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Treasury Treason

How could the unknowable ever work?


Congress Has No Authority Here

Friday, September 12, 2008 | 07:14 AM

"As with any contract, the parties to the agreement may modify the covenants by mutual agreement only.''

-Treasury Secretary Hank Paulson


Hank Paulson's God Complex just got bigger. The Director of Government Bailouts, and head of the Socialism Departmant at Treasury has informed Congress to back off his turf.

"All your legislation belongs to us!"

Now, last I checked, it was Congress that had the power of authorization disbursements, and that Treasury does not have the authority to spend 5.3 trillion dollars. Comrade Paulson does not seem to understand the way the different branches of government work in the United states, and is apparently unfamiliar with a little parchment called the Constitution. Perhaps we can get Ron Paul to explain how these things work to our friend from the People's Republic of Goldman.

Bill King: "Hank is trying to euchre the market into believing that if Congress tries to change the law, the executive branch would then sue Congress for breach of contract.  Good luck with that at the Supreme Court." Nice try, comrade, but no such luck.

The issue here is authorization. I cannot write a contract to sell you home, car, etc to a third party, without your authorization. Otherwise, its fraud. The party with the legal title and ability to convey those goods or services on the one side, or indebtedness or money on the other side of the transaction requires authorization.

The original Bazooka legislation did not give Treasury a blank check to do whatever they want. A decision, for example, to add Fannie and Freddie to the budget "wouldn't automatically translate into explicit government backing for the companies' combined $1.7 trillion in unsecured debt and $3.5 trillion of mortgage guarantees." To do so requires Congressional legislation to change the companies' legal status. That's where any of the changes -- like reducing the absurd pay packages for the current idiots running Fannie/Freddie -- would come in.

Here's Bloomberg's excerpt:

"The U.S. Treasury said Fannie Mae and Freddie Mac's debt and mortgage-backed securities are "protected'' by the government's stock purchase agreement that put the mortgage finance companies under federal control.

"The holders of senior debt, subordinated debt, and mortgage-backed securities issued or guaranteed by these GSEs are protected by the agreement without regard to when those securities were issued or guaranteed,'' the Treasury said today, referring to the so-called government-sponsored enterprises.

The federal government took over the two largest sources of money for U.S. home loans on Sept. 7, placing them under conservatorship and establishing procedures for buying their senior preferred stock if liabilities exceed assets.

The federal takeover didn't address whether the companies' $5.2 trillion in debt should be included in the budget, or whether it carries an explicit government guarantee. In an interview this week with Bloomberg Television, Treasury Secretary Henry Paulson cited "incongruities'' in the law, saying "we should be clear, is there a government guarantee or isn't there?''

I do not believe Treasury has purchased any stock yet, but that can change in an instant. Long live Bailout Nation!



Treasury Says Fannie, Freddie Accord Protects Debt
Rebecca Christie
Bloomberg, Sept. 11 2008

Treason at the US Treasury:

September 8, 2008
Doug McIntosh

There have been two economy shattering domestic USA events during my lifetime. The first in August 1971 was President Richard Nixon's taking the US fiat dollar off the gold standard. Nixon replaced gold with the nebulous phrase "full faith and credit" of the USA. and the result has been as predictable as it has been lethal. The second event happened in the last 72 hours, or on Friday September 5th, 2008. Of course it happened after the rigged stock markets had closed.

And of course we are "assured" it is really a good thing. The system protecting us etc. etc. etc.

At least that is what both Presidential candidates tell us, Barney Franks the head of House financial services committee tells us; even that lout Paulson, our pathetic Treasury Secretary. Paulson has bounced from economic outrage to economic outrage like a demented car in a demolition derby horror movie. I guess that is what happens when you let a Wall Street flunkie become the US Treasury Secretary. A classic example of letting the inmates run the insane asylum. About the same time the US whore media was reporting the salvation of both Fannie and Freddie, by destroying the stockholders, Hugo Chavez had his cronies vote to seize the fuel distribution system in Venezuela. He gave the oil companies 60 days to sell out and then he would seize their assets. Here we have a communist, Chavez, who at least allows the oil companies to get some equity back, while we have the USA's Paulson openly seizing stock without compensation. The USA has acted like a communist country. Venezuela's Chavez at least talked to Castro who told him how to avoid ticking the transnationals off when you nationalize corporate assets. I guess Paulson figures that since no foreign government assets were seized he can screw the rest with impunity. To paraphrase George Orwell, "not all assets are equal."

