Bush Submits $700 Billion Bailout Proposal to Congress

By Jeralyn, Section Legislation
Posted on Sat Sep 20, 2008 at 11:56:32 AM EST
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Here is the text of the bailout proposal President Bush has sent to Congress.

Sent overnight to Congress, President Bush says the risk of doing nothing is greater than the risk posed by the bailout.

The plan would allow the Treasury to buy up mortgage-related assets. The aim is for the government to buy the securities at a discount, hold onto them and then sell them for a profit.

Is he right? According to the experts quoted in the article:

[More...]

The jury is still out on whether the proposal will fix the financial crisis, although experts are cautiously optimistic the plan will help the housing crisis. It will help banks shore up their balance sheets by removing hard-to-value assets. This would address the seemingly endless rounds of writedowns and capital raising that have been rocking the financial sector.
Without these bad loans weighing on their books, banks may be more willing to lend. Or at least that's the goal. The problem is that the bailout will not automatically make banks profitable, nor will it stop the slide in home values that is wreaking havoc on the economy.

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Bush Submits $700 Billion Bailout Proposal to Congress | 49 comments (49 topical)

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So much (5.00 / 1) (#1)
by rooge04 on Sat Sep 20, 2008 at 12:08:55 PM EST

for the invisible hand of the market. LOL. When you leave the markets unregulated, eventually the giant hand of the government has to step in before our entire economy collapes unto itself. Maybe we can learn from Bill Clinton? Let's regulate so that this kind of thing doesn't have to happen ever again. And that way we can all make a little more money and get better jobs than a few at the top making millions more by scamming the invisible hand right into their wallets.

: Excellent Kuttner on 7 Deadly Sins (5.00 / 1) (#19)
by Coral on Sat Sep 20, 2008 at 01:02:06 PM EST

Seven Deadly Sins of Deregulation -- and Three Necessary Reforms
Kuttner explains in uncomplicated language what went wrong, and proposes some fixes. Makes a lot of sense.
Here's the list of sins:

Sin One: Allowing Mortgage Lending to Become a Casino.
Sin Two: Allowing Unregulated Bond Rating Agencies to Decide What was Safe.
Sin Three: Failing to Police Sub-prime.
Sin Four: Failure to Stop Excess Leverage.
Sin Five: Failure to Police Conflicts of Interest.
Sin Six: Failing to Regulate Hedge Funds and Private Equity.
Sin Seven: Repeal of the Glass-Steagall Act.
Each is outlined in layman's language in a brief paragraph. I found it very helpful.

[ Parent ]

Just to give some perspective (5.00 / 2) (#2)
by andgarden on Sat Sep 20, 2008 at 12:09:14 PM EST

That's the cost of several years in Iraq.

Bush Fiasco Trifecta (5.00 / 1) (#14)
by Coral on Sat Sep 20, 2008 at 12:52:48 PM EST

Iraq
Katrina
Collapse of financial system

Heckuva job.

[ Parent ]

You left out (5.00 / 1) (#17)
by steviez314 on Sat Sep 20, 2008 at 12:56:40 PM EST

Abrogation of the Geneva Convention
Dismissal of the Rule of Law

[ Parent ]

: This is going to ... (none / 0) (#47)
by desertswine on Sat Sep 20, 2008 at 04:29:47 PM EST

wind up being twice as costly (if not more)as the Iraq Debacle.
Not counting all the dead people, of course.

[ Parent ]

More regulation might not have helped (5.00 / 1) (#5)
by Manuel on Sat Sep 20, 2008 at 12:25:22 PM EST

The markets are and have been regulated. The problem is that the regulations have not kept up with the size and complexity of the economy. There is a fundamental misunderstanding of volatility and risk. Don't forget that the Russian rubble crisis, the LTCM debacle, and the inflation of the Internet bubble happened during the Clinton administration.

: Add to that the Mexican financial crisis (none / 0) (#15)
by imhotep on Sat Sep 20, 2008 at 12:53:24 PM EST

bailout during the Clinton years. Greenspan was more influential during these crises than Rubin.
Kevin Phillips interview on Bill Moyers was very interesting. His book, Bad Money, is a wake-up call to the fact that the financial industry is running the economy instead of manufacturing. History shows that that is the beginning of the end of major economies.

[ Parent ]

Gives the Fed A Lot of Discretion in terms of... (5.00 / 1) (#6)
by santarita on Sat Sep 20, 2008 at 12:26:48 PM EST

how much to pay for these assets and from whom to buy these assets. And it looks like a revolving line of credit facility - $700,000 outstanding at any one time. It allows the Fed to appoint banks as its agents for the purpose of buying and selling/liquidating. It makes a lot of sense from the point of view that banks are better equipped to manage this kind of operation but it is a little like allowing the foxes to come back into the henhouse to finish off the rest of the chickens.

