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.
“and one that becomes, by definition, an agent of the federal government,”
That characterization is false. The rest of your analysis proceeds from this false premise.
This entity will be buying up distressed assets, it will not be taking over any banks.
“The federal gov’t stopped the stock market from crashing by creating the illusion that the insurmountable debt — which is hidden as Level 3 assets - will simply be taken off the shoulders of these financial institutions.”
No ‘illusion’ that is what the program will be.
” The problem is not liquidity. The problem is a lack of confidence and trust among the banks.”
Liquidity is a *function* of trust in the markets. Create more trust and you get more liquidity from private market participants.
Also, btw, liquidity and interest rates are separate entities. A rise in LIBOR indicates that the flight to safety was reversed. When interest rates and the market go up in tandem, its an indicator that something stimulative happened.
A few points:
- Nobody wants to do this, but Secty Paulson and Bush are correctly saying this is needed and inaction is a greater risk and threat to economy
- I think the final cost of this bill to taxpayers will be much *LESS* than $700 billion. They will buy toxic assets at deep discount to face value, at a long-term current value. Buying it for $700 billion and working it off over 3 years for resale of $400-800 billion (just a SWAG, nobody is giving an estimate of real cost) “cost wont be anything like the cost to buy these assets” so Paulson is giving indications the final cost is much less, this could cost a few hundred billion or net positive if a miracle occurs
- I think the lack of oversight in the bill is an issue and will get fixed (transparency, a board, report to Congress, etc)
- The Democrats are going to want to add regulations and mortgage bailouts and use this to control bank more; it should be resisted; I hate these ‘fast reaction’ type of bills, so the less they do now the better
The hyperbole is the false claim that this is the end of the Aumerican banking system. This is not it.
Next year, when the Obama administration and Democrats reinvent regulations on financial sector *THEN* we might see what you are talking about come to pass. Everything will get regulated and the Obama/Dems will be regulating pay, markets, hike taxes.
“It’s fakery when the government implies it can resolve the problem. It can’t.”
“In fact, 2008 is going to go down as the “annus horribilis” for America.”
2008 is the year we saw us win in Iraq.
We are not in recession. With this bailout, we wont be in recession. real challenges but not the worst year we’ve had. 2001 was worse, what with 9/11 and a recession then.
The only real risk we face to our future is the election of Obama.
“If your definition is correct then their market value is zero since these securities are unmoveable in today’s market. But I don’t think that’s true.These securities have junk bundled with value and must be unwound to determine their worth.”
I dont think so either. Mark-to-market requires them to be valued at “BID”, so if nobody is buying then they are ‘worth’ “ZERO”. Well in the depths of the depression the great investor Graham found companies selling for less than the cash on the books. The ‘net value’ of the enterprise was negative. Was that the true value ... or a great buying opportunity?
I am here, ready and able to buy all these assets for 1 penny on the million dollar list price. it’s worth more than zero.
“It has the same problem the first two “Federal Reserves” had. It concentrates the money supply and binds the politicians to it. Jefferson and Jackson were correct to kill it in their time.”
Jackson caused a depression doing that. Correct?
“Nobody thought that having more money than the GDP of the entire planet was a problem. “
Uh, its not. The asset value of USA is about $50 trillion.
“The only people thinking were the ones who realized they could destroy businesses and get rich doing it.”
A) Nobody (or very few) operates on that premise, a B) that’s not what cause this mess. Honest people caught up in a bubble make investment mistakes and engage in investments and decisions that go sour.
“There are four or five hedge fund managers that should be shut down and investigated for their role in all this. The DTCC needs to be forced to have heavy federal oversight. The OCD market either needs to be voided or regulated.”
So you dont want regulations and you want a privatized money system and eliminate the Fed or you DO want regulations and federal-regulated financial system. Make up your mind.
Cant have both!
“The deregulation of the banking system under Clinton was...”
