Obama: Protecting America the Socialist/Communist Way?

Bailout: Waste, Fraud and Taxpayer Abuse Act of 2008 (Updated)


The Associated Press is reporting ...

"The House has defeated the $700 billion bail-out legislation for the financial industry. More than enough members of the House had cast votes to defeat the Bush administration-pushed bill, but the vote was held open for a while, apparently as efforts were under way to persuade people to change their vote.On Wall Street, stocks plummeted as investors followed the developments in Congress."

The arrogance of Barney Frank and Nancy Pelosi are readily apparent as the House declines to pass this flawed bill. While the stock market's reaction in unfavorable, the bill will be modified and re-introduced. There is too much money and politics involved to walk away from a mass looting of the United States Treasury. It may be that the Congress will adjourn and take up the matter after the election when Administration outcomes and the participants may be clearer. In an Obama win, look for the bill to be significantly porked upwards with a corresponding rise in tax rates across the board. Obama's proposed tax cut for those making less than $250,000 amounts to a major increase in taxes on small business and will directly result in the loss of jobs to compensate for the increased costs of doing business. A point that does not seem to be easily grasped by those engaged in socialistic wealth redistribution to those who traditionally vote democrat.

Original blog entry ...

The democrat's so-called 110-page bi-partisan discussion draft of the bailout bill, now officially known as the “Emergency Economic Stabilization Act of 2008,” is now frozen in place; awaiting analysis and the cooperation of House Republicans who are required to give the democrats political cover for what is another example of creeping socialism and social engineering.

There is a partial answer – and it does not cost one cent!

Believe it or not, one of the most significant features of this legislation is the ability to suspend the “mark-to-market” accounting requirements which will allow the financial institutions to continue their charade of holding toxic securities on their books at some pre-authorized level; thus not triggering a call for additional core capital or being judged by the regulators to be either unsound or insolvent. This, in an of itself, will reduce the pressure on the financial institutions and allow them time to work out their problems using a combination of federally-guaranteed insurance for the toxic derivatives or apply for the purchase of non-performing mortgages and other underwater paper. 

A matter of trust …

One should remember that this current crisis is not about subprime mortgages or foreclosures; the root cause of the crisis is a declining housing market which failed to support any of the financial instruments predicated on home values.

Which is different from the current financial crisis which is caused by the lack of faith and trust in the balance sheets of financial institutions holding toxic securities which cannot be valued. Which results in financial institutions limiting lending to other financial institutions and the public; conserving their cash against unknown loan losses. Counterparties simply do not want to do business with other counterparties who do not have a strong enough balance sheet to back a major credit transaction. Example: although Bear Stearns was still salvageable, few wanted to keep large sums of their money on deposit with Bear Stearns and others were afraid of executing trades through Bear Stearns on the possibility that Bear Stearns would be unable to deliver the cash, securities or bonds necessary to complete the transaction – which left the counterparty twisting in the wind, liable to the customer who placed the trade. If anything killed Bear Stearns, it was a lack of trust. Same with IndyMac Bank and Washington Mutual. Few believed that these companies could survive in the coming days and acted accordingly. 

Looking at the bright side …

But there is a bright side. Many purchasers of assets during the Savings and Loan crisis, as well as the dot com bust, were able to transform those distressed assets into profitable income streams or enjoyed the profit when the asset was sold into an up-market which normally reappears after a downward cycle. Thus, some hedge funds are going crazy picking up so-called toxic paper at pennies-on-the-dollar.

The current bailout plan will help finance these continuing purchases for savvy investors such as Warren Buffett and others who know how to manage risk. And as an additional benefit of financing these purchases, toxic paper will be removed from financial institutions, confidence will be restored, trading will begin anew under more stringent guidelines and all will be right with the world. As with human nature, the rich will get richer and the taxpayer will foot the bill.

Milking the public’s cow …

Let us examine, not the financial provisions of the bill, but the normal tricks and techniques used by legislators to milk the public’s cow.

From the beginning …

All legislative bills start off with a high-sounding purpose and end with the authorization of loopholes and procedures leading to waste, fraud and taxpayer abuse. In this instance, the portion in red is indicative of what we can expect.

