Thoughts on the Bailout Act

Here are some hilights of the text of a draft of the bailout plan, as of the 21st. (They're now calling it a "Rescue Plan")

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time

Wait a second... "at any one time"? Suddenly the $700 billion plan sounds a lot like the $Infinity plan. Please someone shed some light on this troubling wording. And what's so special about the $700 billion figure? According to Forbes, a Treasury spokesperson sayd "We just wanted to choose a really large number."

Sec. 8. Review.

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.

"Non-reviewable... by any court of law of any administrative agency"? In other words, Paulson, the former CEO of Goldman Sachs, can bail out whomever he wants to bail out with however much he wants to bail them out, no objections or oversight allowed. It's remeniscent of former Halliburton CEO Dick Cheney and the no-bid contracts of the Iraq War.

Sec. 10. Increase in Statutory Limit on the Public Debt.

Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.

This is the great irony of the situation: who better to bail out insolvent companies than the biggest debtor of all? Our current national debt is about $9.8 trillion, with the current limit being $10.6 trillion (which was recently raised to that level during the Freddie/Fannie debacle). Now we are going to put the limit at well over $11 trillion. Just 8 years ago, our national debt was half that amount. This is out of control.

This is Wile E Coyote Government.

Congressman Paul, who predicted this whole mess (remember, just two months ago, Fed Chair Bernanke told us the economy, and housing market, were doing pretty well) offers his reservations.

Then come the scare tactics. If we don’t give dictatorial powers to the Treasury Secretary “the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet.” Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline.

Without really getting into it, consider the bailouts like this: your friend is an addict to heroine. Your friend isn't looking so well, and they're getting quite shaky. You give them another hit. This accomplishes two things: 1) they get their fix and are relatively stabilized, and 2) their entire body is that much closer to completely shutting down. The other option (which isn't getting much traction in the press), is to take your friend to rehab. This accomplishes the antithesis: 1) it's gonna hurt a little in the short term, 2) but not nearly as much in the long run. This option looks like this, according to a recent email from Congressman Paul:

1.) End the Bailouts - Congress must revoke the Federal Reserve's authority to bail out failed businesses at your expense.

2.) Cut Taxes and Curb Regulation - If we really want to stimulate businesses and revive the market, we need to cut corporate and capital gains taxes, spurring investors to come back to the market and making it easier to attract new workers and clients. It is also time to end failed legislation like Sarbanes-Oxley, which has crippled capital markets, diminished our competitiveness, and greatly harmed small businesses.

3.) Reduce Spending - We must freeze all non-entitlement spending by the federal government at current levels and eliminate wasteful spending both domestically and in our trillion-dollar overseas budget. Our debt has to come down, and it won't until we start living within our means.

4.) Reform the Monetary System - If we are to have long-term economic progress, we must end the system of printing money out of thin air. The current laws limiting the circulation of gold and silver-backed currency must be overturned. We can no longer base our money on the empty promises of bureaucrats that it is sound.

Unfortunately, even though public support for the bailouts is devastatingly low (about as low as Congressional approval ratings) it is likely a version of the bailout plan will nevertheless be passed. The conditions that brought the crisis about will go on. The crash of the dollar looms closer.

Jon Stewart makes a sly comparison of Bush's recent appeal for support of this plan, and his appeal for support in 2003 for war with Iraq. i would add the PATRIOT Act to that shortlist. Haven't we heard this before? Doomsday scenarios if we don't fall in line, giving the executive branch unprecedented power? We should resist the fearmongering.

What would it look like, to follow Paul's advise? What would the ramifications mean? Less credit, sure. Your cat won't be receiving any more pre-approvals for credit cards in the mail. As a nation, we'd have to live within our means.

If you're interested in learning more about this crisis and the events that led up to it, see The Bailout Reader on mises.org.

Please contact your representatives, and check out http://nocashfortrash.org/.