Let’s assume that the Bush administration’s bailout proposal is absolutely necessary.
Why should this legislation go through without providing for congressional oversight? Is it so hard to create a special bipartisan committee to work with Treasury as they take $700 billion in bad investments onto the government’s balance sheet?
I have now had a chance to read the Bush administration’s very brief three page proposal. It is yet another overweening power grab that leaves decision making on how the bailout is conducted and administered totally at the discretion of the Treasury Secretary (currently Hank Paulson). Here is one example of why that’s a bad idea:
If Paulson wants to buy these junk securities from the banks for more than they are worth, he can. No one can stop him. There are no restrictions on his actions.
Now if we assume Hank Paulson’s motives are pure – which I have no reason to disbelieve (though he was an assistant to John Ehrlichman) – we still must understand that this guy worked on Wall Street for 30 years. He ran Goldman Sachs as COO or CEO for 10 years, right up until he became Treasury Secretary. Even a man whose motives are pure will not be blind to the plight of his friends.
And with this proposed legislation, he can do whatever he wants on Wall Street. He is being granted God-like powers. So, if Paulson wants to pay more than the 22 cents on the dollar that Merrill Lynch recently got for a bunch of their junk, he can. If he wants to turn around and sell it to Goldman Sachs for 11 cents on the dollar, he can.
Putting aside that the Bush proposal does not include any relief for mortgage holders, does not outline punitive measures against the banks, does not provide for transparency in the administration of this bailout (two dog and pony shows before Congress per annum), and does not include a legal obligation to repay the debt or return a profit on these “investments,” basically all you need to know is that Wall Street loves this deal.
Congress must not cave. Fine to put off relief for Main Street, new regulations, etc. Absolutely not fine to grant Paulson complete autonomy. They’ve got a lot of leverage here with the checkbook. They should use it to show they’ve got a spine.