One of the disturbing trends of the financial crisis hasn’t simply been the willy-nilly shifting of costs onto the taxpayer, even when there were investors in risk capital, aka bondholders and stockholders, who properly should take the hit first. As distressing is the repeated, flagrant disregard for the rule of law, starting with the Treasury Secretary being put outside the reach of the courts in his oversight of the TARP, the use of the Fed and FDIC to circumvent budgetary requirements, failure to resolve banks in danger of being insolvent as required under the law, and rampant signs of cronyism (for instance, participation in the legacy securities program being limited to a few large players).
In a further sign of an imperial Presidency in action, the Washington Post describes how the Obama administration is circumventing bailout legislation by channeling fund through various entities, then contending the the end recipients aren’t subject to Congressional requirements. Huh?
Notice that the Chairman of the House Oversight Committee, a Democrat, is none too happy.
From the Washington Post:
The Obama administration is engineering its new bailout initiatives in a way that it believes will allow firms benefiting from the programs to avoid restrictions imposed by Congress, including limits on lavish executive pay, according to government officials….
The administration believes it can sidestep the rules because, in many cases, it has decided not to provide federal aid directly to financial companies, the sources said. Instead, the government has set up special entities that act as middlemen, channeling the bailout funds to the firms and, via this two-step process, stripping away the requirement that the restrictions be imposed, according to officials.
Although some experts are questioning the legality of this strategy, the officials said it gives them latitude to determine whether firms should be subject to the congressional restrictions, which would require recipients to turn over ownership stakes to the government, as well as curb executive pay.
Yves here.The US hass a rules based rather that a principles based legal system, but the flip side is that my impression was that in grey areas, courts looked hard at the legislation for intent. And the intent here was crystal clear. But this crowd loves the sort of deal structuring that would do a tax evader proud. Back to the story:
The administration has decided that the conditions should not apply in at least three of the five initiatives funded by the rescue package.
This strategy has so far attracted little scrutiny on Capitol Hill, and even some senior congressional aides dealing with the financial crisis said they were unaware of the administration’s efforts….
Rep. Edolphus Towns (D-N.Y.), chairman of the House Oversight and Government Reform Committee, said the congressional conditions should apply to any firm benefiting from bailout funds. He said he planned to review the administration’s decisions and might seek to undo them. “We have to make certain that if they are using government money in any sort of way, there should be restrictions,” he said…..
In one program, designed to restart small-business lending, President Obama’s officials are planning to set up a middleman called a special-purpose vehicle — a term made notorious during the Enron scandal — or another type of entity to evade the congressional mandates…..
In another program, which seeks to restart consumer lending, a special entity was created largely for the separate purpose of getting around legal limits on the Federal Reserve, which is helping fund this initiative. The Fed does not ordinarily provide support for the markets that finance credit cards, auto loans and student loans but could channel the funds through a middleman.
At first, when the initiative was being developed last year, the Bush administration decided to apply executive-pay limits to firms participating in this program. But Obama officials reversed that decision days before it was unveiled on March 3 and lifted the curbs, according to sources who spoke on condition of anonymity because the discussions were private.
Obama’s team is also planning to exempt financial firms that participate in a program designed to find private investors to buy the distressed assets on the books of banks. But Treasury officials are still examining the legal basis for doing so. Congress has exempted the Treasury from applying the restrictions in a fourth program, which aids lenders who modify mortgages for struggling homeowners…..
Legal experts said the Treasury’s plan to bypass the restrictions may be unlawful.
“They are basically trying to launder the money to avoid complying with the plain language of the law,” said David Zaring, a former Justice Department attorney who defended the government from lawsuits involving related legal issues. “They are trying to create a loophole to ignore Congress, and I think the courts will think that it’s ridiculous.”
The Administration defends these actions as necessary, of course.
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It’s not a surprise that Obama is seeking to continue not just the Bush policies on the bailouts but the overall arrogation of power by the executive at the expense of the legislature. Even beyond anyone’s conscious intent, that’s the inertia of power and bureaucracy.
(Though I think on economic issues at least Geithner and Obama do have this intent.)
Until Congress stops being a doormat, most of all until it regains the ability to rein in the executive through its power of the purse, the imperial presidency will simply become ever more imperial.
But as long as Congress has this cult-like “support the troops” mentality where it comes to the budget (on war, on “Too Big to Fail”, and on everything else), it’ll simply have to keep on caving in.
