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, the 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 Mousseau may be contacted at his web site: FederalPrisonInc.com.
