An Excellent Synopsis of the Mother of all Bailouts

This is one of the better pieces I've seen on the real mess behind the mess - A Bailout Above the Law. When Mother of All Bailouts was originally "sold" late last week the mortgage debt was supposed to be sold in a 'reverse auction' i.e. government puts up money and firms bid on the money - those who offer the lowest price "win" (they get to sell their toxic waste). As things progress that appears to have been changed to "The Most Powerful Man in the World" will set the price based on his God given talent. i.e. a price high enough to bailout his friends. The onion gets uglier the more you peel it back.

I had to laugh at Barney Frank but in a way this makes sense - he said (I paraphrase) "so now Paulson tells me that if we limit executive compensation for those executives whose firms we are HELPING they won't partake? That's unpatriotic!" While it sounds over the top when you really sit and think about it - he has a point. This is money we are offering to help keep their firms going but they will act like a bunch of 2nd graders and "not play" if we dare put a restriction on the pay of those whose careers we are extending. It's there way or the highway. They will only be bailed out on THEIR terms. My gosh; corporate socialism is so raunchy.

Anyhow, the more I read the more of a knot in the stomach I get. The ones who broke the vase are going to end up making out like bandits by rebuilding the vase. Kudos to reader Guy for realizing what it is right out of the gate - that last shred of idealism in me was still trying to see the good....

• The passage is stunning. “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,” the original draft of the proposed bill says. And with those words, the Treasury secretary — whoever that may be in a few months — will be with vested with perhaps the most incredible powers ever bestowed on one person over the economic and financial life of the nation.
• Treasury Secretary Henry M. Paulson Jr.’s $700 billion proposal to bail out Wall Street is both the biggest rescue and the most amazing power grab in the history of the American economy. In many ways, it is classic Wall Street: a big, bold roll of the dice that one trade can save the day.
  
• But at the same time, the hypocrisy is thick. The lack of transparency and oversight that got our financial system in trouble in the first place seems written directly into the proposed bill, known as TARP, or the Troubled Asset Relief Program.
• Just take a look at the original draft: “The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this act,” the proposed bill read when it was first presented to Congress, “without regard to any other provision of law regarding public contracts.”
• It goes on to say, “Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.”
• But given the rush to push the bill through, even if Congress cobbles together some oversight language, it will almost surely be inadequate. Joshua Rosner, a managing director at Graham Fisher & Company, says TARP should stand for “Total Abdication of Responsibility to the Public.” He argues that the bill grants “greater powers to the secretary of the Treasury than even the president enjoys.”
• The bigger issue is that the bill effectively creates protections not just for the Treasury, but for the executives on Wall Street who created this near Armageddon. Mr. Rosner says that the draft bill “prevents judicial review that could allow the protection of decisions that create false marks, hide prior marks, or could be used to prevent civil or criminal prosecution in situations where a management knowingly provided false marks that aided the growth of this crisis of confidence.”
• False marks — using mark-to-market accounting to hide the true value of security, rather than disclose it honestly — has a lot to do with why Jeffrey Skilling, the former Enron chief executive, is in jail. (so in essence if they find wrong doing in valuation of assets, no one can be prosecuted for it)
• Let put aside the bill’s most offensive aspect — the raw power it gives the Treasury Department, and the lack of oversight it provides — and take a closer look at the practicalities. First off, there is nothing in the bill that will prevent these problems from happening again. The bill doesn’t address adding greater transparency in investments in subprime loans and securities and credit derivatives, which led directly to the debacles at Lehman and A.I.G. The bill does nothing to rein in the credit-default swap market, which has turned out to be the weapon of financial mass destruction that Warren Buffett always said it was.
• Of course, the sickest part is that Wall Street is lining up at the trough for a piece of the action, lobbying to run some of the $700 billion fund — and take huge fees — for their own mess.
• How can we possibly trust that the price the government agrees to buy the securities will be fair?
• And then there is the jockeying among the banks so they can sell their absolute worst stuff to the government — even loans that have nothing to do with mortgages — and change the rules in the process. The Financial Services Roundtable, which represents big financial services companies, wrote an e-mail message to members on Sunday suggesting, laughably, that “the government bid for the assets should not count as a mark-to-market value for accounting purposes.”
• In other words, if the government drives a hard bargain — as it should — the banks don’t have to take write-downs based on the price the feds pay to take junk off their balance sheets.
• Watching Wall Street double-dip makes even some in the industry’s top tier cringe. “Maybe I should move to Russia,” one titan of finance said to me. “It’s obscene, the whole thing. I’m embarrassed for myself.”

Sigh.