September 26, 2008 11:50 AM
Here are a few treasures I found this morning:
Kathryn Jean Lopez on National Review Online points out that some of the 20% of the profits (a floor) recovered from the bailout would go to voter-fraud-ACORN!!! (See Hans's post below and here and here and here on ACORN.) (A commenter notes that if most purchases lose money but one makes money, the taxpayers eat the losses while the slush fund gets the profits.)
John Paulson, not to be confused with the former Goldman CEO, suggests in today's WSJ that the government buy preferred stocks of failing companies, as they did with Chrysler, AIG, and Fannie and Freddie. “Invest the $700 billion of taxpayer money in senior preferred stock of the troubled financial institutions that pose systemic risks. Let's call this the "Preferred plan." In fact, it is the Fannie Mae and Freddie Mac model -- which the Treasury Department has already endorsed and used in practice. It is also the approach Warren Buffett used for his investment in Goldman Sachs.” Clean and simple, but doesn't benefit the other Paulson's friends.
September 26, 2008 10:34 AM
The $700 billion bailout of the financial system just got worse, thanks to a rewrite by Senate banking committee chairman Chris Dodd. If the government loses money on all the "bad debt" it's buying, the taxpayers will pick up 100% of the tab. But if markets rebound, or the government makes money on any of its individual purchases, taxpayers won't keep the money. Instead, at least 20 percent of it will go into a housing slush fund that will benefit the left-wing group ACORN, which pressured lenders to make the risky sub-prime mortgage loans that spawned the mortgage crisis. (Even though housing subsidies and mandates caused the mortgage bubble in the first place).
ACORN practices widespread voter fraud to increase liberal turnout in elections, and is guilty of financial fraud and embezzlement, but it has avoided any punishment due to its links to liberal lawmakers like Senator Chris Dodd, Congressman Barney Frank, and Senator Charles Schumer. ACORN is engaged in massive fraud in battleground states like Florida. (Election rules are being shredded for partisan purposes in other battleground states like Virginia and Ohio).
Other welfare has been added to the bailout to appease liberal lawmakers -- the very lawmakers who blocked any reform of the government-sponsored mortgage giants, Fannie Mae and Freddie Mac, which encouraged the risky lending that spawned the financial crisis (Fannie Mae engaged in extensive accounting fraud to benefit its crooked former executives. Yet they remain influential liberal powerbrokers).
September 25, 2008 3:40 PM
The cost of the $700 billion bailout bill, criticized as unconstitutional by legal scholars, is rising, as Congressional leaders demand new handouts for deadbeats (and left-wing groups) in exchange for passing it (ignoring cheaper solutions to the financial crisis). Now, in addition to welfare and affirmative action, there will be foreclosure "relief" at taxpayer expense. The government is going to use its role "as the biggest mortgage holder in town" to give special breaks to borrowers who are behind on their mortgage payments, rather than to stem the financial crisis.
"Democratic demands that Congress be given greater authority over the bailout and that the government be required to help homeowners renegotiate their mortgages so they have lower monthly payments already have been accepted in principle. Under the bailout bill, which will let the government buy huge amounts of toxic mortgage-related assets, 'we're now the biggest mortgage holder in town, and we can do serious foreclosure avoidance,' [liberal Congressman Barney] Frank said.'" (Moreover, irresponsible borrowers will be able to seek not only a reduction in their monthly mortgage payment, but also a cut in the amount they owe on their mortgage, getting part of it written off at taxpayer expense).
But the whole point of a mortgage is that lenders can foreclose and recover the value of the home if the borrower doesn't pay. Government limits on foreclosure will further undermine confidence in financial markets. And many of the borrowers who are behind on their mortgages now lived it up several years ago, taking out mortgages with low-introductory payments during the housing bubble (allowing them to finance lavish consumption, like buying fancy cars), in exchange for higher payments later on that they should have known they wouldn't be able to afford. They're going to be bailed out by taxpayers, including people with fixed-rate mortgages who paid more in mortgage payments than they did during the housing bubble, but have lower mortgage payments now (because their payments haven't risen). There's nothing fair about that. Most of the people who are defaulting now aren't victims -- in fact, some of them lied about their income to get mortgages on large houses that were bigger than they could afford in the long run (while people who bought homes using fixed-rate mortgages and a large downpayment ended up living in small houses that they could actually afford).
September 25, 2008 11:40 AM
Constitutional experts have concluded that that the $700 billion bailout bill is an unconstitutional delegation of power, in violation of constitutional separation-of-powers safeguards. I earlier reached the same conclusion in pronouncing the bill "dangerous, inflationary, unnecessary, and unconstitutional." One of the experts calling its constitutionality into question is Civil Rights Commissioner and Heritage Foundation scholar Todd Gaziano, a separation-of-powers expert who, as a Justice Department lawyer in the Clinton and Bush administrations, "developed the argument adopted by the Supreme Court in Weiss v. United States, 510 U.S. 163 (1993) to uphold the constitutionality of judges detailed to hear cases in the military court system." Gaziano and Andrew Grossman argue that the bill is likely unconstitutional because it lacks meaningful standards and bars judicial review.