(Most bizarre is how Obama has been at his most solicitous toward Congress when he was trying to appease Republicans. So it seems Obama has two favored groups: big bankers/financiers, and republicans in Congress. As for congressional Dems, he doesn’t care so much about them. And as for the people, forget about it.)
I think that Obama’s actions in the financial area are waking up some active Dems to his corporate leanings but it will take We the people to change the tune in this country.
We need to start walking our talk….break up the banks… April 11th
http://www.anewwayforward.org/demonstrations/
psychohistorian
Interesting interview with William K Black former S & L investigator.
http://www.pbs.org/moyers/journal/04032009/watch.html
I am reading about the beginnings of the National Socialist (Nazi) party in Germany after WWI and the financially ruinous conditions imposed by the Versailles Treaty. To pay (some of) the unpayable debt they were assigned, they inflated the currency to the moon in the Weimar Republic. In these awful conditions, strong and clever men organized the Nazi party somewhat “in secret”.
I think that we have a similar environment here. We have ruinous debt, and it is being assigned to us the taxpayers by the government. Now what they don’t want is a strong organized movement growing in the USA against the ruling government. So various psychological tricks are used (letting people think there would be help with their mortgages, which isn’t happening) and of course they have cracked down on any sort of financial privacy that could allow a group to build itself as a shadow government in secret.
We don’t have an executive of the republic in the US of A anymore. We have a gang who comport themselves like unsecured creditors of the major financials, who are intent on rigging from where they sit the pre-packaged refloat of said sunk parasitic hosts so that those major financials somehow, any way, finish in the money. It positively makes one ill to watch this. Nothing is too much, too gross, to small that it be withheld from the banksters; and it’s all on Joe Public’s tab so not to worry, nobody in the the White House or the Executive is paying a nickle for this, am I right? The notion that this Administration is remotely comparable to any of salient success in American history is a self-glorifying joke which isn’t funny: the good ones governed, but these losers can’t surrender the public interest _fast_ enought. Bo Prez has already failed, the question is how big a crater he’s going to make on impact? Oh, with four years, he might dig his way out, but I doubt he has any intention of trying.
Rather than recapitulating some prior Administration in its course, the Bo Prez Crew is cutting an entire new wholecloth to a measure not yet seen. Offhand, to my reading of the past the last time that we had one badly failed Presidency follow another was Buchanan and Pierce. Guess what we got next? Then the intractible problem was sectional interest in contravention of national interest and norms unchecked by Federal governance. Now, the salient issue is oligarchical interest in contravention of national interest and norms unchecked, indeed grossly abetted and intrinsically enabled, by Federal governance.
Sick, _sick_, SICK!
I agree with the post. It satisfies the definition of “high crimes and misdemeanors.”
Impeach and remove him.
Thank You Yves for another great post …
mmckinl
«Until Congress stops being a doormat, most of all until it regains the ability to rein in the executive through its power of the purse, the imperial presidency will simply become ever more imperial.»
This is a ridiculous show of naivety. COngress is not a doormat — it is endorsing all this (including loopholes in legislation), while making some occasional grumbles as a show to the voters.
The same campaign donors sponsor both the legislative and the executive branches.
«But as long as Congress has this cult-like “support the troops” mentality where it comes to the budget (on war, on “Too Big to Fail”, and on everything else), it’ll simply have to keep on caving in.»
it is not at all cavin in — it is giving enabling a policy approved by their common sponsors, while trying to look as if they can’t do much about it.
After all the executive lasts at most 8 years, while a house or senate member can look forward to several decades of rewarding career, so they have to make a show of being the “loyal opposition”.
But they also know that to have decades of rewarding career they need campaign finance even more than they need votes.
when our leaders make a mockery of the rule of law.
how long will it be before joe 6 pack, down on his luck due to all this chicanery, and robbed of half his retirement says forget it and starts to do as he pleases as well?
monkey see…mokey do
This is a ridiculous show of naivety.
Believe me, “bliss”, no one is less naive than I about the ideology and corruption of the existed cadre. I was simply commenting on the relationship of structures.
You, OTOH, seem ignorant of history if you think Congress wasn’t historically jealous of its power and Constitutional prerogatives, regardless of whther or not it shared the ideology of the president. This phenomenon of congress as rubber-stamp, as just a glorified bursar for the president, is a recent development.
And, however much they concurred with Bush on domestic corporatist policy, many congressional democrats definitely did not support the Iraq war, but voted to cut the checks for it anyway. If that’s not “caving in”, I don’t know what is.