One of things that amazes me about modern America is not only the insolence of the elite, but their brazen flaunting of it. The elite has just seized, nationalized one half of the USA home mortgage market. The elite has just destroyed billions of dollars of equity. They have just screwed the American taxpayer to the nth degree. But you would not have a clue to any of this by watching the mainstream press. Whatever.

Here at the Q files I will attempt to give you some perspective in this essay. For starters, go back and read my "Perils of Fannie Mae" essay. I have been following the ongoing collapse of these GSE, government sponsored entities for several years now. Then read my other recent essay "WAMU the Killer Bank." It was posted about 10 days ago and discussed Washington Mutual bank. The Wall Street Journal is reporting their CEO is being forced out. This is happening one week after my essay highlighting the very dangerous conditions at WAMU, and the very same weekend of the Freddie and Fannie Mae rescue. Nuff said I think.

The Federal Reserve issued on Sunday September 7th a statement saying that "although many banks have Fannie and Freddie stock, both preferred and common in their portfolios" yada yada yada. The problem is "limited" to smaller banks which have used this stock to maintain their reserves. Yada, Yada, Yada. The mere fact the Federal Reserve had to issue this statement tells me many banks have suddenly found out the stock they counted on to maintain their reserve balances is now worthless. Like WAMU for instance?

Moving deeper into the swamp, we are told the Treasury will buy $5 Billion dollars of Freddie and Fannie Mae stock. The other number batted around is some $223 Billion in stock. I am unsure exactly what that number means. Fannie and Freddie's stock has lost 90% of its value in the last year. In fact, they have lost a lot of value since Friday afternoon. The stock has no economic value at this point, especially since it can't be traded. Only certain types of stock will be bought by the FEDS. The rest is road kill. You may sure the foreigners and the central banks won't be unduly distressed. This is the whole point of the bailout: women and children last, fat cats to the head of the line. The US Treasury's treason is to sacrifice domestic stock owners at the expense of the foreigners. I understand why they have done this, but treason is treason.

Besides the open communist seizure of private assets, stock, without compensation we have several other issues here. The first is simple: why stop with Fannie and Freddie Mae stock. Now that the concept of communist seizure of assets has been accepted, the New York Stock Exchange is meaningless. One of the points of American capitalism was the rule of law. One of the points of American capitalism is when you bought "stuff", either land, or stock, or whatever you were protected against arbitrary seizure. The idea of being protected against unjust liability is the very foundation of our economic system. Or at least it was until this weekend. Government has been moving in the direction of what I call insolent seizure for some time now, with the drug wars etc. etc. etc. Now they have simply codified it with the open seizure of Fannie and Freddie.

I will tell you openly, the rule of economic law has ended in the USA. Say what you will, the open seizure of Fannie and Freddie by the US government, without cause or recourse, and the destruction of private equity is the Rubicon. We shall not go back from this point. It is kaput.

I will need to write more essays on this in the future I think. Suffice it to say, the bailout is not for $5 Billion, or even for the $223 Billion. I am afraid the US taxpayer is on the hook for the entire 5 TRILLION dollars of home mortgages Fannie and Freddie issued. The home mortgages that are, at best, worth between ten and twenty percent of that. We are looking at a bailout in the 4 TRILLION dollar range. On top of all the other bailouts looming over the US taxpayer. It will be interesting to see if the pension plans, foreigners et all make the same judgment I have; namely, legal protection for private asset value was ended by the US Treasury this weekend.