I'd require the Fed to federalize the banks that it appoints as agents in the sense of limiting the fees that can be charged by the banks for their services. Or at least have some sort of offset mechanism.

Congress needs to do oversight on this big time. I wonder if they remember how.

Nothing reveiwable in court (5.00 / 2) (#38)
by befuddledvoter on Sat Sep 20, 2008 at 02:52:00 PM EST

Yikes!!

[ Parent ]

The head of the Ways and Means committee (none / 0) (#8)
by tigercourse on Sat Sep 20, 2008 at 12:28:37 PM EST

can't even oversee his own bills. I wouldn't count on Congress to do one thing right.

[ Parent ]

I thought (none / 0) (#10)
by Steve M on Sat Sep 20, 2008 at 12:34:53 PM EST

that the plan was for the Fed to purchase them at auction.

[ Parent ]

Not in the proposed text... (none / 0) (#12)
by santarita on Sat Sep 20, 2008 at 12:48:01 PM EST

as far as I can see.

If the Fed purchases them at auction, what happens if it is the only bidder?

[ Parent ]

It is a reverse auction (none / 0) (#26)
by Manuel on Sat Sep 20, 2008 at 01:21:13 PM EST

The Fed will buy the securities from the ones who will take the least amount of money for them.

[ Parent ]

I think the point (none / 0) (#30)
by Steve M on Sat Sep 20, 2008 at 01:36:20 PM EST

is that allowing others to bid prevents the Fed from gaining a windfall.

If there's a private purchaser for any of this crap, hey, that means less for the rest of us to buy up.

[ Parent ]

: Like a Foreclosure Sale... (none / 0) (#48)
by santarita on Sat Sep 20, 2008 at 04:53:44 PM EST

Usually no one shows up and the bank underbids and gets it at 70% of the amount of the loan.

[ Parent ]

First look (5.00 / 2) (#18)
by Stellaaa on Sat Sep 20, 2008 at 01:00:47 PM EST

First look scary stuff, or what I was afraid of:
Call or email your congress people and put a stop to these. The guys who caused it are not equiped to fix it. They have no clue on underwriting criteria.

No contracting provisions: means that they crony contracts and the people that made the mess will profit from cleaning it up. Section 2b2
They included commercial real estate. That was not the understanding. (section 12(1)
No supervision of the Treasury by administrative agencies or courts.(section 8) (basically, no one will get to double check the shelling out of 700 billion? Are we serious folks?

Section !. Name of the Bill... (none / 0) (#21)
by santarita on Sat Sep 20, 2008 at 01:08:35 PM EST

Just Trust Us Act of 2008.

[ Parent ]

Click on the Link (none / 0) (#23)
by Stellaaa on Sat Sep 20, 2008 at 01:10:13 PM EST

language of the bill is there.

[ Parent ]

: I read the text... (none / 0) (#27)
by santarita on Sat Sep 20, 2008 at 01:22:01 PM EST

I noticed that they hadn't given the bill a name and thought I could help.
The bill is no strings attached.

[ Parent ]

People get worked up (none / 0) (#22)
by Stellaaa on Sat Sep 20, 2008 at 01:09:07 PM EST

about Troopergate, and no one is paying attention to this stuff, disturbing.

[ Parent ]

Not a big fan of troopergate myself (5.00 / 0) (#29)
by Faust on Sat Sep 20, 2008 at 01:31:02 PM EST

but I feel like arguing for Jeralyn here.

The reason that Jeralyn is so focused on Palin is that she feels that McCain/Palin will be particularly dangerous to the country precisely because fixing these terrible problems will be less likely (or rather less likely to be fixed with a view to the interests of main street) if the Republicans hold the White House.

It's not like the ethical status of Palin has nothing to do with the problems of government since it is entirely possible that she may end up running it.

In addition don't you find it ironic that you are posting your complaint in a thread that is about the very topic you claim is not being paid attention to?

[ Parent ]

: I am not just focusing on Jeralyn, (none / 0) (#31)
by Stellaaa on Sat Sep 20, 2008 at 01:51:56 PM EST

This is big. The republicans are making it basically impossible for any of the Dem agenda issues to even surface with this.
This is really big.

[ Parent ]

There is a 3 month report rule... (none / 0) (#28)
by santarita on Sat Sep 20, 2008 at 01:25:53 PM EST

I have some additional ideas:

Any institution that takes advantage of the program cannot issue dividends for two years.