“To provide authority for the Federal Government to purchase and insure certain types of troubled assets for the purposes of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers, and for other purposes.”

You can drive a truck through the loophole left by the words “and for other purposes.”

Conflicts of interest …

Before we go much further, let us examine an important area of concern: conflicts of interest. You think, with the thousands of bills that have been crafted over time, that there would be an existing clear and concise definition of what constitutes a conflict of interest and the penalty prescribed under existing law for engaging in prohibited behavior. But it seems we are letting the Secretary of Treasury decide what constitutes a conflict of interest and there is no mention of any penalty for violating the public’s trust. Considering that nepotism and cronyism run rampant among current and former members of Congress, one is sure to find the Secretary making exceptions for political reasons. Somewhat like the democrats handling of the open doors of Fannie Mae which was considered by democrats to be a multi-million dollar patronage plum for those who benefited the democrat party. In this case the Secretary of Treasury is policeman, judge, jury and executioner with no appeal possible.

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.
(b) TIMING.—Regulations or guidelines required by
this section shall be issued as soon as practicable after
the date of enactment of this Act.

Make no mistake about it – this single act will produce quite a few millionaires, possibly a billionaire or two, and serve as an entry to the world of big money for those who can only be characterized as political hacks. The mere selection of vendors and managers will insure that there will be those who walk away with multi-million dollar, long-term, no-bid contracts that will make executive bonuses swell to almost pre-crisis levels. Executives will be given stock options and thus be insured that their firm’s stock will significantly rise when contracts are awarded. Since many of the vendors and managers chosen by the Secretary will have already been complicit in causing the problem, this seems like icing on top of the cake. And of course, this will all be kept as a gigantic secret as it involved “personnel” matters and the sanctity of the financial system. So we are already off to a bad start. Traditionally, when an oversight committee hires staff, one usually finds a bevy of well-compensated hyper-partisan lawyers who consider everyone not in the inner circle to be adversarial opponents. I would be greatly surprised if this were not the case in this particular instance. 

Can you say Halliburton …

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. 8 (b) 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 … and women, and minority and women-owned businesses … in that solicitation or contract,
including contracts to asset managers, servicers, property
managers, and other service providers or expert consultants.

We have all seen the effects of no-bid contracts in military contracting in Iraq and the complete disappearance of billions of dollars worth of cash and materiel. In addition, we have seen any number of shenanigans related to minority contracting involving incompetent people or front-organizations which siphon-off funds for work done by more traditional subcontractors. Considering this is one area where politicians, cronies and special interests abound, it remains to see if traditionally corrupt legislators and others can keep their hands out of the cookie jar. It’s a bet that I wouldn’t want to take.

Another oversight panel …

It will be extremely interesting to see who is appointed to this oversight panel and what their previous political connections and positions have been. Normally these positions are reserved for well-credentialed party hacks who do little more than follow the directives of their congressional masters. And while the prohibition against double dipping seems like protection for the taxpayers, note that it anticipates that one or more members could be sitting representatives of Congress or their staffs. Perhaps their salaries should be fixed in advance according to the standard government schedule and not left to the discretion of the Oversight panel. 

(a) ESTABLISHMENT.—There is hereby established
the Congressional Oversight Panel (hereafter in this section referred to as the ‘‘Oversight Panel’’) as an establishment in the legislative branch. (b) DUTIES.—The Oversight Panel shall review the current state of the financial markets and the regulatory system and submit the following reports to Congress: …
(c) MEMBERSHIP.— (1) IN GENERAL.—The Oversight Panel shall consist of 5 members, as follows: (A) 1 member appointed by the Speaker of the House of Representatives.
(B) 1 member appointed by the minority leader of the House of Representatives. (C) 1 member appointed by the majority
leader of the Senate. (D) 1 member appointed by the minority leader of the Senate. (E) 1 member appointed by the Speaker of the House of Representatives and the majority leader of the Senate, after consultation with the
minority leader of the Senate and the minority leader of the House of Representatives.
(3) PROHIBITION OF COMPENSATION OF FEDERAL EMPLOYEES.—Members of the Oversight panel who are full-time officers or employees of the United States or Members of  Congress may not receive additional pay, allowances, or benefits by reason of their service on the Oversight Panel.
(d) STAFF.— (1) IN GENERAL.—The Oversight Panel may
appoint and fix the pay of any personnel as the Commission considers appropriate
. (2) EXPERTS AND CONSULTANTS.—The Oversight Panel may procure temporary and intermittent services under section 3109(b) of title 5, United States Code. (3) STAFF OF AGENCIES.— Upon request of the Oversight Panel, the head of any Federal department or agency may detail, on a reimbursable basis,
any of the personnel of that department or agency to the Oversight Panel to assist it in carrying out its duties under this Act.