A myth on two levels:
1. The system was not ‘deregulated’
2. There are other real causes of this mess, and that wasnt it.
The 1998 bill did some good in modernizing regulations and recognizing that the system of the 1990s was different from 1930s. But we need further modernization of regulations and the calls to unify the hodge-podge of regulatory agencies looks like the way to go.
“America is strong, and will recover sans the bankster vampires sucking it’s lifeblood.”
“Not really. That’s what caused the Depression. “
Good retort. Biting the hand that helps you have a retirement account, pay for things with a piece of plastic, and helps you into homes without have 100% cash down is hardly a way to prosperity.
No, it's not fair. Even so, unless you want the entire financial system to seize up, we have no choice. Right now, the commercial paper system that you depend on to cash your checks is in danger of getting jammed up. If that happens, even those of us who lived within our means will suffer.
I'm no happier about this situation than you are. But the alternatives are scarier.
The deregulation allowed too many systems to be tied together. The reason they were separated was to keep one from overflowing to so many others. This explains why insurance companies are being jolted by the housing market.
They could have deregulated it if they had replaced it with some common sense regulations that didn’t hinder the economy. But they were pretty much all following their pocketbooks on that one and didn’t pay attention to the ramifications.
1. Mugabe is a socialist.
2. “Crony capitalism is a system where you establish a dictatorship using your army of supporters to stay in power.”
No, the term for that is despotism. Every despotism of every stripe is based on that concept of power corrupting and the use of power to stay in power.
3. “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. “
Yes, it is socialistic because it depends on Govt control of the economy.
If the Govt cannot regulate things like business licenses or property or import/export licenses, there are no officials to bribe to get approval for private actions. If the Govt doesnt have state monopolies, then there are no friends to get cut-rate assets or to put into cushy jobs (consider Chavez and his fight with his state-owned oil company; it was about getting his cronies in vs the professionals running it). If Govt doesnt have the assets, such as natural resources or telecom license, there is nothing to loot. The entire setup requires Govt controls on the economy and Govt ownership of assets.
4. “It actually has little to do with capitalism, and has a lot more resemblance to how the mafia would run something.”
On this I agree. It has little to do with free-market capitalism. A TRUE FREE MARKET ECONOMY CANNOT HAVE THESE CHARACTERISTICS. The question is why use a term with a misleading word like that.
5. Your use of this term is off-base (both in general and as it realtes to US situation) and there is no reason to attack me personally because I disagree with this terminology. You are being too rude and arrogant to have a discussion.
“The deregulation allowed too many systems to be tied together. The reason they were separated was to keep one from overflowing to so many others.”
The regulation and this comment makes no sense.
“This explains why insurance companies are being jolted by the housing market.”
Insurance companies are being jolted because they underwrote insurance on financial assets and the financial assets went south. But consider, if the insurance market didnt exist, front line firms are more exposed. You want to OUTLAW insurance!?!? Id hope not!
the real question is this nutty idea that the market would be more stable if the market was segmented: Why should the govt create an artificial separation between different types of fiancial services providers? That’s like says corn farmers shouldnt grow soybeans and vice versa. It was a dumb regulation that did no good and blaming it for the current mess is absurd. there were many other factors involved; this was not it.
“They could have deregulated it if they had replaced it with some common sense regulations that didn’t hinder the economy.”
- OK, thats a reasonable statement but what are the ‘common-sense regulations’? I’d suggest these:
1. Recognize that the financial industry is one industry, and end the artificial barriers between investment banking, commercial banks and S&Ls.
2. Since it is one industry have ONE AGENCY to oversee all aspects of the financial markets. That means the SEC, CFTC, and some of the
3. There are specific areas of unregulated assets and off
Create transparency in the assets on balance sheets. WHile we are at it, mark-to-market might need to be replaced or looked at in valuing illiquid instruments.
“But they were pretty much all following their pocketbooks on that one and didn’t pay attention to the ramifications.”
- Govt is inherently in the business of creating unintended consequences. Lets not ascribe to malice what is best viewed as a matter of limited competence.
“The regulation and this comment makes no sense.”
