A Brief History…

UPDATE: This comparison looks better but the bill isn’t signed yet.

JP Morgan did a much better job with the Panic of 1907, a financial panic resulting from the San Francisco earthquake and immense insurance losses. I reviewed a book on this topic last spring.

The negotiations in Washington seem to have resulted in a deal. The resulting legislation is being drafted and will be posted on the internet at noon today. That will be the only positive development, in my opinion. The cause of this crisis has been described here in other posts. The essence of the solution, and the reason why I am pessimistic about it, is that the solution has been drafted by the same people who caused the crisis. Barney Frank and Chris Dodd are the parents of the monstrosities that Fannie Mae and Freddie Mac have become. The disastrous expansion of subprime mortgages has poisoned the credit markets of the world.

The story of John McCain’s suspension of his campaign has still not been very well explained. The Democrats have majorities in both houses of Congress. They did not need Republican votes for the original Paulson package if they were able to keep all their own people in line. What happened was that the House Republicans were not going to vote for the bill and Pelosi had stated that she would not bring the bill to the floor unless she was assured of 110 yes votes by Republicans.

When McCain announced he was returning to Washington, the Democrats quickly announced that they had arrived at a solution and his action was unnecessary. What they did not say was that they did not have the Republican votes that Pelosi said she needed.

“You were being asked to choose between financial meltdown on the one hand and taxpayer bankruptcy and the road to socialism on the other and you were told do it in 24 hours,” Representative Jeb Hensarling of Texas, head of the conservative group, said. “It was just never going to happen.”

If they were willing to pass the bill without Republicans, they were correct. They had a deal. The problem was that it was a deal between the Bush Administration and the Democrats. However, Pelosi was still determined to have Republican votes as cover for the huge groundswell of anger directed at the Congress and Wall Street over the crisis. What McCain did was sit down with the House Republicans and make sure they were included in the negotiations. The Democrats poisoned the bill with ludicrous provisions to fund radical socialist groups like ACORN, which has had many members convicted of vote fraud and which has been involved in expanding the toxic mortgages that are at the root of the problem. The worst provision was this:

DEPOSITS. Not less than 20 percent of any profit realized on the sale of each troubled asset purchased under this Act shall be deposited as provided in paragraph (2).

USE OF DEPOSITS. Of the amount referred to in paragraph (1) 65 percent shall be deposited into the Housing Trust Fund established under section 1338 of the Federal Housing Enterprises Regulatory Reform Act of 1992 (12 U.S.C. 4568); and 35 percent shall be deposited into the Capital Magnet Fund established under section 1339 of that Act (12 U.S.C. 4569).

REMAINDER DEPOSITED IN THE TREASURY. All amounts remaining after payments under paragraph (1) shall be paid into the General Fund of the Treasury for reduction of the public debt.

That means that ANY transaction that realizes a profit, regardless of profits, or losses, on the overall bailout program, will deposit 20% of that profit in a fund which goes to ACORN and similar organizations. These “community organizer” groups are at the root of the problem. They are Democrat activist groups and affiliated with the far left of the party, like Obama, who once worked for them.

A current comparison of provisions is linked here. It is a Word file. At present, the Republican leadership is circulating this list of provisions to correct a few concerns. However, not everybody is satisfied. A House aide sends this warning:

1) This is, essentially, the same bill. Total deal is $700b, which Paulson or next Treasury Secretary can spend the first $250b even if he believes unnecessary. He/She can spend second $450b if thought necessary. A new bill isn’t passed with veto proof majorities to repeal it. This is substantively identical to the original Paulson plan. Congress always had the power to repeal some or all of the authority if it has veto proof majorities.

2) As for Acorn and bankruptcy, they were never in the bill. Dodd/Frank tried to push those in mid/week, they weren’t in the plan already rejected by conservatives on Monday. Even Obama conceded that those provisions would come out. They were simply a red herring, used for extra bargaining power by the left.

3) Lipstick has been put on the pig, and perhaps some Members will be fooled by it, but their constituents will not. I think some political careers will be ended over this.

When I ask this aide if there is anything to be happy about, this aide replies:

Unclear. Still confusion over whether the “insurance” is a fig leaf (secretary’s choice to use – in which case, he wouldn’t) or substantive (mandatory).

We will see how this turns out but I am very pessimistic this morning.

Tags: bailout, banks, Congress, Fannie Mae, McCain

This entry was posted on Sunday, September 28th, 2008 at 9:29 am and is filed under financial, politics. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.