(And do you really think even the senate Dems are such Republicans at heart that they wanted to further cut estate taxes for the super-rich in the bill they just passed? No, I think that was cowardly appeasement plain and simple. And like all such appeasement it got exactly the reward it deserved – zero republican votes. Just like with Obama’s disgraceful tax-cutting appeasement impulse in the stimulus.)
The more I watch our “democratic republic” in action, the more I’m reminded of professional wrestling.
There is no benefit of the doubt for Congress.
Ignorance is a conveinience they love to hide behind when a TV camera is present, but you don’t sit on a committee if you are ignorant of issues within the domain of the commitee.
True ignorance usually reveals itself through stupid questions, or stupid statements, not through bad lies.
Condi Rice was fun to watch on Capitol Hill, because she had very little patience for the game. She would tell a lie and then get upset when pressed for details. She told the obligatory lie, and that should have been enough because it is well understood that congress lives to get lied to in hearings. They want to hear the lie, and then move on to the next prearranged lie.
I used to imagine farts coming out her mouth when she spoke, and I suspect those questioning her did too, and liked to have a little fun stinking up the joint.
An actual, honest person who wanted to learn some truth from Alberto Gonzales would have had him in the dungeon on inherent contempt just for ruining their charade. Nobody is that believeably stupid, and if you can’t play charades for a few hours, then you deserve the dungeon. The American people deserved a better liar than him.
With this financial crisis, the biggest giveaway that Congress is reading from a script is the near-total lack of creative suggestions, or even stupid questions on how we can put the wheels back on the wagon.
The Senate has an average net worth of $1.7 million, but hardly any of them seem to show the slightest interest in financial matters.
Even politically – is there not one Senator even remotely curious about Blankenfein attending a government meeting before the bailout of AIG?
Or that no minutes were kept during a meeting where Paulson passed out ONE HUNDRED BILLION DOLLARS?
I would be issuing subpoenas for anything to trick them into coming to Washington just so I could throw them in the dungeon and peel the skin off their faces.
But that’s just me; one of the unwashed masses wondering why the government didn’t just issue a $10,000 check for all 300-million of us; a check that had to be deposited in a bank, and of which the bank was authorized to put a 1-year hold on but credit as a deposit right away. They could have leveraged that up to $30 trillion available for lending, and then the government could raise taxes on bank holding companies by $3 trillion, to be paid over a long enough period of time to keep them solvent, but a short enough period of time to keep them humble.
I have no idea how stupid that is, but at least I’m not reading from a script.
The greatest banana republic on earth and the fleecing continues.
at least they no longer bother to paint it with a patina of “integrity” or “truth”
Nothing will be straightened out by shuffling dirt under the carpet, and that is all I have seen from both administrations as their flailing makes us weaker by the day.
People need to demand honesty and accountability and real solutions
in no uncertain way because this can not continue.
They are carelessly gambling with no less that every dollar you ever saved, every asset you hold, and our entire way of life.
Silence is consent.
I am reminded of the major US network newscasts covering the G20 meeting this week. After presenting the POTUS as America’s gift to the world, viewers were subjected to an equally long segment on his lovely wife sharing her story of struggle and travail with an adoring group of children.
There is reason for concern with the influence this administration has over the media.
To me, what this exposes that hasn't been brought up is: are the interests of CEO's of these companies completely divorced from the interests of shareholders?
With the very survivial of these banks at stake, dependent upon the goodwill of taxpayers, it appears that management's first and only priority is making sure that they remain highly, highly compensated. The shareholders losing everything when the bank goes bankrupt? Taxpayers losing money> Not their problem.
I am seriously re-evaluating whether this whole public company, stocks for the long haul, equities out perform bonds, isn't a complete crock.
I lived through the 80's and thought the gloom and doom were overdone than – we're not going to be living in huts, but I think this is a significant change in our economic prospects.
I just can’t understand why the oversize payscales for the financial market executives are so sacred. Are these guys gods ? demigods? some sort of supermen ?
Or is this just a bribe to make sure the financial folks keep their mouths shut ?
Obama and his crowd will continue to arrogate power to themselves so long as the mainstream media looks the other way. In our political culture now, the MSM holds the balance of power. If they decide to turn on a president, as they did with Bush in his second term after Iraq and Katrina, he is made politically impotent. No sign of that yet with BO.
