Text of the Bailout Is Authoritarianism At Its Worst

The text of the Bailout Act is out. And Section 8 is egregious:

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.

Call your Congressman or woman and demand that this will not stand, otherwise Congress will have literally just ceded its last bit of power, that of the purse.

Like Stirling said, this is pretty Constitutional, if you ask me.

Nota bene: As a Conservative friend of mine just said in an email, “It’s not good at all. It’s basically a transfer of the unlimited power of the Executive in wartime to spending matters. Taken to its logical extreme, it’s the end of Congress.”

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Sean Paul Kelley

Traveler of the (real) Silk Road, scholar and historian, photographer and writer - founder of The Agonist.

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  • 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)

    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.


    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*??

    “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?”

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

    No. You libruls are just a bunch of shit sammich eating whiners. Everything is fine in the greatest country in the world.


    The Reaction Of The Right For The Last Four Years To Those Who Thought There Might Be A Bit Of A Problem On The Horizon

  • 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.


  • 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 –

  • Again Ian Welsh has this aspect covered. He’s really doing a great job taking the initiative on this current “mass destruction” crisis.



    Treasury keeps options open on asset purchases

    The Treasury Department said on Saturday that its financial rescue plan could permit it to buy assets beyond those backed by mortgages and potentially buy them from foreign holders.

    A fact sheet issued by Treasury on legislative proposals it has before lawmakers said the intent was to buy residential and commercial mortgage-related assets, which may include mortgage-backed securities and whole loans, but added a significant proviso.

    “The Secretary will have the discretion, in consultation with the Chairman of the Federal Reserve, to purchase other assets, as deemed necessary to effectively stabilize financial markets,” the fact sheet said.

    Troubled assets eligible for purchase should come from financial institutions with “significant operations” in the United States. But it said there could be an exemption to that condition by the Treasury secretary, in consultation with the Fed chairman, that broader eligibility is necessary to stabilize financial markets.

    The wording used reminds me of the Bush groups demands in regard to the creation of the Department of Homeland Security. Standard employment protections for government workers had to be removed for the new department. Republicans used the word “flexibility.” They needed the “flexibility” to protect America – from American workers.

    Here the words are “permit,” “intent” (which implies options outside of the specified “intent”), and “discretion” (which is a match for “flexibility” and means “whatever the fuck I want to do”).

  • 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

  • We gotta act now! Pre-emptively! There’s really, really bad stuff going on that only we know about – can’t tell ya. Only a few hints. Just have to trust us because man is this serious grown up stuff. Can’t really sit around talking about it, or allow any independent verification. Come on – it’s URGENT. Just give us the authority – that doesn’t mean we’ll really we’ll use all of it.

    Yep. A very familiar game plan indeed.

  • seems to be intended to be read as “judgement” in this case – ie “to be done as judged necessary by the agency”.

    The redundant usage of the word “review” – “…non reviewable, and may not be reviewed…” – gives me a chill. It looks like heart-pounding eagerness.

    “The best-informed man is not necessarily the wisest. Indeed there is a danger that precisely in the multiplicity of his knowledge he will lose sight of what is essential.”

    – Dietrich Bonhoeffer

  • In Tragedy and Hope, Georgetown history professor Carroll Quigley described the hidden and sometimes not so hidden agenda operative since WWII on the part of Western leaders, political and economic, to create a “new world order” based on their dominance. This project picked up steam after the economic defeat of the USSR and the capitulation of the PRC to “market socialism” and an economic alliance with the West based on capitalistic principles.

    Conspiracy theorists ran away with the idea of the new world order, the Council on Foreign Relations, the Trilateral Commission, and the creation of the Federal Reserve by international bankers, etc. Because of their exaggerations, they have somewhat discredited the whole concept. However, there is a kernel of truth that underlies the hype.

    That project that Quigley reports on emerged as economic neoliberalism as the basis of a neo-imperialism that would replace the defunct British empire with an Anglo-American shadow empire. The new, improved neocolonialism would continue to exploit resource rich regions through economic rather than overtly political means, although political, including military, means would be available as needed. This was the underlying thrust of the Thatcher regime in the UK and the GOP rightist agenda in the US, although sufficient Democratic support was also enlisted. Labor in the UK signed on in the end, too.

    That agenda was opposed from the colonies by occasional revolts, the most serious of which was that inspired by Osama Bin Laden and Dr. Zawahiri, that culminated in the 9/11 (symbolic) attack directly on the US economic center of global reach, destroying that symbol. this act changed the political world as the US and England realized that they were now engaged in a neocolonial war challenging their shadow empire.

    Key in the shadow empire was maintaining the neocolonial rule of the oil sheiks who were exploiting — really plundering — their countries resources to provide the shadow empire with cheap petroleum while enriching themselves and enjoying the protection of the empire. Now Al Qaeda is challenging that, while Iran is asserting its independence and sovereignty also, causing the empire even more problems. The US treated Latin America foolishly and is therefore facing a revolt there also.