Other essays by Doug McIntosh:

Here at the End of All Things
A Trillion Here; A Trillion There
The Other Gulf Surge Tide
Roll Over Monroe
Treason at the US Treasury
The Hurricanes of September
Why Gun Control Laws Are Killing People
Trouble in the Eurozone
WAMU the Killer Bank
The Bombs of August
The Perils of Fannie Mae

The architect:

How Paulson misjudged mood of Congress

By Stephen Foley in New York
Friday, 26 September 2008

"I have always been trained to run towards problems," Hank Paulson told members of Congress as he squirmed his way through hearings on his $700bn Wall Street bailout plan this week. It is a line he has used often, first as he clawed his way to the top of the investment bank Goldman Sachs, and repeatedly in his gruelling two-and-a-half years as US Treasury secretary. But his political capital has evaporated. His reputation for competence was dented by the collapse of Lehman Brothers, when he had said no to a government bailout, only to say yes to a much bigger nationalisation, of the insurance giant AIG.

While politicians rallied to his call to craft a bipartisan once-and-for-all solution to the credit crisis, he fundamentally overestimated his personal political capital and under-estimated the depths of congressional fury when he asked for extraordinary power to spend an equally extraordinary amount of taxpayers' money to buy the mortgage assets that have poisoned the banking system.

Just three pages long, the draft legislation published on Saturday in effect turned the federal government into the world's biggest hedge fund.

The calculation he made was that Congress would be willing to give him the same sort of powers as a chief executive at, say, Goldman Sachs. As they told him again and again in those hearings, that is not the way taxpayers' money should be handled. It was a misjudgement he has been made to regret.

Related Articles

Bernanke, Paulson: Congress must act now

Fed chief bluntly warns of recession risks without Wall Street bailout

Image: Paulson, Bernake and Cox testify on federal bailout plan

Shawn Thew / EPA

U.S. Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke, Securities and Exchange Commission Chairman Christopher Cox and Director of the Federal Housing Finance Agency James Lockhart appear before the Senate Banking Committee on Capitol Hill Tuesday.


updated 7:17 p.m. ET Sept. 23, 2008

WASHINGTON - Senators dug in their heels Tuesday, pushing back against dire warnings from the government’s top economic officials of recession, layoffs and lost homes if Congress doesn’t quickly approve the Bush administration’s emergency $700 billion financial bailout plan.

Congressional leaders still predicted passage — with significant changes — but Wall Street’s nerves were hardly soothed. The Dow Jones industrials sank 161 points and now are off more than 500 this week after initially surging on the bailout announcement last week.

Deepening market trouble was just one piece of the economic havoc that Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson told senators would ensue if Congress lags in acting on the administration’s proposal to rescue tottering financial institutions.

“I share the outrage that people have,” Paulson said. “It’s embarrassing to look at this. I think it’s embarrassing to the United States of America. There is a lot of blame to go around.”

But without the bailout plan, Paulson and Bernanke sketched out a dire scenario for senators at a contentious daylong hearing: Neither businesses nor consumers would be able to borrow money, and the world’s largest economy would grind to a virtual halt.

In public and in private meetings, both Democrats and Republicans said big changes are needed, presaging a difficult road ahead for the measure.

The legislation the administration is promoting would allow the government to buy bad mortgages and other rotten assets held by troubled banks and financial institutions. Getting those debts off their books should bolster those companies’ balance sheets, making them more inclined to lend and easing one of the biggest choke points in the credit crisis. If the plan works, it should help lift a major weight off the national economy that is already sputtering.

Democrats were determined to wrest concessions from the administration on domestic spending and middle-class economic aid. And they said Republicans had to share in the politically tricky task of pushing through a financial bailout six weeks before the elections at a time when millions of everyday Americans are economically strapped. 

“It’s their problem. It’s their bill. And they’re going to have to figure out if they can support it,” House Speaker Nancy Pelosi, D-Calif., said of Republicans.

“Nobody wants to have to do this,” agreed Rep. John Boehner of Ohio, the Republican leader. He said he was hopeful of a quick agreement, despite withering criticism from conservative GOP lawmakers who recoiled at the prospect of federal intervention.