Obama is as qualified to be President as I am to be a neurosurgeon. He is a professional agitator – that is all he knows. For know, he colludes with the banksters – but once he feels strong enough, when the time is right and it gives him the most benefit,he will turn on them and have them jailed – along with anyone else that threatens his empire.
Re: "the Obama administration is circumventing bailout legislation by channeling fund through various entities, then contending the the end recipients aren't subject to Congressional requirements. Huh?"
Huh? WTF, this a "duh" moment, because Obama and Timmy clearly are using a new twist on the Wormhole Theory of Financial Reflation.
See: In physics, a wormhole is a hypothetical topological feature of spacetime that is fundamentally a 'shortcut' through space and time.
While Schwarzschild wormholes are not traversable, their existence inspired Kip Thorne to imagine traversable wormholes created by holding the 'throat' of a Schwarzschild wormhole open with exotic matter (material that has negative mass/energy).
>> Timmy and The O are apparently going to ponder the theory of holding the throat of The Treasury Vault open by using exotic derivatives that contain no known matter (negative mass).
This is a glorious moment in space/time for wormholes!
@fresno dan: I am seriously re-evaluating whether this whole public company, stocks for the long haul, equities out perform bonds, isn’t a complete crock.
Give that man a cigar! Indeed, stocks are no longer what they used to be. Remember before 2000 banks used to loan up to 50% of the value of stocks, knowing that was a sure bet. The dot-bomb era killed that, and now all of the lies that compose most balance sheets (goodwill, anyone?) are exposed. P/E ratios still suck, even with the stock prices down. One could’ve relied on stable growth industries like GM or IBM, but now are further victims of massive systemic volatility. No place for the faint of heart or slow exits.
Even those that might take action in Congress have been diverted from the aspect of the transactions that is really important that is costing the taxpayer the bulk of the money — i.e. the overpayment for assets with the taxpayer taking the first loss. The
Washington Post refers to executive compensation, which is the red herring offered up by the elite to attract the public’s outrage. Eventually, the executives will forgo these bonuses (which they don’t need because they are already very rich) and reap the benefit through he increase in the price of their stock and options.
As happens during fundamental crises in any culture, parties who are usually opponents when the system is working smoothly abandon their opposition and band together whn their privileges are at risk. Hence, the Post is content to harp on pay, ignoring the main issue.
Since the GSEs are now directly under government control and bailouts supposedly have limiting factors for the receivers (bank, insurer, mortgage, auto, to name a few) I wonder how Washington will get contributions for elections campaigns. Must be a real problem using fixes that cut off funding resources and as upsetting as shooting oneself in the foot.
Follow the money. Can’t have some of the money then take some power as an alternative.
Excellent post, Yves.
Since obviously we are left with no option but to take to the streets, may I shamelessly promote my new site:
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Vinny GOLDberg
Ok, So now that we know Republicans are APPLIED fascists (meaning, crony-capitalism) and Democrats are APPLIED socialists (meaning, crony-capitalism), what’s next?
OH, OH, OH… I know, I know. Let’s elect the party of small responsible government in the next election.
wow. I am glued to this fiasco like nothing else in history. I didn't think anything could top last year's dramatic election and Obama victory. Boy was I wrong. Bwah hah ha! Before this is all over there are going to be many banksters in jail, summers geithner rubin & co. disgraced, and if Obama ain't careful he's going into the ditch with them.
On a related note I am also considering some fundamental changes in my tax policy this year because I am NOT giving money to this government so they can throw it at these criminal banksters (if banksters didn't commit fraud than neither will I).
We would all do well to study pre-1914 Britain as a near-model for the future of American politics. Late 19th century UK shows how liberalism and democracy do not necessarily go together.
We can have all the free speech we want, but little of it matters (no wonder it is now so freely granted!). Technocracy — whether Supreme Court, Federal Reserve or Treasury — rules.
Why is anyone surprised by this?
It was clearly spelled out in the term sheets for both the the SBA program and the TALF initiative that participating firms would not be subject to executive pay requirements.
Additionally, Maiden Lane I LLC should have taught us that SPEs were clearly the route that we were headed as far as fundig these programs.
Paging Mr Change, telephone call for Mr Change — please pick up the white courtesy telephone.
Given the topic of the Washington Post article as well the comments from those in this blog, can someone please explain to me the purpose of H.R. 1664 that was passed in the House last week.
Are there at least 2-tracks of activity that are going on here? Is it intentional or does the right hand JUST NOT KNOW what the left hand is doing??