Transparency: now you see it … 

SEC. 114. MARKET TRANSPARENCY. 10 (a) PRICING.—To facilitate market transparency, the Secretary shall make available to the public, in electronic form, a description, amounts, and pricing of assets acquired under this Act, within 2 business days of purchase, trade, or other disposition. (b) DISCLOSURE.—For each type of financial institutions that sells troubled assets to the Secretary under this Act, the Secretary shall determine whether the public disclosure required for such financial institutions with respect to off-balance sheet transactions, derivatives instruments, contingent liabilities, and similar sources of potential exposure is adequate to provide to the public sufficient information as to the true financial position of the institutions. If such disclosure is not adequate for that purpose, the Secretary shall make recommendations for additional disclosure requirements to the relevant regulators.

Great, it appears that the public will get an Internet site to see the purchasing process within two days of the assets being acquired. But it will be the Secretary who determines whether the disclosure of derivatives, off-balance sheet transactions are sufficient to meet the public’s needs. But here is an interesting tidbit: if this disclosure is not adequate, he must make recommendations of additional requirements to the relevant regulators. So apparently, instead of the Secretary having control over the disclosure of information, the actual control of the disclosure may lie with the regulatory agencies (FED, FDIC, OCC, OTS, NCUA, and others) who are not normally open, transparent or willing to share information with the public. What is this all about? In addition, there appears to be some leeway for the Secretary to limit disclosure by “type of financial institution, which means that uniform reporting may be unlikely.

Transparency: and now you don’t  …   

SEC. 129. DISCLOSURES ON EXERCISE OF LOAN AUTHORITY. (a) IN GENERAL.—Not later than 7 days after the date on which the Board exercises its authority under the third paragraph of section 13 of the Federal Reserve Act
16 (12 U.S.C. 343; relating to discounts for individuals, partnerships, and corporations) the Board shall provide to the Committee on Banking, Housing, and Urban Affairs of  the Senate and the Committee on Financial Services of the House of Representatives a report which includes— (1) the justification for exercising the authority; and (2) the specific terms of the actions of the Board, including the size and duration of the lending, available information concerning the value of any collateral held with respect to such a loan, the recipient of warrants or any other potential equity in
exchange for the loan, and any expected cost to the taxpayers for such exercise. (b) PERIODIC UPDATES.—The Board shall provide updates to the Committees specified in subsection (a) not less frequently than once every 60 days while the subject loan is outstanding, including—
8 (1) the status of the loan; (2) the value of the collateral held by the Federal reserve bank which initiated the loan; and (3) the projected cost to the taxpayers of the loan. (c) CONFIDENTIALITY.— The information submitted to the Congress under this section may be kept confidential, upon the written request of the Chairman of the Board, in which case it shall made available only to the Chairpersons and Ranking Members of the Committees described in subsection (a).

On first reading, it appears that the Committees will be getting the same type of information as that provided to the public. But notice that this section deals with lending, not purchases. And it allows the Chairman of the Board to classify the information as being confidential; although there does not appear to be any criteria in this legislation for making such a classification. This appears to be an interesting dilemma: purchases may require full public disclosure while loans may not require full public disclosure . This appears to be in-line with Federal Reserve Policy of not identifying the borrowers of those multi-billion dollar loans collateralized with toxic paper.

