Blank Check

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.

-From the appropriately titled "Section 8" of the bailout draft proposal


A few thoughts:

• We can argue endlessly about whether a broader meltdown would have happened without last week's bailout news. Did "something" have to be done? Probably. But the administration's current proposal is essentially a heist from the national treasury that's only slightly more sophisticated than the original Ocean's Eleven. Of course the almost hysterical urgency is partially because the locks on the coffers change in January. If Obama wins, so will the tax code. The administration's preferred version of the bailout would be one last Wall Street giveaway before higher taxes and a tougher regulatory environment.
  
  
• Want to make it less of a heist? I agree with each of these recommendations, with the possible exception of #5 (I think it would add too much unpredictability and complexity when the opposite is needed). #2 is particularly important. Any firm accepting taxpayer money must also accept firm-wide restrictions on employee compensation -- not just for senior executives, who sometimes make less than non-managerial top producers.
  
  
• Even under the most generous plan, private foreign banks would never qualify for help from the U.S. taxpayer, right? Wrong.
  
  
• With a record like this, why is any prediction or warning from Hank Paulson taken seriously?
  
  
• In terms of legal prosecution, nothing should be off the table right now. No private or public sector official, elected or appointed, should be immune. Impoverishment via legal fees? Yes, please.
  
  
• When will Congress eliminate the outrageous loophole that allows a former Fed chairman to collect huge paychecks from the same Wall Street firms whose profits or survival depended on decisions he made at the Fed? How about including that as part of any bailout?
  
  
• Put this report in that overflowing file marked, "If someone told you eight years ago that ___, what would you have said?" We're being laughed at. In Southeast Asia.
  
  
• The "soft slavery" I mentioned in this post is about to get "harder." An even greater portion of an individual's daily labor will now subsidize Wall Street and the speculator class via taxes and inflation. The beneficiaries count on the public not understanding that.
  
  
• Bush 41 created the RTC in 1989. His son is about to create its ideological successor, one that has far greater economic and moral implications. At some point, does even that stalwart 28% start to wonder what it is about this bunch that made those outcomes inevitable? AEI and Heritage can churn out all the policy papers they want. The reality is undeniable.
  
  
• Related, I've found the commentary from the Titular Right during the past few days pathetic, frankly. The template: start with a disclaimer noting lack of expertise in the subject matter. Give a quick and dirty on the bailout plan's main points. End with a breezy, Iraq-honed "we won't know how well it will work out for years/history will be the judge." Would a President Gore or Kerry get off as easily? On economic matters, conservatism has largely been taken over by what I call Daiquiri Destructionists: self-avowed Schumpeter acolytes who mutter darkly in beach houses about government intervention in free markets, until things threaten to get a bit too free. Except for the meager shelter under Ron Paul's umbrella, true fiscal and monetary conservatives have no real-world haven right now.
  
  
• I've been writing about how bailouts, interventions, and the socialization of risk are only feasible with a de facto dollar standard. With a massive new expansion of government liabilities, that will become even more imperative. Last week, gold rocketed from $780 to $900 in a few hours. Oil is back over $100. That's unacceptable. Those who shun the dollar are threats, and must be treated accordingly -- now more than ever.
  
  
• While the economic cost will be huge, the real damage from all this will be psychological. Bailouts are now an indelible part of our national identity. When the economy and financial markets recover -- and they will -- that new identity will shape the behavior of economic players and market participants for decades. This has implications for the next bubble, which should be a doozy. Will speculators remember the faded lessons of Bear and Lehman? Or will they be guided subconsciously by a single word -- "bailout" -- just before hitting the buy button?
  
  
• Regular readers know that I don't give financial advice here. But I'll say this. It's clearer than ever that one's after-tax savings are not safe if kept within this system. When two or three unelected statists can decide on a moment's notice that the nation will embark on something as costly as another Iraq -- and then dictate the terms to a cowed Congress -- does that need much explanation? The chances are rising for a sudden and massive dollar devaluation at some point in the future. Moreover, we know now that the system is capable of anything. We've already seen rock-bottom interest rates, new credit facilities, expanded repurchase agreements, unprecedented liquidity, well-timed futures goosing, interventions, conservatorships, and now short-selling bans and bailouts. If all that proves insufficient, expect literally anything: national bank holidays, market shutdowns, restrictions on gold ownership, and capital controls. You really don't need much of a historical perspective to predict this stuff, just a little intuition about what happens when a jingoistic, militarized, increasingly socialistic nation overextends itself and is confronted with the consequences. Evaluate your exposure and plan accordingly.