Sean-Paul, have you no respect for the four co-equal branches of government? The legislative, executive, judicial and treasury?

Take a damn civics class, and if you don't like our system of government, move to Canada, or Singapore, or where ever.

Your pal,
Fifth in the line to the Presidency
(but I really wouldn't want to take a lesser position)

/s/
Henry Paulson

Dear Senator Obama-

Chances are most if not all of the major commercial and investment banks are insolvent. Not one of them is opting out of the do-not-short list, and they don't seem to have the confidence in their survival to opt out of the L3 asset swap program Secretary Paulson is proposing.

It is also very likely that acutely dangerous systemic risk already exists, not merely from direct lines of credit among the banks, but especially from credit default swaps, which if activated by more than one large bank default would probably bring down many others. Remember, though, that this systemic risk is highly concentrated in the top 25 or so banks in the world, and does not jeopardize the 6,000 other community banks in the U.S.

Third, it is also highly probable that as this recession worsens, and as housing values continue to sink, forcing more foreclosures, the large banks will be even closer to collapse.

Having worked for many years in the banking industry and been closely involved with risk management and derivatives, I can tell you that it looks like catastrophe is already here.

What Sec. Paulson wants you to believe is that catastrophe is approaching, but it can be averted if only Congress acts urgently to give him the extraordinary authority he is requesting. The implication is if you don't give him $700 billion in borrowing authority within a week, markets will collapse and it will be all your fault.

We've seen this drill before, with the Patriot Act and with the Iraq War authorization. The scare tactics, the urgency, the implied threat of blame for any failure - this is what the Bush administration does. Some of you in the Senate were able to stand up to this pressure, and that type of strength is desperately needed now.

If insolvency is here now for the big banks, the last thing you want to do is throw $700 billion of money that is not yours at bailing out the banks who created this disaster. You'll need every bit of that money to protect the taxpayers and their deposits in these banks when these financial companies are thrown into the bankruptcy courts. You'll need that money to make sure consumer deposits are protected with insurance, and you'll need it to keep the healthy parts of these banks that deal with consumers and businesses functioning until they come out of bankruptcy.

And forget about comparing Paulson's plan to the RTC. These L3 assets aren't homes, condos, or commercial real estate that can be easily sold at the right price. They are bits of paper giving the bond holder the right to some small portion of thousands of mortgages, a right that is shared with all the other investors, who are required to agree on what is done with foreclosed properties in the pool. This is one of the reasons no one wants to buy this stuff, and no one will for many years until it is crystal clear what the final losses will be.

Once you give Paulson the authority he seeks, he will buy these securities at 65 cents/dollar, then quietly auction them off at a nickel each. It will be "unfortunate but necessary" to revitalize the banking industry, even though you will discover the banks won't be lending after this is all over to any but the finest credits. You will have rewarded the banks for their calamitous decisions, stuffed the taxpayers with huge losses, squandered your remaining ability to shore up the FDIC, not prevented the big banks from collapsing anyway, done nothing to help the community banks that will constitute the new banking system in this country when these problems are solved, and in the end made the situation much worse.

If you want to do something practical, require the SEC to go into these banks, open up their L3 holdings to public scrutiny, auction off a sampling of these securities, and apply those prices to the L3 portfolios of all the banks. In this way we will know which banks are insolvent. You won't need to go through this charade of having the Treasury take ownership of these assets, because the core of the problem is not that these assets are clogging up bank balances sheets, as Paulson says (which is tantamount to saying, by the way, that no one will buy them). The core of the problem is that there is no transparency about these portfolios and their real worth. Congress doesn't need $700 billion of our money to create that transparency, and if it shows as I suspect that many of these banks are insolvent, that's why we have bankruptcy courts. You can certainly protect the banks from bank runs while they are in bankruptcy.