Banks must provide services to the Fed pro bono.

Fed must require writedowns of principal on underlying mortgages equal to the value of the property as of the date of enactment of the bill.

[ Parent ]

: I like your suggestions!! (none / 0) (#35)
by befuddledvoter on Sat Sep 20, 2008 at 02:37:37 PM EST

N/T

[ Parent ]

Since this is a *proposal*... (5.00 / 1) (#20)
by EL seattle on Sat Sep 20, 2008 at 01:03:00 PM EST

... the elected legislators can make some additions, yes?

I'd suggest adding a more specific public account of the assets and their purchase and sales prices. (This might be an expansion of Sec. 4?)

Personally, I think that detailed public transparency will very important to stop this from becoming the sort of black book boondoggle that we've seen develop in similarly high-budget situations.

Think: Shock Doctrine (5.00 / 1) (#34)
by pluege on Sat Sep 20, 2008 at 02:03:16 PM EST

The American people are about to lose something really important. I don't suppose we'll find out what it is for a while though - too late to do anything about it.

: I used to tell people to try to imagine the worst (none / 0) (#44)
by jawbone on Sat Sep 20, 2008 at 03:43:09 PM EST

possible things BushCo could do, the worst possible outcomes of what they actually do. Because then they would be somewhat, slightly prepared for just how badly things would actually turn out.
I was not prepared for this. Even after, what?, over a year of reading at Atrios about The Big $h*t Pile I was not prepared for what has actually happened--and BushCo's response, particularly this Treasury proposal, seems destined to be one of the great ones for the Bushies. Indeterminate actions followed by undeterminable outcomes with unimaginable contingencies.
Kevin Phillips said last night on Bill Moyers' Journal (catch rebroadcast or on the web site) that we're in for a "severe correction" which may last two decades. Also, even Greenspan, whom Phillips holds heavily responsible for what's happening now, said this could be the Big One of the 21st Century. Without WWII's economic stimulus for the US, we would have been in the Great Depression longer than we actually were, which was maybe 12-13 years. Oh my.
Phillips on NuDems: "the soul of the Democratic Party now wears a pin stripe suit." Meaning social programs ain't where it's at with them.

[ Parent ]

QUESTION: (5.00 / 1) (#36)
by befuddledvoter on Sat Sep 20, 2008 at 02:39:12 PM EST

Where does this money come from? We are already trillions of dollars in debt as a country??

Does anyone know?

Krugman's answer (none / 0) (#37)
by Oje on Sat Sep 20, 2008 at 02:47:27 PM EST

here.

[ Parent ]

Now that is interesting; great link! (none / 0) (#40)
by befuddledvoter on Sat Sep 20, 2008 at 03:02:08 PM EST

Question:

If these are, in essence, bad debts and the entitites need to get out from under that and clear their books, is the US government just doing an old fashion "taking"?? In the legal sense, a taking means the government assumes ownership because it is in the best interests of the public, and gov. pays "fair market value."

Is this just a very elaborate taking?? It will be amazing to see who is paid what.

[ Parent ]

: idk (none / 0) (#46)
by Oje on Sat Sep 20, 2008 at 04:07:42 PM EST

No economist here, but I like Krugman's instincts. Right now, it seems that Paulson and Bernanke want to treat this as a global liquidity crisis, not an American mortgage crisis. So, we are looking at a massive influx of cash with their plan, not massive restructuring and renegotiation of mortgage vs. home values for homeowners. Via corrente...
I prefer to regard American real estate and the global investments as two discrete markets. It looks the Fed is preparing to bail out the latter, and let the former continue to spiral into defaults (at which point the Fed will buy out the bad debt - and find a new owner, not secure the current owner). Whose investments are being secured? Global investors, not American homeowners.
And the Democrats appear to rolling over once again. Certainly, the fruits of "bipartisanship" as well.

[ Parent ]

Is this what you mean? (none / 0) (#39)
by EL seattle on Sat Sep 20, 2008 at 02:53:00 PM EST

Sec. 10. Increase in Statutory Limit on the Public Debt.
Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.

As I understand it, theoretically, most of this will be paid back as the assets are sold off. But no one knows right now how many of these things are truely worthless.

Of course, theoretically the freed nation of Iraq was going to be repaying the coalition countries for the costs of the liberation. But no one bothered to get that in writing, I guess.

