Sunday, November 23, 2008
Everyone knows that Paulson and Bernanke's actions have been ineffective.
And they have been dishonest. For example, a New York Times article says that Paulson knowingly lied to Congress, and many people believe that Paulson has treated the U.S. like a banana republic. Indeed, as economist and former labor secretary Robert Reich said today:
“I think that the great bailout that he engineered was really sold to Congress on false pretenses,” Reich said on Late Edition.
But they might also be illegal.
As Paulson himself said last week:
Federal law, and in particular the Anti-Deficiency Act, prohibits Treasury from spending money, lending money, and guaranteeing or buying assets without Congressional approval. The Federal Reserve can and does lend on a secured basis, but only if it expects not to realize losses. The Fed couldn't legally lend against the Lehman assets if it expected that loan to result in a loss of any size; this was much different than the case with Bear Stearns.
According to the Government Accountability Office, the Anti-Deficiency Act prohibits any government officials from:
The government has spent trillions of dollars on various bailouts, but Congress only authorized $700 billion.
- Making or authorizing an expenditure from, or creating or authorizing an obligation under, any appropriation or fund in excess of the amount available in the appropriation or fund unless authorized by law. 31 U.S.C. § 1341(a)(1)(A).
- Involving the government in any obligation to pay money before funds have been appropriated for that purpose, unless otherwise allowed by law. 31 U.S.C. § 1341(a)(1)(B).***
- Making obligations or expenditures in excess of an apportionment or reapportionment, or in excess of the amount permitted by agency regulations. 31 U.S.C. § 1517(a).
More importantly, when Paulson switched from the original TARP plan of buying toxic assets to giving billions to banks, he arguably "involved[ed] the government in [an] obligation before funds [were approved by Congress] for that purpose.
As well-regarded economic Michael Hudson writes:
Congress did not approve the Treasury’s $250 billion of “preferred” stock investments in Wall Street banks.Moreover, Bloomberg's lawsuit demanding that the Federal Reserve reveal what types of assets it is accepting as collateral for its trillions of dollars of loans becomes more interesting in light of Paulson's comment that "The Federal Reserve can and does lend on a secured basis, but only if it expects not to realize losses."
As Hudson points out:
The Fed has refused to let Congress know any details – any details at all – about its cash-for-trash swaps with these institutions. This is what concerns Congress, and what has prompted reporters at Bloomberg to bring a lawsuit in order to discover and publicize the details. It is not hard to see why this curiosity exists.Hudson then implies that it is certain that the Fed will suffer tremendous losses on these assets.
Ineffective. Dishonest. And probably criminal.
But that's just par for the course for the Bush administration and their bipartisan allies in Congress.