I have no professional background in economics or high finance.  I’m a little guy, who felt the crash coming and pulled my money out of investments some time back.  I knew a bad deal when I saw it.  Now I see another bad deal, a potentially catastrophic deal between Wall Street and Washington, this Corporate New Deal of the 21st Century, and there’s not a thing I can do about it.

The Administration proposes to place the Secretary of the Treasury in an extraordinary and extralegal position of authority without any responsibility whatsoever to Congress, the body constitutionally established to set laws and to authorize funds.  Once again, fear and panic are used to rush through under cover of darkness a complete abdication of their responsibilities and eliminating any thread of accountability to the taxpayers.  (This is the same body of government that voted several years back to make it virtually impossible for folks like me to seek debt relief by declaring bankruptcy.)  We are all once again subjugated and rendered irrelevant except for our pocketbooks.

The latest Wall Street bailout [1] concept proposes to buy up a humongous amount of bad debt using valuation methods yet to be determined and without oversight or review of any kind.  Take a look at a couple of sections from the draft text:

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase.–The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

(b) Necessary Actions.–The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;

(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and

(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.
…

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.

Concerns like mine are readily dismissed by those who are more “sophisticated” and “knowledgeable” of the universe of capital markets.  “It’s too complicated for you to understand.  Trust us.”  I don’t need to be a PhD economist or a Democrat to grasp the idea that the bound knot of capital flow we have today arose from wild-eyed speculation and creative bookkeeping.  This is Enron-nomics on a massive scale.

Treasury’s move is supposed to calm the markets and to restore confidence in the US financial system, yet there isn’t even the most tenuous suggestion of how the government will recoup a reasonable portion of the handout.  For that matter, the proposed legislation doesn’t even mandate recovery of any kind.

As an investor and taxpayer, what exactly am I supposed to feel good about?

Recommended reading:

[2] Why Paulson is Wrong
Luigi Zingales
Robert C. Mc Cormack Professor of Entrepreneurship and Finance
University of Chicago - GSB

[3] Why You Should Hate the Treasury Bailout Proposal at nakedcapitalism.com