That’s because I was typing too fast. I’ll rephrase. The deregulation allowed too many systems to be tied together. The reason they were separated before the deregulation was to keep one from overflowing to so many others.
A quick look at the Great Depression makes it look like we are doing it all over again. The stock market crash destroyed the entire banking system and our real estate market. So the separations were put into place to keep one crash from having an affect on so much of our economy.
Take a good look at what Insurance companies are doing, you will see that since the deregulation, they now own broker dealers and investment banks. Part of their meltdown was that not only do they insure against loss, but they actually own a lot of the debt too. So they lose because they have to pay claims, but they lose more because they own mortgages. Their own portfolios become less diverse and more risky. This is what the deregulation has allowed.
Uhm, there were $600 trillion tied up in the OCD’s. That is in fact more than the entire GDP of planet Earth.
I have no problem with the markets being well regulated and policed, but the Federal Reserve does not regulate the markets. Honest people do make mistakes, and they also get to pay for them. The current shrieking that they shouldn't be responsible for their mistakes makes me doubt their honesty.
The money system need not be privatized, just return monetary responsibility to the congress. They need to earn their paycheck not just enjoy membership in the world's most exclusive club.
Paulson was CEO of Goldman for eight years before becoming SecTreas. After he’s done being Dictator, where do you think he’s going to work? Run a small country? Never step down? No he’s going back to Goldman.
And it will be there because Paulson wants to be all their stinky paper now, with American citizen tax dollars. He’s going to get rid of all their debts and let US pay for them, and no one can ever review his decisions ever, not a Congress or a court, and he can do whatever he wants, and there will not be a damn thing you can do to stop him. If he needs to cancel elections, he can. If he needs to seize all bank accounts, he can. If he grants retroactive pardons to everyone on Wall Street, he can. If he yanks all internet access to sites outside of the US, he can.
He can buy anything, with 11 trillion taxpayers dollars, and he can set the price and force the sale. And there will not be a damn thing you can do about it. Because he can send in the US Army to kill you.
This isn’t a crisis about bad ARM mortgages and real estate. This is a crisis because the SEC gave a very powerful exemption from the rules that they gave to five investment banking firms in 2004.
The SEC made a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1.
Instead, the 2004 exemption — given only to 5 firms — allowed them to lever up 30 and even 40 to 1. Who were the five that received this special exemption? They were Goldman, Merrill, Lehman, Bear Stearns, and Morgan Stanley.
Three are gone. Morgan is under attack.
Paulson will go back to Goldman, the last bank standing, and literally rule the world.
Go ahead. Try to stop him.
Our new motto will be:
“Everything in the State, nothing outside the State, nothing against the State.”
Herbert Hoover, quotes about Fascist:
Every collectivist revolution rides in on a Trojan horse of ‘emergency’. It was the tactic of Lenin, Hitler, and Mussolini. In the collectivist sweep over a dozen minor countries of Europe, it was the cry of men striving to get on horseback. And ‘emergency’ became the justification of the subsequent steps. This technique of creating emergency is the greatest achievement that demagoguery attains.
“Fascism should rightly be called Corporatism
as it is a merge of state and corporate power.”
Quote by: Benito Mussolini
(1883-1945), Italian dictator during WW2
And I will be as rude as like to a rude ignorant arrogant poser who attempts to let a bunch of self-dealing crooks off the hook under the socialist label.
I really have to ask myself why you find the well-defined and well-accepted economics term "crony capitalist" a problem. Perhaps it hits close to home.
Crooks is crooks.
“Mugabe is not a socialist.”
Puleeeze ... (Eyes roll)
“Mugabe rose to prominence in the 1960s as the Secretary General of the Zimbabwe African National Union (ZANU). For many years in the 60s and 70s Mugabe was a political prisoner in Rhodesia. His goal was to replace white minority-rule with a one-party Marxist regime.[6] “
http://en.wikipedia.org/wiki/Robert_Mugabe
Mugabe is no different from other Communist/Socialist dictators.
wrt rudeness and your other personal attacks - you are engaged in projection.