Sen. Jim Bunning, R-Ky., said, “This massive bailout is not a solution. It is financial socialism and it’s un-American.”

Both parties’ presidential candidates also insisted on alterations in the administration’s drastic prescription.

Democrat Barack Obama said any plan to rescue Wall Street from its financial woes must ensure that taxpayers are reimbursed and corporate executives are not further enriched for mismanagement. Republican John McCain, too, said the legislation must prevent executives from winning large taxpayer-funded bonuses, and he also said no earmarked spending could be included.

Democrats and Republicans alike demanded that the bailout limit pay packages for executives of companies helped by the rescue.

“Clipping executive compensation is easy right now — everybody wants it,” said Rep. Jack Kingston, R-Ga.

Democrats also were pushing proposals to let the government take some type of stake in the companies that it helps. The administration has balked at that, fearing it would discourage financial companies from getting the help they need through the bailout, thereby blunting the plan’s effectiveness.

Democrats also want to let judges rewrite mortgages to lower bankrupt homeowners’ monthly payments, another demand the administration is resisting.

Both Sens. Chris Dodd, D-Conn., chairman of the Banking Committee, and the panel’s top-ranking Republican, Richard Shelby of Alabama, said significant changes are needed before the rescue plan can be passed. “We have got to look at some alternatives,” Shelby said.

Getting the action right is key, Dodd said: “There is no second act to this.” He later spoke disparagingly of the administration’s proposal. “What they have sent us is not acceptable,” he told reporters.

Bernanke’s remarks about the risk of recession came in response to a question from Dodd, who seemed eager to hear a strong rationale for lawmakers to act swiftly on the administration’s unprecedented request.

“The financial markets are in quite fragile condition, and I think absent a plan they will get worse,” Bernanke said.

Ominously, he added, “I believe if the credit markets are not functioning, that jobs will be lost, that our credit rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover in a normal, healthy way.”

GDP is a measure of growth, and a decline correlates with a recession.

Across the Capitol complex, Vice President Dick Cheney and President Bush’s top advisers met privately with restive House Republicans, some of whom emerged from the session unpersuaded.

“Just because God created the world in seven days doesn’t mean we have to pass this bill in seven days,” said Rep. Joe Barton, R-Texas.

Added Rep. Darrell Issa, R-Calif., “I am emphatically against it.”

Paulson, seated next to Bernanke at the Senate hearing, objected strongly when Chuck Schumer, D-N.Y., asked if $150 billion might be enough to get the program started, with a promise of more to come.

That would be a “grave mistake,” and would fail to give the markets the confidence they needed to rebound, Paulson responded.

Rep. Barney Frank, D-Mass., the Financial Services Committee chairman who is leading talks with Paulson on the plan, also called phasing in the bailout “highly unlikely.”

Paulson was asked repeatedly why taxpayers should accept the burdens of a bailout.

“You worry about taxpayers being on the hook?” he replied at one point. “Guess what — they’re already on the hook.” Paulson suggested that the fallout from the credit crisis would hit almost everyone in the pocketbook unless forceful action was taken. Moreover, the flawed and outdated regulatory system, which didn’t catch abuses, needs to be overhauled, he said.

In New York, meanwhile, Bush was telling the U.N. General Assembly that the United States was taking “bold steps” to prevent an economic calamity that would be sure to have major effects around the world.

One of the tricky issues confronting policymakers is how to price the distressed assets that the government would ultimately buy.

Bernanke suggested buying the assets at a “hold-to-maturity” price, which would be based on an estimate of what the securities would eventually be worth as payments came in over the years.

“If the Treasury bids for and then buys assets at a price close to the hold-to-maturity price, there will be substantial benefits,” Bernanke said. “First, banks will have a basis for valuing those assets and will not have to use fire-sale prices. Their capital will not be unreasonably marked down.”

In contrast, if banks use existing “mark-to-market” rules that require them to value the holdings at what similar securities have recently sold for — in some cases pennies on the dollar — it could make the whole bailout futile because it would hurt many banks’ balance sheets, causing some to fail. “This creates something of a vicious circle,” he said.







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