The one overarching distinction of Paulson's original 2.5 page banksters' bailout proposal was its grab for unlimited, un-reviewable, unaccountable power.
Sec. 2. Purchases of Mortgage-Related Assets.
(a) Authority to Purchase.--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.
(b) Necessary Actions.--The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation: [emphasis added]
Sec. 6. Maximum Amount of Authorized Purchases.
The Secretary's authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time [emphasis added]
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.
So what have Barney and Chris achieved this last week? 110 pages of theater.
Many people don't realize that in addition to his history as titan of Wall Street, major protagonist of extreme leveraging, extreme profits, extreme regulatory undersight, and opaque accounting, Henry Paulson previously was "a member of the White House Domestic Council, serving as Staff Assistant to the President from 1972 to 1973, and as Staff Assistant to the Assistant Secretary of Defense at the Pentagon from 1970 to 1972."
Those initial reference points conveyed by his original audacious proposal didn't reflect political naivté. Indeed, I believe they reflected profound understanding about how to manipulate the system to his own ends.
It's clear that Paulson is not trustworthy. In a panel discussion (1hr video clip: beginning at 50mins in; slide the slider to the right) at Princeton on the 25th Krugman stated as much.
"And this means that any presumption that one might want to give that this is being done in good faith has now got to be put on one side. They've given us no reason to believe that this is being done in good faith."
So what is Paulson getting in the [Frank-Dodd] proposal that might be visible to us for a day (or a week) before they vote?
The NYT:
To be sure, the Treasury secretary's powers have been tempered since the original Bush administration proposal, which would have given Mr. Paulson nearly unfettered control over the program. There are now two separate oversight panels involved, one composed of legislators and the other including regulatory and administration officials.
Still, Mr. Paulson can choose to buy from any financial institution that does business in the United States, or from pension funds, with wide discretion over what he will buy and how much he will pay. Under most circumstances, banks owned by foreign governments are not eligible for the money, but under some conditions, the secretary can choose to bail out foreign central banks.
Under the bill, the Treasury is to buy the securities at prices he deems appropriate. Mr. Paulson may set prices through auctions but is not required to do so.
Rarely if ever has one man had such broad authority to spend government money as he sees fit, with no rules requiring him to seek out the lowest possible price for assets being purchased. [emphasis added]
The bill does allow legal challenges, but attempts to assure they are quickly handled and that the most important decisions can be challenged only on constitutional grounds, not on the ground that they conflict with some other law.
While the bill does not drop the accounting rule that requires banks to report on the market value of their assets — a rule that some banks believe has forced them to report excessive losses — it gives the S.E.C. permission to suspend the rule for any individual company if it thinks that is in the public's interest.
Clusterstock.com on Executive Compensation:
Toothless: The plan ostensibly prohibits golden parachute payments to CEOs and other "C-level" execs at bailed-out companies. However, it really only prevents payments on severance deals that are struck AFTER the bailout (specifically, it prohibits these deals completely). There is nothing about cancelling the severance payments that the executives are ALREADY contractually entitled to. What this means in practice is that bailed-out companies will have trouble hiring the best talent...because why would you work at Bailed Out Company A when you could go across the street and get a fat severance deal? It also doesn't mean the companies can't pay their CEOs $500 million a year. IN ADDITION: There's another absurd section that makes all compensation above $500,000 for the three highest paid employees at the company not tax-deductible for the company. This is LUDICROUS. It means the company can pay the executives anything it wants and that the penalty for this will be exacted on the company and its shareholders. (Unless we're mistaken, Americans are furious that CEOs make $50 million a year for running companies into the ground, not that the $50 million is tax deductible).
The Treasury has complete discretion over the prices it pays for crap assets (the most important provision in the whole document as far as the taxpayers are concerned).
Financial industry might have to pay for any taxpayer losses--emphasis on "might."
The latest draft clearly embraces Paulson's basic premises. Washington Post points out that non-Wall Street economists seriously question those premises.
"There is a kind of suggestion in the Paulson proposal that if only we provide enough money to financial markets, this problem will disappear," said Joseph Stiglitz, a Nobel Prize-winning economist. "But that does nothing to address the fundamental problem of bleeding foreclosures and the holes in the balance sheets of banks."
And I would add, if it does close holes in their balance sheets (by overpaying for toxic assets), it's crooked.
Several observations seem important to me:
1. It seems fairly widely acknowledged that Democrats from a political perspective were not in a position to reject the urgency of the situation as portrayed by the administration. As a consequence, they had to try "do something," which is shorthand, at minimum, for political theater.
2. By not accepting Paulson's plan outright, they bought themselves some time, and having taken that time, now under the right circumstances, they could take some more. Public insistence that they do so, would help.
3. This thing now is becoming the Barney Frank/Chris Dodd plan, and that's unfortunate. Even as it embraces Paulson's assumptions and goals, at a ratio of 110:3 pages, it looks like a Barney Frank/Chris Dodd plan.
Frank and Dodd need time to nail details down in this thing. They also need people to insist that currently the plan remains unacceptable, and that they need to nail the details down. Furthermore, if nailing the plan entailed poison-pill language, let it be so.