A Concrete Example of the Danger Inherent in the Bush Administration's Proposed Bailout of the Wall Street Banksters...
By John Washburn on 9/25/2008, 9:57pm PT  

Guest Editorial by John Washburn

Under the proposed bailout legislation (according to Henry Paulson, Secretary of the Treasury), the US Treasury or agents thereof could acquire Microsoft for one US dollar, with no legal recourse for Microsoft or even its shareholders.

Here is the text of proposed legislation and here is what the Treasury Department claims the legislation will allow it to do, and here is how Paulson (or his successor) could own Microsoft...for a buck...

The relevant sections of the proposed legislation (all emphasis mine) are:

  • Paragraph 2(b)(5), which reads:
    The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation [to issue] such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.
  • Paragraph 2(a), which reads:
    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.
  • Section 8, which reads:
    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.
  • Paragraph 12(1), which reads:
    For purposes of this section, 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.

Here is how Paulson "buys" Microsoft for one dollar.

  1. Invoke paragraph 2(b)(5) to define term "mortgage-related asset" to include Microsoft stock.
  2. Invoke paragraph 2(a) and acquire all outstanding Microsoft stock in exchange for one federal reserve note because these are the "terms and conditions as determined by the Secretary."
  3. Invoke Section 8 when Microsoft shareholders sue over the theft of their property.

I chose Microsoft because it is the corporation with the least connection to mortgages I could think of. My point is not that Secretary Paulson is contemplating a confiscation of Microsoft. My point is that the Bush Administration's proposed legislation, as written, grants Paulson the power to "buy" anything at the "price" of his choosing. Even if the "something" is as unrelated to sub-prime mortgages as Microsoft. My scenario is not prohibited under the proposed legislation, therefore the legislation permits it. Moreover, the Treasury Department is already telling Congress that my interpretation of paragraph 2(b)(5), paragraph 2(a), section 8 and section 12 of the proposed statute is the official interpretation of the Treasury Department .

Here are excerpts from the Treasury Department's OWN statement of what powers the Congress will grant to the Treasury Secretary under the proposed legislation [again emphasis mine].

  • From the paragraph entitled: Scale and Timing of Asset Purchases
    The purchases are intended to be residential and commercial mortgage-related assets, which may include mortgage-backed securities and whole loans. The Secretary will have the discretion, in consultation with the Chairman of the Federal Reserve, to purchase other assets, as deemed necessary to effectively stabilize financial markets.
  • From the paragraph entitled: Asset and Institutional Eligibility for the Program
    To qualify for the program, assets must have been originated or issued on or before September 17, 2008. Participating financial institutions must have significant operations in the U.S., unless the Secretary makes a determination, in consultation with the Chairman of the Federal Reserve, that broader eligibility is necessary to effectively stabilize financial markets.

The Treasury Department is telling Congress right now that under its official interpretation of the effects of the proposed bailout, the Secretary of the Treasury, under paragraph 2(b)(5), has the discretion to alter the definition of "mortgage-related asset" so as to include any financial asset, headquartered in the US or not, as long as the Secretary "deems it necessary to effectively stabilize financial markets."

I would also cynically note that "consultation with the Chairman of the Federal Reserve" is not the same as "with the approval of the Chairman of the Federal Reserve." Under the proposed statute and the Treasury's proposed regulations, Chairman Bernanke can object all he wants, but as long as he was consulted, Secretary Paulson can do what he wants with any financial asset domestic or foreign. If the Chairman of the Fed could prevent the re-definition, then that would constitute "reviewed by an administrative agency," and such review is strictly prohibited by Section 8 of the proposed legislation.

The Secretary Treasury is asserting that under the proposed "bailout" legislation that he can "buy" any asset foreign or domestic at what every "price" he dictates and the victims of his "purchases" can pound sand.

Al Capone made similar "purchases" on similar terms back in the 30's.

Call your Congressperson today. Call tomorrow. Call until this proposal to rape the American public is defeated.