Saturday, 20 September 2008

"Non-Reviewable" - Sometimes there really ARE conspiracies

The text of the proposed emergency markets legislation is now available. Just as expected, it will contain a provision to provide immunity from any review by any court or executive agency. Either get with the collaborationists or get with the insurgents. There is no other choice. The USA doesn’t exist as we once knew it.

The relevant text from the legislation:

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.

Good luck, everyone. We’re in uncharted waters now. There is no rule of law if this passes - there are no markets. We’ve all been had, and the worst is yet to come.


gordon said...

Utterly, utterly shocking. Undoubtedly the biggest theft in history. Being a banker I thought you would be happy ?

Anonymous said...

Why is this shocking? Where were you when the wiretapping act was passed allowing the federal government to spy on its citizens without a court order? Ah you figure you were not affected? Who was that who said those willing to give up their freedoms in exchange of security deserved neither?

Dave said...

I've read the text of the proposed bill and all I can say is that I was flabbergasted. It proposes nothing more than an institutionalised theft of $700bn US dollars, with no possibility (now or subsequently) of oversight by courts or congress. Democracy is indeed dead.

John East said...

The rage might turn to fear when the markets open on Monday.

sd said...

Nothing good this way comes. Does no one read history any more?

Anonymous said...

I am as so many others have said shocked--shocked into speechlessness. What will happe on Monday when the markets open? Or next Friday when the U.S. Congress gives Paulson/Bush everything they want? Do we stay? Do we flee? Where

Raf said...

It is the end of capitalism as we know it. I can understand Thursday's intervention was to prevent the markets from sinking without trace but they have just made this unravelling more painful.

I had to laugh when Lloyds said they were hopeful of raising their Tier 1 equity to 6-7% after the swallowing of HBOS.

That's how mad it's become when banks believe they can operate like a margin account.

My dad was a banker for 42 years. He actually used to lend money to businesses, often making a judgement call on the borrower. He rarely lent more than 60-70% on a property.

The time has come to sweep away the leveraged monster we've ridden for the last 20 years. The US cowboys can pack up and head home.

Back to basics kiddos.

gordon said...

LB: Since you mentioned that you read Denninger's blog you will remember his prophesy that the sharks would progressively turn on their next prey by shorting it to death, especially the IBs.

Maybe this was fine until it suddenly appeared that instead of winning the lot, Paulson's alma mater might actually become the prey. Then the panic set in. First, ban short selling. Then prop-em-up by buying their Level 3 junk.

Where it ends nobody knows, but you can be sure that these sharks will fight to the end, biting and snapping at anything in order to sustain their power and elite position.

One thing is certain. They do not give a damn for the ordinary mortgager.

Anonymous said...

I would agree with Gordon that it increasingly looks like the former employees of 'Government' Sachs are acting in the interests of their share options and old pals.

Anonymous said...

The goldfinger boyz want the bad assets off their books before they take the company private.

There will be a new government in the United States in January. Question is to who have the goldfinger boyz been pumping $$$?


Dubai Accountant said...

Bush/Paulson are piling pressure on Congress to pass this bill quickly lest sky will fall.

I remember similar tactic was deployed just before the Iraq war in order to get the Congressional approval.

The sad bad part is there is no demurring voice from the Democrats.They are also eager to accommodate the President without taking adequate time to scrutinise the bill.

Carl E said...

I agree that on the face of it this sound completely undemocratic and that some kind of oversight need to be assured. However, given the number of professional plaintiffs in the US who can easily derail any such programme I am not sure that there really is a choice.

What I believe is more important is to structure the whole thing in a way that taxpayers' money is safe, which obviously entails buying the assets cheaply enough, which in turn could hurt the solvency position of the banks that haven't written the assets down far enough. So somewhere this plan needs a mechanism to recapitalise the banks - and I hope if the state does it, then not implicitly via the purchase price, but rather through a direct and dilutive equity / convertible injection.