    Meanwhile, Russia woke up to the Western attempt to take it over economically through crude capitalistic means, as well as to the danger of an encroaching NATO on its borders. Now Russia is pushing back by assembling an energy coalition of its own to counter the energy-dependent West.

    The second great event is the economic meltdown that is now facing the US and UK because they got careless and permitted more feasting at the top than is sustainable. The effects of this are in the process of working themselves out and that will take several years. During this time, the US and UK will be significantly hampered in attending to the shadow empire, in which many challenges are arising.

    During this time, others will be making hay. The economic development is taking place primarily in Russia, China, Brazil and India. Formerly underdeveloped countries in Asia and Africa are also making strides almost unnoticed in the West. Meanwhile, economic development in the West is stagnating, and the Caucasian population of Europe, including Russia, is declining, with the result that there is an influx especially from the Islamic countries that is causing a social stir.

    The US Caucasian population is also declining, but the non-Caucasian population is increasing and the US is also better prepared to draw on non-white immigrants than Europe. Thus, the situation for the US looks relatively better than that of Europe over the next decades, but both face great challenges.

    China is cooperating with the West as long as it takes for it to achieve global economic dominance, project to be in around 2040. At that time, the US will not longer a primarily Caucasian country, and its politics will be multicultural. This will greatly favor China at that time, since the US will no longer tilt toward the UK and Western Europe genetically.

    China has a score to settle with the West, especially the UK, over the economic devastation that the British empire wrecked on them. But China and the US have much natural affinity, and will cooperate successfully despite the antagonism of the presently ruling rightists in the US, who see China (and Russia) as an enemy.

    China will not adopt Western liberal democracy but will evolve a less totalitarian form of socialism that will recognize human rights, personal liberty, and equality under the law, while maintaining its superior sense of community. Soon US educational institutions will be emphasizing Chinese, Spanish and Arabic the way that classical education, such as I experienced, emphasized French, Latin and Greek.

    Why won’t China adopt Western liberal democracy? Surprising to many, it is not because of communism. Rather, this is not China’s tradition or heritage. Why then did they adopt communism. Because the Marxist historical dialectic squares with traditional Chinese Taoist thinking about the interaction of opposites to produce continuous change.

    These ideas are foreign to most people in the West, who are essentialists. The idea that God created the world in a fixed state, each thing with its own immutable essence, is an example of essentialism. Christian theologians blended this with the Platonic theory of forms to give the West its essentialist character of thought that makes it somewhat rigid and inflexible.

    Moreover, the criterion of truth in Marxism is proven practicality in ordinary life, which is also a Chinese key fundamental. Moreover, Western liberal democracy as represented by the US overemphasizes personal liberty at the expense of community, which is very foreign to the Chinese mind.

  • [Abuse of descretion exists, e.g.,] Where a trial court must exercise discretion in deciding a question, it must do so in a way that is not clearly against logic and the evidence.

    When did logic or evidence ever enter into ANYTHING this administration has done?

    Discretion is only the beginning of what they have abused!

  • I meant it in a figurative sense.

    Discretion is only the beginning of what they have abused!
    The “Bailout Act” enshrines it.

    “While not a Playboy reader, she invites a male acquaintance in for a quiet discussion of Chagall, Nietzsche, jazz, sex.” – not a Hugh Hefner quote

  • eom.

    “The mythical John McCain is an affable, straight-talking, moderately conservative war hero who is an expert on foreign policy” – Bob Herbert

  • Why won’t China adopt Western liberal democracy? Surprising to many, it is not because of communism. Rather, this is not China’s tradition or heritage. Why then did they adopt communism. Because the Marxist historical dialectic squares with traditional Chinese Taoist thinking about the interaction of opposites to produce continuous change.

    – I believe is a very, very good observation on China.

    “The best-informed man is not necessarily the wisest. Indeed there is a danger that precisely in the multiplicity of his knowledge he will lose sight of what is essential.”

    – Dietrich Bonhoeffer

    Terminal velocity

    Bailouts in the United States and elsewhere in the West fast forward the decline of the Group of Eight industrialized countries, and mark another key moment in the rise of Asia as the world’s sole economically viable region. These trends will only accelerate if existing G-8 governments are voted back to power – and if Asia’s central bankers display intelligence

  • Interesting use of grammar. Nice you’ve been around here for the past 11 hours but I’m betting not a single Agonista is going to click on your link – at least not without an arsenal of up-to-the-second virus slaying utilities on board and active – especially since the domain name expired on February 1st. I haven’t even bothered checking the probable redirect because life is short, you know..

    Just sayin’….

    “Why don’t they make the whole plane out of that black box stuff.” –Steven Wright

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