Purchase or insure?

Consider the fact that the legislation authorizes both the purchase of toxic assets and a guarantee of payment regarding certain asset class payments. My question, does the outstanding amount of the guaranteed amount impact the $700 BILLION allocation or will this be similar in nature to one of those “off-balance sheet” accounts used to hide risk from the regulators, investors, public and counterparties?


The Secretary is authorized to establish a troubled asset relief program (or ‘‘TARP’’) to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as
are determined by the Secretary, and in accordance
with this Act and the policies and procedures developed and published by the Secretary.
SEC. 102. INSURANCE OF TROUBLED ASSETS. If the Secretary establishes the program authorized under section 101, then the Secretary shall establish a program to guarantee troubled assets originated or issued prior to March 14, 2008, including such mortgage-backed securities. (2) GUARANTEES.—In establishing any program under this subsection, the Secretary may develop guarantees of troubled assets and the associated premiums for such guarantees. Such guarantees and premiums may be determined by category or class of the troubled assets to be guaranteed. (3) EXTENT OF GUARANTEE.—Upon request of
a financial institution, the Secretary may guarantee the timely payment of principal of, and interest on, troubled assets in amounts not to exceed 100 per cent of such payments. Such guarantee may be on such terms and conditions as are determined by the Secretary, provided that such terms and conditions are consistent with the purposes of this Act.

Judicial Review …

SEC. 119. JUDICIAL REVIEW AND RELATED MATTERS.  (a) JUDICIAL REVIEW.— (1) STANDARD.—Actions by the Secretary pursuant to the authority of this Act shall be subject to chapter 7 of title 5, United States Code, including that such final actions shall be held unlawful and set aside if found to be arbitrary, capricious, an abuse of discretion, or not in accordance with law. (2) LIMITATIONS ON EQUITABLE RELIEF.— (A) INJUNCTION.—No injunction or other form of equitable relief shall be issued against  the Secretary for actions pursuant to section 101, 102, 106, and 109, other than to remedy a violation of the Constitution.

You need read no further, the Secretary will have a legion of lawyers to swear that his actions were appropriate, necessary and constitutional based on the “nuanced” reading and interpretation of the existing statute and case law – as modified by existing precedent. In others words, don’t bother coming after me; except in the media.

Further analysis if fruitless …

It makes no sense to continue the analysis of each and every provision as we are unsure, as of this moment, whether or not the legislation may be modified by the Republicans or changed due to public concerns about the provisions. There are enough loopholes to hide the State of Alaska in this legislation – either by commission or omission and like all legislation be subject to great and small unintended consequences.

I apologize for my cynicism …

Based on human nature and the past actions of politicians, I know that there will be problems with this legislation. There may even be prosecutions. But in the final analysis, as with most bills, the taxpayers will make a few individuals big-time rich and lots of executives and lawyers happy to be able to afford to live like we would like to live.

-- steve 

Quote of the Day: “The easiest thing to find is fault.” –Anonymous

A reminder from OneCitizenSpeaking.com: a large improvement can result from a small change…

The object in life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane. -- Marcus Aurelius

Reference Links:  Read it for yourself … 

Emergency Economic Stabilization Act of 2008

For those with a strong stomach for poli-speak, here are the raw links to various democrat work products which have been temporarily frozen and are awaiting Republican Support.

“Nullius in verba”-- take nobody's word for it!
"Acta non verba" -- actions not words

“Beware of false knowledge; it is more dangerous than ignorance.”-- George Bernard Shaw

“Progressive, liberal, Socialist, Marxist, Democratic Socialist -- they are all COMMUNISTS.”

“The key to fighting the craziness of the progressives is to hold them responsible for their actions, not their intentions.” – OCS

"The object in life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane." -- Marcus Aurelius

“A people that elect corrupt politicians, imposters, thieves, and traitors are not victims... but accomplices” -- George Orwell

“Fere libenter homines id quod volunt credunt." (The people gladly believe what they wish to.) ~Julius Caesar

“Describing the problem is quite different from knowing the solution. Except in politics." ~ OCS