The current economic crisis is undeniably vast and frightening. This is precisely the type of situation that deserves governmental intervention. The problem is that we do not trust the current administration.
We were told that the Bush Administration's proposed legislation was essential and that our economic future depended on its passage. But what did the Bill actually say? President Bush told us the bill was designed to vest unparalleled power in the hands of a few men as the only way to resolve this crisis. However, the text of the bill was not publicly available until after the House of Representatives rejected the legislation.
Even though the bill was rejected, I still read it out of curiosity. The bill, entitled the Emergency Economic Stabilization Act of 2008, is over 100 pages.
This legislation contains a section entitled "Preventing Unjust Enrichment." This is the key section of the Bill. This section would have prohibited the sale of a "troubled asset" to the government at a price more than what was originally paid by the seller. It certainly seems fair that companies would not be able to profit by selling "troubled assets" to the government.
However, the next sentence reads as follows: "This subsection does not apply to troubled assets acquired in a merger or acquisition, or a purchase of assets from a financial institution in conservatorship, or receivership, or that has initiated bankruptcy proceedings under title 11, United States Code."
This part of the Emergency Economic Stabilization Act of 2008 would have provided a windfall to the companies that recently purchased the distressed assets of WaMu, Lehman Bros., Indy Mac, Freddie Mac and Fannie Mae. This language was not accidental.
As the Wall Street Journal reported in today's edition, t he notoriously fragmented American banking system is going through a decade's worth of consolidation in a matter of weeks, with the U.S. government often acting as matchmaker.
Anyone reading the financial pages over the past months must have wondered how companies could justify making such rapid purchases of substantial banking and financial portfolios. Normally one does not see acquisitions in the billions of dollars closed in over-night transactions. Now we know why.
The Bush Administration's emergency legislation would have provided a bailout. This Bill would have permitted the companies that purchased troubled assets to dump them onto the taxpayers at a profit!
Imagine the conversations that must have taken place between senior members of the Bush Administration and banking executives. "Don't worry. If you acquire WaMu, Indy Mac and Wachovia and their bad mortgage debt, we will help you." "We will take over Fannie Mae and Freddie Mac and you guys can still make a profit." "If you buy Lehman's assets from its bankruptcy, we will help you turn a profit."
The Bush Administration apparently thought they could exploit our anxieties so that we would go along with their plan. They must have presumed we would not need to know the details.
Geoff great insight and article. I say this not in a negative way at all to you but read what others on this site have to say and you will understand that it sails right past them. It is that sad, yet it doesn't detract from the truth. Good work.
Too few people are willing or able to actually read the text of pending legislation. This particular exception in this legislation explains why Wells Fargo is now fighting over the carcass of WaMu. Bankers know that this bailout will create a substantial potential to profit by acquiring "troubled assets" such as those in WaMu's portfolio.
I have not been able to generate sufficient traction with my concern. So often we end up screaming into the wind.
Yes Geoff and what happens to those bad debt assets we will own. Will shady collections people get them and try to extort money on behalf of Uncle Sam. Will they place liens on people. No not even a cease and desist matters because that is pennies to them. They discard the law as if it were just a nuisance to contend with. These politicians of principal and honor and professors of belief. well i agree read the fine print. the problem those who should can't, they do not have the Internet, the others could care less. Non the less it does not detract from your work.
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Article added to SearchWarp.com on Tuesday, September 30, 2008 View other articles written by Geoff Mousseau(400)
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