The Big Picture Blog
September 18, 2008
"As with any contract, the parties to the agreement may modify the covenants by mutual agreement only.”
–Treasury Secretary Hank Paulson
Hank Paulson’s God Complex just got bigger. The Director of Government Bailouts, and head of the Socialism Departmant at Treasury has informed Congress to back off his turf.
"All your legislation belongs to us!"
Now, last I checked, it was Congress that had the power of authorization disbursements, and that Treasury does not have the authority to spend 5.3 trillion dollars. Comrade Paulson does not seem to understand the way the different branches of government work in the United states, and is apparently unfamiliar with a little parchment called the Constitution. Perhaps we can get Ron Paul to explain how these things work to our friend from the People’s Republic of Goldman.
Bill King: "Hank is trying to euchre the market into believing that if Congress tries to change the law, the executive branch would then sue Congress for breach of contract. Good luck with that at the Supreme Court." Nice try, comrade, but no such luck.
The issue here is authorization. I cannot write a contract to sell you home, car, etc to a third party, without your authorization. Otherwise, its fraud. The party with the legal title and ability to convey those goods or services on the one side, or indebtedness or money on the other side of the transaction requires authorization.
The original Bazooka legislation did not give Treasury ablank check to do whatever they want. A decision, for example, to add Fannie and Freddie to the budget "wouldn’t automatically translate into explicit government backing for the companies’ combined $1.7 trillion in unsecured debt and $3.5 trillion of mortgage guarantees." To do so requires Congressional legislation to change the companies’ legal status. That’s where any of the changes — like reducing the absurd pay packages for the current idiots running Fannie/Freddie — would come in.
Here’s Bloomberg’s excerpt:
"The U.S. Treasury said Fannie Mae and Freddie Mac’s debt and mortgage-backed securities are "protected” by the government’s stock purchase agreement that put the mortgage finance companies under federal control.
"The holders of senior debt, subordinated debt, and mortgage-backed securities issued or guaranteed by these GSEs are protected by the agreement without regard to when those securities were issued or guaranteed,” the Treasury said today, referring to the so-called government-sponsored enterprises.
The federal government took over the two largest sources of money for U.S. home loans on Sept. 7, placing them under conservatorship and establishing procedures for buying their senior preferred stock if liabilities exceed assets.
The federal takeover didn’t address whether the companies’ $5.2 trillion in debt should be included in the budget, or whether it carries an explicit government guarantee. In an interview this week with Bloomberg Television, Treasury Secretary Henry Paulson cited "incongruities” in the law, saying "we should be clear, is there a government guarantee or isn’t there?”
I do not believe Treasury has purchased any stock yet, but that can change in an instant. Long live Bailout Nation!
FACT SHEET: TREASURY SENIOR PREFERRED STOCK PURCHASE AGREEMENT
U.S. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS
Treasury Says Fannie, Freddie Accord Protects Debt
Bloomberg, Sept. 11 2008