Letter to My Congressman. NO Bailouts

Congressman Inslee,

I'm writing you today on an issue that I feel is a part of a defining moment in this country's history.

There are massive shifts occurring in credit markets right now and those shifts are going to have a significant impact on our ways of life.

The Administration via Secretary Paulson has submitted a ridiculous bailout legislation plan that it appears many in congress are taking seriously. Senator Dodd has even crafted legislation that, while significantly cleaning up Paulson's proposal, still follows in lock step.

I've heard members of congress in hearings talking about how it's up to the administration to explain why this bailout is necessary, as if the throngs of angry constituents don't understand.

I want you to know, Congressman, that I do understand. I understand and I am angry. I am angry as I was when we launched the Iraq war, when we passed the patriot act, and when I saw that FEMA had almost no plan or competence to handle the aftermath of Hurricane Katrina.

I understand that our economy is in deep trouble. That a massive deleveraging event is taking place. I understand that this means we will be facing a lot of hardship in the years to come.

But I also can see that there is nothing that can, or should be done about his deleveraging, other than to take measures to make it orderly and to work to support our fellow citizens when the time comes.

Paulson's plan is flawed in so many despicable and obvious ways. But in one core way it is flawed that should stand out.

The plan is guilty of trying to keep "the debt party" going, when there is no reasonable cause to assume that it should.

The debt bubble has eroded much of our economy. While we enjoyed the temporary benefits of massive leverage much of our industry was displaced through movements to other labor markets. We've been lax in exploring new technologies in energy production, and energy efficiency. But it is that very sort of productivity that we find ourselves desperately in need of now.

We are in trouble, and there is a way to deal with the trouble that helps us begin growing new and better institutions that can help us rise out of this decline. But the bailout proposal is not only thievery and economic terrorism on the Administration's part, it is also a denial on the part of others who would like to keep us in the dysfunctional state we've been in.

Congressman, I don't think I'm the only constituent who understands.

Please filibuster any bailout proposal.

Thank you,

Caleb Mardini

contact your senator now.

contact your representative now.

Not a Dime! Stop the Bailout

There is currently a horrifying proposal being fast tracked through congress by the President and Treasury Secretary Henry Paulson. Many members of congress have openly admitted they don't understand the situation and they aren't sure what to do.

I've called my senators offices and I was asked to organize people in a calling campaign. They want to hear what we have to say.

What's happening right now in our financial markets is a major event, regardless of what the government does, I feel it's going to have a major impact on us all. However I believe the proposal being fast tracked threatens to make things much, much worse.

I ask that you read the proposal yourself. It is very short. You can also read the analysis I've posted here.

The chances of preventing this are very limited . But after reading the proposal, please call and email your senator, NOT JUST ONCE, BUT A COUPLE OF TIMES A DAY, for all of this week.

Ask them to block or filibuster any bailout legislation.
Ask them to vote no.
Tell them you don't want to pay for a bailout.

Here's a link to the text of the plan.
Click here for contact information for the Senate.

• The Foxes are in the henhouse.
  Prior to becoming the treasury secretary in 2006 Henry Paulson ran Goldman Sachs bringing the company to the position it is in now. Goldman Sachs stands to benefit a great deal from this bailout.
  Furthermore there is a tremendous conflict of interest as Paulson seeks to hire those who helped create this mess to help decide how to use the public's money.

  From the proposal:

  (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;

• The budget is unlimited.
  

  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.

  700 billion is greater than the Pentagon’s budget for 2009 which was record breaking. And that’s just the amount of purchases that can be held on the balance sheet at any moment.
• It doesn’t represent the tax payers. This deal is, in many respects, open ended with no safeguards for taxpayers. While the bill gives lip service to the idea of protecting tax payers it specifically avoids accountability and transparency.

  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.

• Completely dubious. While granting extreme powers, there is no review. (this one is really incredible)

  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.

• There are no stipulations for punitive actions. Instead for institutions able to move their bad debt to taxpayers, or able to buy debt at discounted rates this will be quite rewarding.
• The arbitrary nature of the bailout creates greater uncertainty in the markets. Furthermore some market watchers speculate that this could result in a greater devaluation of U.S. credit as there is fear we’ll nearly bankrupt ourselves trying to take on the debts of these failed institutions. The measure calls for raising the national debt for example.

  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.

• We already have an excellent solution in place Chapter 11 Bankruptcy.

  In Chapter 11, companies with a solid underlying business generally swap debt for equity: the old equity holders are wiped out and the old debt claims are transformed into equity claims in the new entity which continues operating with a new capital structure. Alternatively, the debt holders can agree to cut down the face value of debt, in exchange for some warrants.

  Luigi Zingales and Robert C. Mc Cormack the authors of the above quote maintain the process would have to be faster than chapter 11 normally takes. But passing a law, especially one of the magnitude normally requires much more investigation and vetting. If we can entertain passing a law of this magnitude this quickly, isn’t there a possibility that an expedited Chapter 11 program could be created.
• The Mother of All Bailouts. A measure of this level is unprecedented. You may have heard that this isn’t dissimilar to the Resolution Trust Corporation founded in 1989 to help us out of the S&L Crisis. But

  In 1989, there was no choice. The federal government insured the thrifts, so when they failed, the feds were left holding their loans; the RTC's job was simply to get rid of them. But in buying bad loans before banks fail, the Bush administration would be signing up for a financial war of choice. It would spend billions of dollars on the theory that preemption will avert the mass destruction of banks. There are cheaper ways to stabilize the system. (Sebastion Mallaby of the Washington Post)

  And they want to bailout whatever they decide. This will likely include bailouts for foreign businesses as well.

  The U.S. Treasury submitted revised guidance to Congress on its plan a ... Officials now propose buying what they term troubled assets, without specifying the type. (Bloomberg)

• It goes counter to the spirit of the American free system that maintains those that reap the rewards should bear the losses.

  The basic premise of a free economy is one governed by laws and not men, where property rights are respected, where individuals are free to make contracts with each other, and where honesty and transparency exist in the marketplace.(Mish)

Please contact your senator now and ask them to prevent, block, filibuster, and vote no for any bailout.

I’d also encourage you to drop me an email or a comment if you make the call.

Thank you.

Update: 10/2/2008

Dodd's revised version of the bill made what appear on the face to be significant changes. But upon further examination, the latest proposal doesn't deviate from Paulson's plan. The oversight is there but it's token oversight. The secretary of the treasury, for example would be the head of their own oversight committee. While we've heard sound-bites about greater assurances, very little has been done to alleviate the problems with the bill.

Anyone saying the problems have been fixed are mistaken. Read it for yourself. (First 113 pages or so.)

Paulson Gives Dodd the Finger

Via The Crypt

When Paulson announced he was planning on taking advantage of the new powers congress and the president allotted him in a recent Housing (bank bailout) bill and take into government control Fannie Mae and Freddie Mac, Senator Dodd, who introduced the bill was shocked, or at least he acted like he was.

He scheduled hearings on the bailout scheduled for today. The hearings were postponed today by Dodd. "At the Treasury Secretary’s request, I have postponed tomorrow’s hearing."

Of course Mr. Paulson must be busy dealing with everything that's going on the the markets with WAMU, AIG, Fannie, Freddie, and well every other major financial institution to look after right? No.

"It is regrettable that the Secretary has said he is too engaged in the current crisis to come before the Congress, yet is available to give speeches on the same day he was scheduled to testify," (a banking committee aide)

Apparently Paulson decided it was better to debrief the Brooking Institution today.