As opposed to regular central bank schemes this one has an interesting signalling effect though: if you have written your assets all the way down, then you have an incentive to use the scheme as you are shedding risk. So if we want to know who believes its valuations we just have to see who uses the scheme (...assuming it transfers the assets at market that is...)

d'zoner said...

Unfortunate timing for any financial entity to have 'bet'on the dems and channeled the bulk of ther political contributions to Barack Obama or DNC.

Don Paulson, i swear to GOD he was FIRED and 100% of our contributions in the future will go to the RNC. PLEASE reconsider your decision to exclude our company from the bailout! Here, pplease accept this envelope as a gesture of our esteem.

Anonymous said...

Quick question,
Is this an attempt to to forestall deflation and if so
will it succeed ? Do we have hyper inflation to look
forward to now ?

Anonymous said...

I've spent most of last night and this morning e-mailing to my own and various other senators and congress persons - i.e., the members of the Senate Banking Committee, Speaker Pelosi, Hillary Clinton, Obama, Biden, etc. Unfortunately, most of their computer systems fired back e-mails that they only accept communications from their own constituents. I don't know what to do - even my uber-conservative relatives are up in arms and ready to fire the whole mess of them.

I'm considering moving to Canada, which is not an easy proposition. They only want you if you already have a job.


Anonymous said...

suecris, I've e-mailed both of my Senators and my House rep and had no problems. You can e-mail the Senate Banking Committee and also the House Banking Committee--each has websites with contact forms and they'll accept e-mails from anywhere in the U.S. E-mailing individual members may not work so well--I ran into the same problem with Chris Dodd, but you can reach him through the Senate Banking Cmte. web-site (google it). Another thing--email the DNC (Dem. National Cmte.). They're surely paying attention to this--they do not want their candidates losing valuable constituent votes. Hope this helps.

Anonymous said...

GS and MS to become Bank Holding Companies. The plot thickens.


Knute Rife said...

When the Roman Republic faced a crisis, it had a procedure to appoint a dictator for the crisis and then have him step down once it was over. When that procedure failed, so did the Republic. We have no such procedure; we're just appointing a dictator. The Republic has already failed.

Some might say there is no way this won't be declared unconstitutional. Frankly, folks, there is nothing that is beneath this Supreme Court.

You are so lucky to be across the pond, LB.

Anonymous said...

The $700 Billion is rolling. Re-cycled trash is replaced with fresh trash.

There is no real ceiling for this recycling fiasco.

Another detail buried in the fine print.

kilgores said...

Congress has passed so-called court-stripping laws such as this in the past to attempt to legislate away judicial scrutiny of the constitutionality of executive and legislative actions. Those attempts have failed because of the Separation of Powers Doctrine. Courts always wind up reviewing these laws anyway, e.g., under the All Writs Act. All a "no judicial review" provision does is to delay the inevitable review (which may, admittedly, be enough time to cause a lot of damage).


Anonymous said...

The Elephant In The Room

There has been much deserved criticism of the actions of the investment banks, mortgage originators, commercial banks, the Federal Reserve, the Treasury, the Securities and Exchange Commission, and the current Republican Administration along with the Democratic Congress in their collective handling of the financial crisis now dubbed the Panic of ’08.

Although we should expect better, we must realize the constraints that have led to the current series of bailouts and nationalization of the markets.

First, the players with their hands on the levers of power and the knowledge of what was happening, the Federal Reserve and the U.S. Treasury, were constrained by their hidden agendas as well as their explicit ones.

The Treasury is tasked with the strength of the dollar and the need to finance our massive public debt. However, a strong dollar hurts exports and increases imports, the trade deficit, and the outsourcing of American jobs. As part of the current administration, politically this is a balancing act at best. And to top it off, interest rates which enable the financing the public debt are totally out of their control.

Currently, foreigners hold much of our public debt, and thus can dictate terms or refuse to buy more. Meanwhile, the Treasury has lowered the limits as to how many savings bonds U.S. citizens can buy. Down from $60,000 per year to $10,000 per year, thus increasing our dependence on foreigners.