[ Parent ]

: The Act says (none / 0) (#41)
by befuddledvoter on Sat Sep 20, 2008 at 03:04:23 PM EST

the funding is pursuant to chapter 31, Title 31. There are lots of provisions contained therein. None seem to explicitely tell you anything.
Since this is the American citizens' money. I think they need to be clearer on this. LOL

[ Parent ]
: To recoup the monies or even make a profit, the US (none / 0) (#43)
by jawbone on Sat Sep 20, 2008 at 03:32:18 PM EST

will have to be patient and wait for market conditions to improve. With RTC, they flooded the market with vastly marked down properties and actually made it worse for other sellers. Decent for buyers, and some with lots of money made oodles.
At taxpayer expense.
And Bush wants no right of review or...even hearings?

[ Parent ]

Here's Bernhard at Moon of Alabama's reaction: (none / 0) (#42)
by jawbone on Sat Sep 20, 2008 at 03:29:55 PM EST

Bernhard at Moon of Alabama is aghast at the proposal put forth by Paulson. He points out using this authorization will raise the national debt to dizzying heights.

Paulson also wants to lift the US national debt ceiling to $11,315,000,000,000.00. (When Bush took office, the U.S. federal debt was some $5.6 trillion and on a downtrend.) The U.S. GDP is roughly 13.5 trillion so the US government debt at that ceiling will be some 83% of US GDP. In international ranking that puts the U.S. debt to GDP ratio somewhere between Cote d'Ivoire and Sri Lanka. Still exclude[d] from that calculation are several trillions of liabilities of Fannie & Freddie and AIG the U.S. government recently took over.
Japan is of course still worse off with a debt to GDP ratio of nearly 200%. But most of Japan's debt is held at home as Japan is a nation of savers and has a positive currency account. It exports more than it imports. Over the last years the U.S. has imported a lot more than it exported and needs some $500 billion per year from foreigners to finance that habit. The U.S. national saving rate is somewhere near zero. It therefore needs foreigners to lend the money of any deficit.
Now Paulson wants $700 billion in emergency finance from where?
Who in this world can and will lend $700 billion for an emergency plan when the total lending to the U.S. in one year is only about $500 billion?
Did Paulson talk with China, Russia and the Saudis about this?
With this new debt and debt to GDP ratio the U.S. does no longer deserve an AAA rating. That will have to be cut down two or three notches.
Any future lenders will therefore ask for higher interest rates. Will they have additional conditions on top of those?

No review of Treasury's decisions? Lambert at Correntewire.com says this is what they did in Iraq. Heh. We're all Iraqis now....

OMG--When the Bushies demand speed, and Congress, whether D or R controlled, goes along with that, we end of with terrible and sometimes terrifying legislation. Why weren't the Dems holding hearings on this kind of stuff? Why so unprepared? Schumer's jaw dropped after hearing Paulson and Bernanke? Were both parties hoping BushCo would manage to kick the can down the road until after the election? Well, reality bites. Hard.

China wasn't permitted to purchase Unical (correct name?). I don't think they will take that kind of treatment, now that they own US almost lock, stock, and barrel. Well, Russia owns us as well; as do many ME oil despots. Oh, my.

But this proposal simply cannot stand--Who among the Dems has the standing and balls to handle this kind of BushCo stare down?

Can we have Hillary as our nominee, please? If only Obama would decide he needs to spend more time with his family--and gaining exerience and expertise--and just goes back to the Senate.

OK, I know that's not going to happen, but I don't see either McCain or Obama as capable of handling this kind of mess. We are so messed over.

BushBoy--Worst President Evah!

[ Parent ]

My God (5.00 / 1) (#49)
by dissenter on Sat Sep 20, 2008 at 07:02:13 PM EST

This is insane people. Absolutely insane. There should be a call to action telling people to call their reps and tell them NO WAY.

This proposal includes the following gem:

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.

There is no way to know (none / 0) (#3)
by Manuel on Sat Sep 20, 2008 at 12:17:26 PM EST

The problem is that no one knows how to value these securities in the current volatile housing environment. That is why the institutions holding these securities need to get them of their books and get final accounting. Clarity is needed to resolve the crisis of confidence. The current holders of these securities are holding a tiger by the tail. The government doesn't have to balance its assets and liabilitie so it can hold on to the tiger for longer. If home prices and default rates stabilize, the taxpayers may do well. Taxpayers may also do OK if the assets are repackaged before they are sold off.

I can't believe I'm going to say this, (none / 0) (#4)
by tigercourse on Sat Sep 20, 2008 at 12:24:11 PM EST

but Bush is right. And the goal isn't to make Bank's profitable or stop the slide in home prices (government should not be doing that), it's to prevent Depression the Sequel (as Jim Cramer said).

