The bailout bill authorizes WAY WAY WAY more than $700 billion [View All]

[TexasLawyer]

Here's the meat of the Senate bill regarding Hank Paulson's spending limits. What this language allows as I read it:

Unlimited power to buy troubled assets AS LONG AS the assets, once purchased, are churned back out onto the market and re-sold. The dollar limit in the proposed statute is not an overall lifetime cap on expenditures. It is simply a cap on outstanding expenditures at any given time.

Note well the phrase "outstanding at any one time," which qualifies all dollar references in Section 115. This was the objectionable, sky's-the-limit language in the original Paulson proposal and it is still here in the Senate Bill. There is language elsewhere in the proposed statute which requires disposition of assets at the optimal time (Section 113), but the timing of asset disposition is subject to the Secretary of Treasury's discretion-- and we already KNOW how these guys use their discretion. Also, FYI: Administrative Law 101: matters committed by statute to agency discretion are generally unreviewable by the courts.

Will the assets be resold at a profit? That is the multi-trillion dollar question. My guess? Not likely. The primary incentive established under the statute is to buy and immediately re-sell so that the $250 billion initial threshold under Section 115(a)(1) is never reached. Most of the "profit" scenarios that I have read about involve long-term holding of troubled assets until the market turns around. My best guess is that this statutory authority will be used to "buy high" (the government may be the only real market for some of these complex, impossible to value instruments) and "sell low" (who is going to want to buy (or has the $$$ to buy) BIG piles of this stuff that the market doesn't want?-- unless perhaps the buyer can put the toxic assets on a return trip through the bailout program:crazy::crazy::crazy:). The program was supposed to help overcome the problem of "fire sales"-- but I think actually this might promote both fire purchasing (buy NOW before the market collapses!!!) and fire selling.

Not that this is what will happen, but here's a scenario in which the $250 billion cap is never exceeded yet the program quickly costs taxpayers well in excess of $700 billion. Hank buys $100 billion in "troubled assets" every week, then sells those assets the next week for 10 cents on the dollar. Each time this happens the U.S. absorbs a $90 billion loss. In just 3 months, this could be a dead loss of a trillion dollars. And there would be plenty more where that came from.

:woohoo:But hey... at least we never had $250 billion outstanding at any one time!!! :woohoo:


SEC. 115. GRADUATED AUTHORIZATION TO PURCHASE.

13 (a) AUTHORITY.—The authority of the Secretary to
14 purchase troubled assets under this Act shall be limited
15 as follows:

16 (1) Effective upon the date of enactment of this
17 Act, such authority shall be limited to
18 $250,000,000,000 outstanding at any one time.

19 (2) If at any time, the President submits to the
20 Congress a written certification that the Secretary
21 needs to exercise the authority under this paragraph,
22 effective upon such submission, such authority shall
23 be limited to $350,000,000,000 outstanding at any
24 one time.

1 (3) If, at any time after the certification in
2 paragraph (2) has been made, the President trans-
3 mits to the Congress a written report detailing the
4 plan of the Secretary to exercise the authority under
5 this paragraph, unless there is enacted, within 15
6 calendar days of such transmission, a joint resolu-
7 tion described in subsection (c), effective upon the
8 expiration of such 15-day period, such authority
9 shall be limited to $700,000,000,000 outstanding at
10 any one time.

11 (b) AGGREGATION OF PURCHASE PRICES.—The
12 amount of troubled assets purchased by the Secretary out
13 standing at any one time shall be determined for purposes
14 of the dollar amount limitations under subsection (a) by
15 aggregating the purchase prices of all troubled assets held.

pages 40-41


Once the troubled assets are sold off or otherwise disposed of, we'll be duly informed about how much money we lost in the transaction:

The Special Inspector General will conduct, supervise, and coordinate audits and investigations of the purchase, management, and sale of assets by the Secretary of the Treasury including by collecting and summarizing the following information:

<snip>

15 (F) A current estimate of the total amount of
16 troubled assets purchased pursuant to any program
17 established under section 101, the amount of trou
18 bled assets on the books of the Treasury, the
19 amount of troubled assets sold, and the profit and
20 loss incurred on each sale or disposition of each such
21 troubled asset.

page 64

http://senateconservatives.files.wordpress.com/2008/10/bailouttext.pdf

As per Section 120, the authorizations under the statute terminate December 31, 2009 (unless extended by the Secretary of Treasury).