The Federal Reserve is not part of the government, it is a creature that is in essence a quasi-private central bank with immense power and owned by the banks who have access to the Fed’s discount window and whose excess profits are given to the treasury. They are tasked with a stable currency (value of the dollar within the U.S. but not overseas) and stable economic growth. But their real mandate is to maintain a stable banking system. Politically, as a creature of Congress, they are subject to political pressure, but the members are appointed by the Executive branch. Most politicians, both Republican and Democrat, don’t have a clue as to what they do.

They have been much criticized for their failure in stemming inflation and maintaining reasonable levels of employment. However, increases in unemployment have often been necessary in order to halt run away inflation. Thus politically, politicians love it when they do the wrong thing by increasing the supply of money and credit and hate it when they raise rates and withdraw the free lunch of unlimited credit. In addition, when they do the right thing and raise interest rates, they reward savers and raise the cost of carrying the public debt. Again, another institution that cannot keep their masters happy by doing the right thing.

It can be correctly argued that today’s crisis is the result of the Fed’s choice to attempt to prevent a recession in late 2001 and postponing the price we should have paid for the 2000 Dot-Com Bubble. As usual, though the roots of the crisis go way back: Phil Gramm’s green lighting an unregulated derivatives market, Reagan’s de-regulation, Nixon’s closing of the gold window, LBJ’s guns and butter, Kennedy’s fiddling with statistics, etc. The truth is we collectively have been taking the easy way out and postponing the day of reckoning for decades.

The Securities and Exchange Commission, like the Treasury, is part of the administration. This administration has sponsored a light hand and minimal regulation. This is completely in line with the previous Fed Chairman, “Easy Al”. Thus, in the perp-walks of the recent past, it was the Attorney General of the State of New York that was in the lead and not the SEC.

The current Administration and Congress are focused on November 4th, counting on the Fed, Treasury, and SEC to keep peace until they can again pay attention to these problems. But, last week they have been dragged in and told “the world is about to end”.

You see, in all of the previous meetings between the bankers and the Fed, or larger meetings with the Fed and Treasury, there was an Elephant in the room. This Elephant is the market in derivatives, and precisely in it’s largest part, the market in Credit Default Swaps.

This Elephant is larger than all other players combined. This Elephant is what causes fear. This Elephant is why the measures taken so far have been done the way they have been done.

The CDS market is unregulated but is like insurance. Just like an entertainment company can buy a life or disability policy on an actor while the film is in production, or an actor could insure his nose, legs, or voice, the purchaser of a Mortgage Backed Security or a Bond, can buy insurance against the default of that security or bond. However, this is not a regulated insurance contract and what constitutes a default in one CDS contract is often different from another CDS contract. Thus only civil courts can clear these.

These CDSs are contracts or betting slips, and the biggest bookie was AIG. AIG is not an insurance company but a holding company that owns regulated insurance companies, who do not write CDSs, and unregulated companies who do write CDSs.

Furthermore, the value of these CDSs is what separates most banks from insolvency. That is, if the value of these contracts is in doubt, the FDIC has to take over the bank.

These takedowns of Bear, Fannie, Freddie, and AIG ( and today’s morphing of Goldman and Morgan into banks) were all done in a way to avoid triggering these ‘default’ events and a cascade to oblivion in the CDS market.

The Elephant is still in the room, and thus the danger is still with us.


Tiger Coach said...

The Bush Presidency: Financiers Gone Wild

Those who are willing to sacrifice liberty for security shall have neither. –Ben Franklin

Throughout U.S. History, there have been several occasions where liberty has been sacrificed for security. The most notable are The Great Depression and Word War II. Today, we can add the Bush White House to the list. Under President Bush’s watch, a number of moves were made which have compromised the U.S. Constitution, and affected the liberty of all U.S. citizens. While many of these moves were made in an attempt to avoid financial panic, it is clear that two entities have increased their powerful role in the U.S. government. This essay will examine the increase of power and influence of the Department of Treasury and the Federal Reserve.

