Accountability?
Posted by David Darlington on 21 September 2008 | 10 responses
Section 8 of that $700 billion Wall Street bailout plan:
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.
So the treasury secretary is allowed to spend up to $700 billion of taxpayer money to buy off Wall Street’s mistakes and no one can question his or her decisions? Ick.
Meanwhile, Paul Krugman doesn’t think the bill solves the problem. Update (9/22): More Krugman.
10 Responses to “Accountability?”
It’s absolutely irresponsible legislation, and it’s presentation as having to be done as soon as humanly possible is very dangerous. Setting up government programs that are completely free of oversight are against everything that the American government is based upon, it’s ridiculous. This legislation needs to include a strong regulatory framework to oversee the process and to remove the ability of large scale investors to over-leverage the system.
If the American people are going to pay for the mistakes of others then they can’t be put into the position to do the same thing all over again in another decade. Without a change in the regulatory process regarding leveraging there is too much incentive to take risk that is unacceptable, and those incentives are strengthened even more if a bailout goes through that is, in the terms of Mr. Paulson, “clean.”
It’s dirty, damn dirty.
I’m with George Will completely on this one, per his “Roundtable” comments yesterday on ABC’s This Week: America seems poised to jump headlong into some sort of hideous form of Capitalist Socialism. Not to mention completely remodeling the world economic system.
Never mind that it’s gonna cost taxpayers around a $ trillion, nothing in Paulson’s Plan ensures us that our money will be used to stabilize the system. (Please note: “Last week Barclays paid $1.75 billion to buy Lehman’s North American investment banking and capital markets business. It emerged over the weekend that Barclays had agreed to pay $2.5 billion in bonuses to Lehman bankers in the United States in a move that has angered stricken staff in London.” – London Times)
Under cover of crisis, Bush/Paulson is attempting to ramrod this monstrosity through Congress before it adjourns knowing full well that the jellyfish Dems are terrified of going home without some sort of fix-it in place (hey – it’s worked before!!). So this is the table that Paulson set, and all anyone in Washington appears to consider is what the former CEO of Goldman Sachs has put on that table. But there are other tables too, as others with fewer connection to investment banking have noted. Treasury wants to boost the banking system by selling its bad loans to us taxpayers at top prices which is of course exactly what the financial industry wants. Another way to boost the banking system is by increasing its capital. With that extra capital, banks would have the time to get rid of the bad loans in an orderly fashion and without tapping the taxpayer.
If Congress actually cares about the health and well-being of our economic system, it would do well to heed the advice of former GOP congressman from NY Sherwood Boehlert: “When you rush to judgment, you usually make mistakes. This is something you can’t go on forever without addressing, but Congress in a short span of time is best served by going home.”
At promptly 10 o’clock this morning, I am calling my elected reps to urge NO on Paulson’s “troubled asset relief program.”
I’m no economist, but I’ve learned more in the past 6 months about economics than I ever thought possible. I believe people when they say some sort of bailout is necessary to avoid a depression. But, if we’re spending $700 billion of taxpayer money, I want some accountability measures on this and future treasury secretaries, and some restrictions on Wall Street (higher capital requirements, transparency on these credit default swaps) to prevent this from happening again. It strikes me as suspicious that excess liquidity caused the housing bubble and now Wall Street want more liquidity in the system to get them out of this mess.
DMD
Action is necessary, but not necessarily this action and perhaps not immediately (step 1: create a panic).
The Paulson Plan is the one being pushed because it’s the plan the financial industry is demanding. As critics have noted, the plan only works if Treasury overpays for the “troubled assets” but doesn’t appear to address the real problem (what happens when some institutions are still broke after taxpayers have purchased their “troubled assets?”)
Please check this out: http://faculty.chicagogsb.edu/luigi.zingales/Why_Paulson_is_wrong.pdf
I agree with DMD that the buyout needs oversightand sets a dangerous socialist precedent, however I think overall this is a good idea.
Additionally, I disagree entirely with Jerry’s comment that the govt. is buying these companies at “top prices”. This is just not true. There is a discount involved. For example, Suze Orman stated: “The government is going to make a serious sum of money on that. The taxpayers will, in the end, make money — 80 percent of this company for $85 billion for one of the biggest insurance company out there. Again, I have to say that was one of the best business deals I’ve ever seen in my life.”
http://www.cnn.com/2008/LIVING/personal/09/19/lkl.suze.orman/index.html
I trust Suze Orman;s opinion alot more than some U of C professor I’ve never heard of.
Disclaimer on previous comment: the comments from Suze Orman were on the AIG bailout, not the overall bailout. I don’t think details have been officially released stating how the overall bailout will work.
Paul
Yes details on the bailout have been released.
Nothing in Paulson’s plan says anything about how the prices will be set for the the now currently “troubled”s debt we are buying. If we buy the troubled debt at its current value, the banks will save themselves, but they’d STILL need to raise new $$$l to cover the losses they’ll take selling at a discount. So we’ll have to buy them at more than they’re worth.
We’re all of course hoping that they would be worth something at some future time, but
Paulson hopes that the institutions that will be unburdened of this worthless paper will once again soar like eagles (wasn’t there a song?). This would seem likely to lead to high profitability for the unburdened institutions with lots of money for all.
Wait! Not so fast! Paulson is not enthusiastic about requiring the “unburdened” to give the government warrants for future stock sales to the government. Such warrants would enable the tax suckers (us little people) to buy the companies at distressed prices (like, now prices) and sell the stock at later higher prices so that the Treasury of the United States (us tax suckers) could make money out of this whole thing.
Whoa! That posted before I was finished.
This part of the post was a quote from Pat Lang:
“Paulson hopes that the institutions that will be unburdened of this worthless paper will once again soar like eagles (wasn’t there a song?). This would seem likely to lead to high profitability for the unburdened institutions with lots of money for all.
Wait! Not so fast! Paulson is not enthusiastic about requiring the “unburdened” to give the government warrants for future stock sales to the government. Such warrants would enable the tax suckers (us little people) to buy the companies at distressed prices (like, now prices) and sell the stock at later higher prices so that the Treasury of the United States (us tax suckers) could make money out of this whole thing.
Anyway, I’m hoping to see some people a lot smarter than me weigh in here. This plan seems like something that the free-market wing of the GOP ought to be fighting tooth and nail.
Mr. Newt has a four-step non-bureaucratic solution. Summary:
“First, suspend the mark-to-market rule which is insanely driving companies to unnecessary bankruptcy.
“Second, repeal Sarbanes-Oxley.
“Third, match our competitors in China and Singapore by going to a zero capital gains tax.
“Fourth, immediately pass an “all of the above†energy plan designed to bring home $500 billion of the $700 billion a year we are sending overseas.”
I would have added elimination of the Community Reinvestment Act. Forcing lenders to extend mortgages to people who can’t afford to pay them is a disaster.
One other culprit is an excessively low interest rate, which, as stated by James Pethokoukis, “creat[ed] an extreme financial situation that made the crazy Wall Street strategies look temporarily reasonable.” Lending also happens to increase the money supply, thanks to the magic of fractional reserves – thus the lending-based crazy strategies weakened our dollar as well as the solvency of the crazy lenders.
I wonder how long it’ll be until I start hearing HELOC ads on the radio again…
My God…I’m reading ITA and they’re repeatedly citing Krugman! Dogs and cats, living together, mass hysteria!