Can we throw in a few extra billion (none / 0) (#7)
by blogtopus on Sat Sep 20, 2008 at 12:27:31 PM EST

for all the homeowners who got screwed by the people we're bailing out? I mean, since we're going the whole moral hazard route...

Oh yeah, that's right. Moral hazard for me, not for thee.

hm (none / 0) (#9)
by connecticut yankee on Sat Sep 20, 2008 at 12:32:40 PM EST

THis issue is so toxic for McCain the deregulator. The latest spin from McCain's camp is that his flip-flopping this week was leadership while Obama has said nothing. More lies from them.

Latest Gallup; Obama 50 McCain 44.

"Distressed Assets" (none / 0) (#11)
by themomcat on Sat Sep 20, 2008 at 12:36:27 PM EST

"Hard to value asset". Those terms need to be defined as to what they really are...bad debt. What happens to the guy/gal at the bottom of all this? You know the person with the ARM on the over valued house. This mess is far from over and I think the what is being proposed may even make it worse because it doesn't look like it will help the base..the American tax paying home owner. And this doesn't even address the out of control credit card debt. I think that will be even worse than the housing crisis.

What's the difference? (none / 0) (#13)
by Jjc2008 on Sat Sep 20, 2008 at 12:50:50 PM EST

The robber barons who caused the mess will walk off as rich as ever, in tact, living the good life. Just like the S & L crisis, just like Enron, a few people might pay at a country club jail, get out and still be rich. The poor people who lose pensions, lose homes, lose everything they worked for, will pay the real price.

If there is a voter god, she should come down and smite (assess from the assets) those who started this by voting in Ronald Reagan and redistribute to those who were warning people way back then to not be duped by the "morning in America" crap......
and double and triple assess those who voted in W....

A goal of this move is to keep alot more (none / 0) (#16)
by tigercourse on Sat Sep 20, 2008 at 12:53:31 PM EST

people from losing pensions and savings.

[ Parent ]

: I understand that (none / 0) (#24)
by Jjc2008 on Sat Sep 20, 2008 at 01:11:34 PM EST

and I know that is a good thing for all of us.
But still, the fact is that the robber barons who caused it, get off scott free and that frustrates the hell out of me.

[ Parent ]

The Beast Will Effectively Be Starved to Death! (none / 0) (#25)
by Doc Rock on Sat Sep 20, 2008 at 01:20:01 PM EST

CHENEY-BUSH WILL HAVE A LASTING LEGACY--THE DESTRUCTION OF SOCIAL PROGRAMS!

banks will be more willing to lend? (none / 0) (#32)
by Turkana on Sat Sep 20, 2008 at 02:00:11 PM EST

but will there be any new regulatory mechanisms that force them to lend more responsibly? or does this just set us up for yet another round of the same? and how about a mechanism that prevents the banks' execs and board members from getting a single cent of this bailout money?

Mission Accomplished (none / 0) (#33)
by pluege on Sat Sep 20, 2008 at 02:01:05 PM EST

add the entire United States economy as yet one more notch in bush's holster of failed businesses given to him by poppy and his henchmen that he's managed to run into the ground.

WSWS: "dictatorship of big business" (none / 0) (#45)
by Andreas on Sat Sep 20, 2008 at 03:59:52 PM EST

The WSWS writes:

With this plan, the full cost of the immense debts piled up by the banks will be imposed on the American people. It will shift the banks' liabilities onto the federal government, sharply increasing government budget deficits and the US debt, a process that can only further erode the creditworthiness of the United States and place a bigger question mark on the value of the US dollar. ...
The presidential candidates of both major parties, Republican Senator John McCain and Democratic Senator Barack Obama, quickly signaled their support for the wholesale bailout of the banks and big investors, and prominent congressional Democrats issued assurances that they would obey the demands of Paulson, Federal Reserve Board Chairman Ben Bernanke and Bush and pass the required legislation by the end of next week.
The immediate line-up of both parties and the media behind the bailout plan for Wall Street stands in the starkest contrast to their indifference and inaction in regard to the plight of millions of American working people, who face a rising tide of home foreclosures, layoffs and sinking living standards. When it comes to the social needs of the people, the universal cry from corporate America and the two parties is, "There is no money," but when the fortunes of the financial elite are threatened, the full power of the government and unlimited resources are marshaled virtually at a moment's notice. ...
The resulting bankrupting of the government will be used to justify a brutal assault on what remains of social programs, including Medicaid, Medicare and Social Security, and demand even greater financial "sacrifices" from workers, whether the next administration is headed by Obama or McCain. Nothing could more clearly demonstrate that behind the façade of American democracy there stands a dictatorship of big business.

US government to bail out Wall Street
By Barry Grey, 20 September 2008