September 25, 2008 2:40 AM
Those of us (and CEI is among the "us"!) who oppose Treasury Secretary Henry Paulson's $700 billion bailout of Wall Street have been challenged to come up with an alternative to stop the credit contagion. The Republican Study Comittee, a caucus of pro-market members of the GOP Congress, has just answered this challenge. They have presented such an alternative that would be much more effective at stopping the contagion than the Paulson bailout, and it would not cost taxpayers a dime.
The RSC plan is chock-full of measures to remove barriers to economic growth and market-distorting subsidies. It would suspend capital gains taxes to put trillions of dollars of capital in the economy, and set Fannie Mae and Freddie Mac, which as CEI has documented were at the root of this crisis, on the road to full privatization.
Most importantly for the crisis at hand, the RSC plan would make regulatory agencies suspend the mark-to-market accounting rules that a range of experts agree are spreading the contagion by forcing solvent banks' to "write down" their assets, based on the last fire sale of a highly leveraged bank. As Gary Gorton, finance professor at Yale and member of the National Bureau of Economic Research has written, "With no liquidity and no market prices, the accounting practice of 'marking-to-market' became highly problematic and resulted in massive write-downs based on fire-sale prices and estimates."
September 24, 2008 3:47 PM
The proposed $700 billion bailout is "dangerous, inflationary, unnecessary, and unconstitutional," funds left-wing special-interest groups, ignores less costly ways of propping up financial markets, and fails to consider regulatory reforms that might reduce the need for a bailout. It's not clear why we should trust federal officials with $700 billion to buy up bad loans, without any clear standards or judicial oversight, given that governmental incompetence and government regulations (such as affordable housing mandates) helped spawn the mortgage crisis. Many economists oppose the proposed bailout.
September 24, 2008 10:05 AM
I'd rather my government individually bail out each institution that is “too big to fail” and let the smaller imprudent ones fall, sending them a copy of “Who Moved My Cheese?” It's the dollar, stupid. A Rasmussen poll shows I'm not alone. Only 25% of voters are in favor of the bailout with 31% undecided, but 44% of Americans are against it. And the more they learn about it, the less they like it.
There are worse things than a recession, including a new, unelected secretary with a blank check permanently. According to one legal policy expert (full disclosure: the expert is my husband), the sunset provisions of both Senator Dodd's draft bill and the companion House draft bill have exceptions that could essentially nullify the sunset. The sunset provision in the House bill (Sec. 17), for example, excludes subsection 3(c)(5) from the authorities that will automatically terminate in two years. But subsection 3(c)(5) authorizes the Secretary of the Treasury to issue “such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities or purposes of this Act.”
In other words, under the terms of the draft House bill the Secretary has authority until the end of time to continue issuing regulations that carry out the act and its exceedingly broad purposes. The Dodd Senate draft has a nearly identical exception to its sunset provision. So much for relying on sunsets to terminate the proposed government takeover of the nation's financial systems.
September 23, 2008 2:28 PM
The financial bailout bill is not just "dangerous, inflationary, unnecessary, and unconstitutional." It's also a lot more costly than the government admits, judging from the hypocritical arguments made by government officials. The Treasury Secretary in the past has resisted calls to loosen federal accounting rules, so-called "mark-to-market" rules that require mortgages to be assessed at their current fire-sale prices, rather than their estimated value if held to maturity. These rules can result in banks being declared insolvent even if few of their loans have defaulted.
September 23, 2008 11:54 AM
From today's Washington Examiner editorial:
"There are credible alternatives to the Bush administration's bailout approach. Economist Brian Westbury, for example, suggests allowing troubled firms to erect an accounting firewall around at-risk assets created between December 2003 and August 2007 by segregating them from the rest of their balance sheets and then holding those assets to maturity. The government's main role would be in providing insurance for the sequestered assets instead of buying them outright. By comparison, the Bush bailout looks like a bum's rush for economic freedom."
CEI's VP of Policy Wayne Crews agrees. "This is just the right approach. Not every asset is a problem, there needs to be a separation between good and bad, limit governments involvement to correcting past errors, and have a path forward for every mortgage granted starting tomorrow. There should be no government role beyond cleaning up a strictly circumcribed mess."
September 23, 2008 11:10 AMThe $700 billion financial bailout bill being pushed by Bush and Congressional leaders is attracting broad opposition. Not only does it rip off taxpayers and violate constitutional limits on delegation of government power, it also threatens to spread the contagion of the mortgage meltdown, drive up inflation, and ruin the value of the U.S. dollar at home and abroad.
Law Professor Ilya Somin and economist Steven Landsburg question the need for a bailout. Sebastian Mallaby, a supporter of past bailouts, balks at this one, comparing it to "wandering into a bad-loan bazaar and being ripped off by every merchant."
As more details of the bailout become available, investors grew alarmed. "Peter Schiff, president of Euro Pacific Capital, said the fear of inflation provoked by the $700 billion plan -- without figuring out a way to pay for it -- was behind the market's dramatic movement. 'Where's the tax increase to fund this bailout? Where is the cut in programs? The government's not doing either -- they're just going to print money,' he said. And if you think inflation is the answer, take a trip to Zimbabwe and see how it's working for them." (The economy is already at serious risk from the Fed's inflationary easy-money policy, which helped spawn the mortgage crisis. The bailout will also increase the risk of future bubbles).