Paulson is basically rolling you and the rest of Congress into giving him unprecedented power to protect his friends on Wall Street. This decision you are making is probably as momentous as the Iraq War resolution. Don't fall for this bailout disguised as the only way to prevent Armageddon. Armageddon is already here - at least for the big banks - and it needs an entirely different solution. Spend our money protecting us, by ensuring the FDIC is properly funded, by throwing these too-big-to-fail banks into bankruptcy if they truly are insolvent, by preserving the healthy parts of these banks while in bankruptcy, and bringing them back out again so they function under much better safety and soundness regulations. We've had airlines functioning properly and safely for years while in bankruptcy, and there is no reason we can't do the same with banks.

Please, please, do not fall for some useless compromise or bipartisan agreement that gives the administration what it wants in the end. Kill this proposal here and now, protect us from this bailout, and deal with the real problem - the insolvency of the major banks, not the paper that is supposedly blocking their lending capabilities.

Sincerely,

First time at The Agonist? We've been predicting and covering this crisis for almost three years now. There is a lot more to read by some of the best, unheraled voices in finance and international relations. Stick around and start at the front page.

...not the least of which there are fewer Congress-critters who can understand what's happening in the Financial markets than there are likely to vote to give the Executive the powers he's requesting to deal with the issue.

If Congress cedes to the Secretary of the Treasury the power to set monetary policy and move money around, they will have voted themselves out of existence--because then the Executive will no longer need to go to Congress to get the funding he wants to perform his little military 'adventures', or to ensure his business partners are insulated against the consequences of their poor decisions and worse acumen.

Is it OK to start feeling a little panicked *NOW*??

-5.75,-4.05
"God gives men a brain and a penis, and only enough blood to run one at a time." -- Robin Williams

I'm certainly not going to support such a such a law, but what do you think the purpose of that line is? It certainly seems like an open door for a future power-grab and is therefor impermissible, IMHO. But is it intended here as such or more as a liability clause? "Look, I'm going to do what I need to do, but I have enough potentially conflicted interests that I don't want a witch hunt later... whether this works or not."

One interpretation I've come across is that it exists to ensure enactment in a timely fashion. After all, what happens if the market booms at the news, then tanks when a Circuit Court issues an injunction? That would, admittedly, defeat the purpose of the bill (even though there seems to be some consensus here that it won't achieve those aims regardless).

Let's say that is the intent. It still does not make sense. You achieve the same purpose by making Section 8 temporary. With all of the zero lawschool courses I've taken, I would consider having it read:

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 for a period of 45 day after enactment. Subsequently, all actions pursuant with this exemption are subject to retroactive review. The exemption shall not apply to all actions following the exemption period.

At least that says, "Hey, do what you need to do, but realize we are going to look at it later and you will be held responsible."

Decisions... are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law...

Since when is it lawful to make a law that exempts itself from the law?

It's many moons since I've programmed anything in DOS basic, but that looks like an endless loop to me.

Also what is meant by "committed to agency discretion"? Does it mean "decisions can be kept secret?"

Treasury Seeks Asset-Buying Power Unchecked by Courts (Update1)

By Alison Fitzgerald and John Brinsley

Sept. 21 (Bloomberg) -- The Bush administration sought unchecked power from Congress to buy $700 billion in bad mortgage investments from financial companies in what would be an unprecedented government intrusion into the markets.

Through his plan, Treasury Secretary Henry Paulson aims to avert a credit freeze that would bring the financial system and the world's largest economy to a standstill. The bill would prevent courts from reviewing actions taken under its authority.

``He's asking for a huge amount of power,'' said Nouriel Roubini, an economist at New York University. ``He's saying, `Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy.''

As congressional aides and officials scrutinized the proposal, the Treasury late yesterday clarified the types of assets it would purchase. Paulson would have authority to buy home loans, mortgage-backed securities, commercial mortgage- related assets and, after consultation with the Federal Reserve chairman, ``other assets, as deemed necessary to effectively stabilize financial markets,'' the Treasury said in a statement.

