Just before noon yesterday, CNN posted Treasury Secretary Hank Paulson's draft bill for bailing out impaired mortgage assets from our faltering ship of state. Enactment with two weeks is almost certain. The bill would give Paulson and his successor complete authority to purchase assets as he sees fit up to $700 b. That's probably a conservative estimate, and Senator Richard Shelby (R-AL), the Ranking Republican on the Senate Banking Committee, said on CBS's Face the Nation this morning that "It's going to be $1 trillion, at least."
Over the next several years, those assets will be sold. There is brave talk of selling them for enough to keep taxpayers whole, but I wouldn't count on that. The S&L bailout of the late 1980s and early 1990s cost the taxpayers $124.6 b. according to the General Accounting Office (now the Government Accountability Office). The Resolution Trust Corporation (RTC), which performed a similar role as Treasury is about to perform now, gained control of $402 b. in book value of S&L assets from 747 S&L's and sold them for $240 b. The taxpayers paid most of the difference, and S&L owners and shareholds paid the rest. Treasury has not released any detail on how it estimated today's $700 b. acqusition, so until they do, I would use the 31% expense ratio we experienced during that S&L crisis. Thus, I would estimate a $217 b. taxpayer cost if Mr. Paulson's $700 b. estimate holds up and $310 b. if Senator Shelby's estimate proves more accurate.
As expensive as this is, Secretary Paulson is undoubtedly correct in saying that the cost of not doing this bailout would be far higher on taxpayers in terms of lost credit, lost jobs, and lost economic growth. The economic crimes causing this occurred years ago, when unregulated or too loosely regulated mortgage brokers wrote mortgages that some homeowners couldn't pay. Congress cheered from the sidelines as homeownership rose to a peak of 68.4% of total domiciles. Now that the housing bubble has burst, Congress acts like it had nothing to do with this. The Federal Reserve and other regulators won't admit it publicly, but it is true that indirect pressure from Congress kept the regulators at bay while the taxpayers were sold down the river.
We and our children will pay the price as Treasury issues a mountain of debt to bail us out of this mess. Mr. Paulson's draft bill would raise the federal debt limit by $700 b. to $11.315 trillion, and that is barely three months after the debt limit was raised $800 b. to $10.615 trillion in P.L.110-289.
Bailout and Social Security
Doesn't the bailout imply that Social Security will become insolvent even sooner than now expected? So if your member of Congress votes for the bailout aren't they voting to cut SS benefits?
End of the rule of law?
I forgot to ask, is anyone else bothered by the provisions of Sec. 8 of the proposed bill
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.
(http://blogs.wsj.com/economics/2008/09/20/treasurys-financial-bailout-pr...)
Oh well, nice while it lasted...
End of the Rule of Law?
I think not immediately. The better analogy is to the Lex Titia of 43 bce. Octavian most certainly kept the courts open (indeed he reopened them). But the Senate and the assemblies of the people ceased to have any meaningful role in the exercise of political power in the Roman world.
Here, the executive branch is asking that Congress hand not inconsiderable tax revenues over to it while simultaneously agreeing to forgo any oversight of decisions about the spending decision makes by either Congress or the Courts. It is akin to photoshopping article 2 and much of article 3 out of the Constitution.
In the old days, the response to this sort of assertion of executive power was something along the lines of "No taxation without representation." Of course they used to say, "give me liberty or give me death." But we are now merely a nation of consumers, not citizens. So the tag must be "Give me a Visa Card, or give me death."
I think the first decades of this regime will probably see the end to the rule of law only with respect to issues of the fisc. The rationale will be that our Dictator of the Fisc, or treasury Secretary, if you prefer, is above the law within his area of jurisdication. The rest of us will probably have access to the courts for property and inheritance disputes.
It will take some time before we see the rises of the delatores and treason trials and the equation of the Dictator of the Fisc's decree with statute and precedent.
These are interesting times for students of the late Republic.
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