Yes Mugabe came to power using Soviet backed Marxism and claimed to be a socialist. But his government is not socialistic. It is a mafioso, a bunch of armed thugs who take from everyone and keep for themselves and their friends.
Genius, socialism is what happens in Northern Europe,. You know, Sweden, Norway, Denmark and the UK. The problem with socialism is not that folks are crooks, but that it stifles individual initiative and innovation and sacrifices the power of the individual to the dictates of central planning. All of that is bad enough.
You see you are too dumb to see past the labels. Mugabe may call himself a marxist or a socialist, and you might call him that. But what you call him is different than what he is. The only planning in Zim is how the few can loot even more from the populace to enrich themselves.
The usual term for this is not socialists but rather common ordinary crooks.
Of course you have not been there to see it in action.
And the problem with getting the label wrong and calling crony capitalists socialists is that you let them off the hook with the excuse that they are doing it for socialist reasons - for the good of the people.
And unless you are a complete idiot, scoundrel or fool, you know that neither Mugabe, nor these crooks on wall street are doing it for the people. They are doing it for themselves.
So take your idiotic socialist label and shove it.
“A quick look at the Great Depression makes it look like we are doing it all over again. The stock market crash destroyed the entire banking system and our real estate market. So the separations were put into place to keep one crash from having an affect on so much of our economy.”
The stock market was just an indicator, it didnt ‘cause’ the great depression. Three things caused the great depression:
1. Raising tarriffs (smoot hawley)
2. Tight monetary policy, and a subsequent failure to stop a credit collapse (what we are trying to forestall with this action)
3. raising taxes (1932 revenue bill)
there is absolutely NOTHING that would have been improved in those areas if you forced all commercial banks and investment houses to stay separate. nothing. It wouldnt have done a lick of good. and if that law was still in place would it have stopped the current mess? Nope, not if the housing bubble, fed by Fannie mae and CMOs went on as it did, outside the purview of banks, etc. (Banks didnt cause this mess, remember, the mortgage market and housing bubble is the root of the problem). All that would be different would be the commercial banks would be BARRED FROM RESCUSING THE INVESTMENT BANKS CAUGHT IN THIS! So Bank of America saving a wall stree firm would have not happened, and the mess would be even worse!
“Take a good look at what Insurance companies are doing, you will see that since the deregulation, they now own broker dealers and investment banks.”
“ Part of their meltdown was that not only do they insure against loss, but they actually own a lot of the debt too.”
My point is: Why forbid combination at all? The real problem here is over-leverage and mis-measurement of risks. You are pointing to correlated risks, but these are different arms and types of business and not many are really in both.
But a more diverse set of assets can help protect the downside in one area with assets in another area. The regulations HARMED the abilities of companies to engage in diversification. If the companies chose to be in one correlated market only, that should not be laid at the foot of this aspect of deregulation.
“So they lose because they have to pay claims, but they lose more because they own mortgages. Their own portfolios become less diverse and more risky. This is what the deregulation has allowed.”
This is backwards, since the deregulation allows MORE diverse holdings. I think we are in agreement that diverse holdings reduces risks overall.
Remember, this regulation is not forcing any of this mixing, it merely stopped artificial walls between types of banks. Those walls do not exist in other countries and the US financial sector would be a backwater if we continued to disallow these common-sense combinations in financial firms.
The goal of the 1930s regulation, put in place in another era, was to stop banks from engaging in excessive risk. My point is that it was an antiquated and couterproductive way to do that. There are far better ways to ensure that in a modern financial market.
In the end, it would be far better to have unified regulation of financial companies than force artificial barriers to combined firms. Those regulations will indeed require certain amounts of financial stability and guarantees on assets.
The one thing you seem to be not the least bit concerned about is any traditional notion of morality. And with a lot of us stoking up the fires and heating up the tar, I would be a bit careful with self-dealing condescending air of superiority.
Fools and scoundrels like you keep trying to tiptoe around that little problem.
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