Posted on 09/20/2008 10:17:51 AM PDT by Fox_Mulder77
LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY
TO PURCHASE MORTGAGE-RELATED ASSETS
Section 1. Short Title.
This Act may be cited as ____________________.
Sec. 2. Purchases of Mortgage-Related Assets.
(a) Authority to Purchase.--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.
(b) Necessary Actions.--The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:
(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;
(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;
(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;
(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and
(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.
Sec. 3. Considerations.
In exercising the authorities granted in this Act, the Secretary shall take into consideration means for--
(1) providing stability or preventing disruption to the financial markets or banking system; and
(2) protecting the taxpayer.
Sec. 4. Reports to Congress.
Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.
Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.
(a) Exercise of Rights.--The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.
(b) Management of Mortgage-Related Assets.--The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.
(c) Sale of Mortgage-Related Assets.--The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.
(d) Application of Sunset to Mortgage-Related Assets.--The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.
Sec. 6. Maximum Amount of Authorized Purchases.
The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time
Sec. 7. Funding.
For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.
Sec. 8. Review.
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.
Sec. 9. Termination of Authority.
The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.
Sec. 10. Increase in Statutory Limit on the Public Debt.
Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.
Sec. 11. Credit Reform.
The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.
Sec. 12. Definitions.
For purposes of this section, the following definitions shall apply:
(1) Mortgage-Related Assets.--The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.
(2) Secretary.--The term “Secretary” means the Secretary of the Treasury.
(3) United States.--The term “United States” means the States, territories, and possessions of the United States and the District of Columbia.
let me rephrase.
What percent of the asset market are mortgage backed securities? Until Treasury/Fed has a handle on it they are just throwing money at it.
Did the RTC legislation confer immunity on its managers the way Section 8 confers immunity on Paulson and cohorts? I see that povision as dangerously irresponsible.
[Sec. 8. Review.
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. ]
Toxic derivatives are toxic and illiquid because their valuation is unknown. The SEC did drop the ball in allowing these convoluted instruments.
You’re right, this wasn’t mentioned in the article. I did a little bit of digging around. If this had written by a Dem I’d be writing scathing letters to the congress critters responsible regardless of party affiliation.
For the record, Dems are just as outraged by this as Reps. I am particularly horrified by section 8. Regardless of who gets the nod in Nov. no one person should have this much power.
It’s not quite as scary if you read Sec. 9:
Sec. 9. Termination of Authority.
The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.
This is put into the ‘draft’ in the hopes that a final agreement can be worked out in the end that holds the government less exposed to endless litigation from the trial lawyers. It is actually a good thing imho. We are already exposed enough as taxpayers with the bail-out!
Remember...this is a draft..they always go for very broad authority in order to increase the odds of essential proposals in the end.
It is very disconcerting though...no doubt about it.
“My only concerns are the moral hazard aspect of this and the question of what it does to our long-term financial stability.”
Another populist thread masking as conservative!!
Unless the democrats get a hold of this it looks like a credit facility and liquidity engine. The Treasury has to seize thIs paper, especially the CDSs, to get them liquid and then hopefully collects interest and a commission.
If this is structured right GS and MSH finally go the way of the buggy whip.
“Toxic derivatives are toxic and illiquid because their valuation is unknown.”
There is only one way to determine and indeed create a value for anything and that is create a market for it. That is the part of this plan that makes sense. The government needs to grab these “assets” and put offer them for sale. I still think the BDs that hold these will become much smaller.
“The SEC did drop the ball in allowing these convoluted instruments.”
It needed to re-classify them on the balance sheets.
For all the financial geniuses posting here who think this plan is horrible, I’d like to hear their alternative plan. What? Don’t do anything, let these banks go bankrupt and watch the U.S. financial system collapse? What would the cost be then?
Yes, going back in time and disallowing bad mortgages would be great, but there is no time machine. Stopping government from forcing lenders to loan to those who can’t afford it in the future might help. But there is nothing we can do about the situation we are in now.
If you think this is bad now, just wait until Obama is President, we won’t have to wait for a banking crisis. Obama will raise your taxes and redistribute your earnings to those who are too lazy to work.
This bailout is the best option available. But again, if you (generally speaking, not the original poster) have a better plan, let’s hear it.
Well, I think your knowledge of the world in general and economic theory in particular is way off base. First, you clearly have no clue what socialism is, and second you have no clue how 3rd world countries run if you think that what goes on is socialism. Socialism is a system like Norway, or UK. Mugabe may call himself a socialist, but he is head crook in an armed band of crooks.
Crony capitalism is a system where you establish a dictatorship using your army of supporters to stay in power. You use the authority you have to steal what you can for yourself, your supporters and the army that you rely upon to keep you going. For instance you take enormous bribes to lease or sell natural resources at submarket rates to international companies to exploit them. You accept bribes to take out loans to enrich yourself and your friends ostensibly to build infrastructure projects, using the faith and credit of the people of your country as collateral. Your take ends up being in the billions all on deposit in offshore accounts.
There is nothing socialistic about that at all.
You see your problem is that you want to see the world as a great struggle between good and evil which you equate to capitalism and communism. There are lots of other kinds of corrupt systems besides communism.
Your other problem is that I am sure that you, like many of your uneducated fellow travelers, assume that someone who uses the term crony capitalism is slamming capitalism. Crony capitalism is not free market capitalism. It actually has little to do with capitalism, and has a lot more resemblance to how the mafia would run something.
Next time you decide to be rude, start from knowledge rather than ignorance.
What f'in horsehockey. What made the derivatives toxic is that their underlying assets are not nearly worth their imputed value, and the difference between imputed and real value is leveraged at a high multiple.
If this were simply a matter that there was no way to market bundle of mortgages X, but that a,b,c,d,...z individual mortgages in the bundle were valuable assets there is a wonderful arbitrage opportunity to debundle the bundled assets. There isn't because the underlying assets are not worth enough.
With laws requiring competive bidding suspended? With all judicial oversight blocked? With no GAO review?
It's Tony Soprano time.
It sort of does continue the Ponzi scheme......the taxpayer is just the last buyer.
I have no reservations on the concept. The bill has to pass do to the potential collapse of the banking system that occurred last week.
I’m just not sure how the heck you ensure the money is used the right way and in an efficient manner. Yet at the same time, Paulson needs the flexibility to use this money and not be tied down with a ton of restrictions.
Bwahahaha. If you pay any attention to "temporary" bureaucratic organizations in DC, you would put good money on finding this organization around 50 years from now. Second, the important powers are never ending, if you rad carefully. Third, you may have read section 8, which puts the decisions of the Secretary of the Treasury above the law.
Honestly, if I had a choice between the government buying bad mortgages with $700 bil on my money (and letting the originators of those mortgages walk away laughing with their bonuses) or letting a pack of hungry trial lawyers scavenge the whole thing to the bones, I’d just as soon let the lawyers have it.
I know it was a mostly rhetorical question but it *is* unconstitional b.s.
If they don't get the legal protections right, we could end up with both.
If the US Treasury runs out of money I guess we taxpayers will have to work the debt off. I certainly hope I won't have to wash John Edwards' car or mow his lawn. That's one big lawn!
I wonder if this new entity will buy the distressed bonds from the banks at face value and then sell the bonds back to the same banks at a discounted price so the banks can benefit from the upside when they mark to market.
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