The Treasury would also have discretion, after discussions with the Fed, to make non-U.S. financial institutions eligible under the program.

more

It does away with Congress only as regards purchasing of MBS, yes?

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.

I think this is a real test of Barack Obama. I never believed his posturing anti-Iraq war stance. He wasn't in the US Senate at the time and his position was directed at his local constituency. Even with that there were hedges in his stated views that you could fly a C130 through.

Now we have a very similar situation. Plus, it's one that will likely destroy any chance at effectiveness Obama might have as president should he win the election. As digby has mentioned, this $700 billion (possibly multiple times as Ian Welsh has pointed out) will cripple the next government and Republicans will do everything they can to prevent any tax increases. It's the old variant on drowning government in a bath tub, this one of debt. The situation seems so dire that if I were Obama I'd tell the Democrats that I would drop my candidacy if this insane measure proposed by the Bush group, or anything comparable, is passed. But my bet is that Obama will fold and give the Bush people the power to completely gut America.

If Democrats should challenge this first volley in the completion of the rape of America's middle class I'd expect the Republicans to come up with a "compromise" that, though less destructive of the entire constitutional system of America, would still likely gut the treasury, though with token "oversight." That was the usual procedure before Democrats started caving completely to whatever Republicans wanted. Republicans would first propose the insane and then tone it back to the outrageous and Democrats would pat themselves on the back over the compromise they achieved.

The key though is that Obama is the Democrats' leader and it's his future as well as ours that's at stake. If he caves (goes for a post-partisan compromise acquiescence to Republican demands) then it should be obvious that he's happy with his political position, whether senatorial club member or president of little of value, as long as he's got his concerns protected.

Ian Welsh put it well here -
http://firedoglake.com/2008/09/20/heir-to-fdr-or-bush-obamas-defining-moment/

It was a momentous week which rocked global capitalism. As investors panicked, markets crashed and banks collapsed on both sides of the Atlantic, regulators and politicians mounted the most audacious financial rescues in living memory. This weekend an uneasy calm returned but as fears of turbulence continue can the economic wellbeing of Britain and the US ever be the same again?

The Guardian

'What we are living through now will reverberate through the rest of the century in the same way the Great Depression did last century. We are witnessing a very real power shift. Money is moving eastwards - while they're creating wealth, we're losing it hand over fist. Where it ends no one knows.

By :
Date : 21 September 2008 2210 hrs (SST)
URL : AFP

WASHINGTON - The United States will press other countries to forge bailout plans for financial institutions where needed, US Treasury Secretary Henry Paulson said Sunday.

Paulson said the Treasury's proposal to Congress for authority to spend 700 billion US dollars to buy toxic mortgage-related assets from financial institution could serve as a blueprint for foreign authorities facing similar problems.

In an interview on Fox television, the Treasury secretary said: "I'm also going to be pressing our colleagues around the world to design similar programmes for their banks and institutions when they are appropriate."

He said the intent of the legislation "right now wouldn't be to buy from hedge funds."

Asked whether the plan provides for government purchases of tainted assets owned by foreign institutions, Paulson said that would occur as long as they have operations in the US.

"Obviously, we'd want to buy from financial institutions that are employing people, and are an important part of our economy. Because to the American people, if an institution is doing business here is clogged, and can't perform the role they need to do, it's a distinction without a difference -- whether it's a foreign or a US owned."

"Remember, our system is a global one," he said.

Regarding the unprecedented rescue plan unveiled to Congressional leaders late Friday, Paulson, a former Goldman Sachs president, said: "I hate the fact that we have to do it."

"This is a humbling, humbling time for the United States of America as we go around the world and talk to people about our financial system. We'll work through this. We need to stabilize it first and take steps to clean things up."

- AFP/ir

suppose the foreign governments demand that they be paid in cash instead of airy-fairy credit pledged on a worthless scrap of paper? :-)

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