National Security.

That's the galling thing here---there are many other options not being considered. BTW, I have heard that ‘mark to market’ rule batted around.

25 posted on 09/30/2008 4:50:22 AM PDT by Liz (Taxpayer: one who works for the govt but doesn't have to take a civil service test. R. Reagan.)
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