While being vigilant of a U.S. economic, there are several moves which have increased the power of his Executive Branch, and jeopardized the inner-workings of U.S. democracy. When Henry “Hank” Paulson was placed at the helm of the Department of Treasury, a true Wall Street insider was given the reigns of power. Paulson was appointed by the President, and confirmed by the Senate. Under no circumstances am I critiquing Paulson the man, however one must separate the man from the financial policies of his Treasury.

Likewise, his counter-part Ben Bernanke who once espoused “Fed transparency” has gone to great lengths to mask the Federal Reserve behind a heavily veiled curtain. Bernanke has willing admitted that Federal debts fall squarely within the powers of the executive and legislative branches. It appears that his tenure as Fed Chairman has been nothing short of reckless for the U.S. taxpayer, while beneficial to Wall Street. Today, the U.S. taxpayer is faced with a new TRILLION dollar debt. A sign of financers gone wild!

Moral Hazard and Malfeasance are the two most common themes that have been used during the tenure of the Bush administration. And, it becomes increasingly apparent that preservation of the U.S. financial engines have taken priority over the interests of the U.S. Constitution and its’ citizens. The following time-line demonstrates this case:

Initiative Date
1. Super SIV October 2007
2. Term Auction Facility December 2007
3. BCS/JPM bailouts March 2008
4. Primary Dealer Credit Facility March 2008
5. Reverse MVS Swaps April 2008
6. Investments and Collateral September 2008
7. Administrative Repeal of 23A September 2008
8. Nationalization of AIG September 2008
9. Expansion of Federal Debt
w/o Congressional Approval September 2008
10. Central Bank liquidity injection September 2008
11. Re-Invention of the RTC September 2008

Banks are considered the financial engines of growth and prosperity in the United States. Yet, all business should be tied to basic risk-reward formulas. The time-line suggests a recurrent theme of risk aversion and market manipulation on behalf of the executive branch of government, and big business. The executive branch has allowed Treasury and the Fed to increase their role, without specifying a limit to their powers. Every Fed and Treasury move on this time-line was designed to save the financial institutions of the United States. While the Bush’s Presidency has gone to great lengths to “improve” and “save” financial institutions from failure, American Democracy has clearly suffered. The fear of collapse has had the effect of near total capitulation from the U.S. government. There has been little to no Congressional opposition to the bailout of Wall Street on the taxpayer’s dime. Instead of widespread outcry about executive branch abuses, people have concerned themselves with fear from loss. Fear sells and the executive and legislative branches of government have bought into it. For many, they have scarified their liberty for temporary financial security.

Desperate times call for desperate measures. However, history clearly demonstrates that desperate times also allow more sinister forces to expand powers, and even seize absolute power. This best demonstrated with Julius Caesar and the Roman Republic as well as Hitler’s Rise to Power after the collapse of the Weimar Republic. Remember, Hitler came to power on the pre-tense of restoring order. Hyper-inflation had effected every German, but Hitler would save them. The names and dates change in history, however the themes hold true. While the executive branch of government has encouraged absolute behavior, and Congress has rubber-stamped these moves as “necessary and proper”, it is important to remain vigil of the long-term precedents established by such maneuvers. There has never been a greater time to become politically active and monitor the movements of our government.

Jesse said...

Sometimes there are also beneficial unintended consequences as well.

OkieLawyer said...

It looks like the whole thing may just be an election year ploy.

Anonymous said...
This comment has been removed by a blog administrator.
shtove said...

Jesse's Care Americain has the same kind of concern as LB:

How are George W. Bush and Hugo Chavez Alike?

I dunno. There's a risk of getting emotional, when what's needed is finesse and a basic trust in the voters.

acrumb said...

You might find this of interest:
Plus ça Change You Can Believe In
Why the Bailout is Not Socialism

Meanwhile Mr. Paulson was trying to get other countries to similar plans for their own banks....