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Tuesday, October 7, 2008

Incomprehensible Banking Bailout Law

Here is the full text of the banking bailout law, from Congress' website. It is 451 pages long. It is written in incomprehensible legal jargon. I wanted to read it in full detail, but I rapidly concluded "Why bother?"

The revised bailout law contains a lot more pork. There were favors for Congressmen who rejected the initial bailout bill, but voted for this version.

Instead of $700 billion, this law "only" approved $350 billion. Congress may allocate more money later, if needed. That's a common tactic. If you only need $350 billion, ask for $700 billion, and then you "compromise" for only $350 billion. If the Treasury secretary initially asked for $350 billion, then the "compromise" would have been only $175 billion! (Some news sources say the full $700 billion was approved, so I'm not sure about this part. If you include all the pork added to the bill, the total amount was $850 billion according to some news sources.)

There is essentially zero oversight over how the money will be spent. There will be committees of people interested in making sure money is given to their buddies, but no actual real oversight.

I read there was a clause that says the Treasury will publish a list of what was bought from whom for how much. However, this is insufficient disclosure. For example, suppose a bond has a face amount of $1 billion, a current market value of $100 million, the bank bought the bond for $500 million, and the Treasury buys the bond for $300 million. The official report will say "The bank sold this bond to the government for a loss of $200 million.", while there really was a subsidy of $200 million.

Quoting current market prices is meaningless. The fact that the Treasury is buying a lot of these bonds is pushing up market prices.

There might be a clause saying that foreign banks cannot directly benefit. However, they may indirectly benefit. Continuing the above example, suppose the bond has a market value of $100 million, and is owned by a foreign bank. The foreign bank can sell it to a US bank for $300 million, and the US bank can then sell it to the government for $300 million. The fee for the transaction may occur simultaneously in an unrelated trade. For example, the foreign bank might simultaneously make a trade worth $100 million for the US bank, which would mean that the $200 million bailout was split equally between the US bank and the foreign bank.

The bailout package is leading to a feeding frenzy by lobbyists. Every bank is now lobbying for its "fair share" of the bailout package. The Treasury Secretary has a lot of discretion about who to give a gift of $350 billion. The Treasury Secretary used to work for Goldman Sachs. Will Goldman Sachs receive preferential treatment? (duh)

The US is now officially following an economic principle worse than Communism. "From each according to his ability, to each according to how good his lobbyists are."

I tried reading the bailout law and other news sources. Here is what I figured out.

  • The FDIC insurance cap is increased from $100k to $250k. This is merely an adjustment for inflation.
  • The flaw in the Alternative Minimum Tax is fixed, but only for one year.
  • There were tax credits for wind energy, solar energy, and other alternative energy (i.e. pork).
  • There were tax cuts for certain corporations totaling $150 billion (more pork).
  • There are certain restrictions on CEOs at large banks receiving bailout money. During the next two years, the CEO of each large bank must personally visit each member of Congress and receive a blowjob.
  • The law clarifies that the SEC does have the authority to temporarily suspend "fair value" accounting or "mark to market" accounting. Small banks are allowed to fail, but if a big bank is nearly insolvent, then the SEC may suspend the rules.
  • The responsibilities of the Federal Reserve are changed. Every week, Federal Reserve chairman Ben Bernanke must visit the national cemetery, dig up the graves of Abrahan Lincoln and Andrew Jackson, open the coffin, pull down his pants, and take a **** on the corpse.
  • There was a "mental health parity" provision. Group health insurance plans are required to pay for mental health treatment (i.e. murder). This is the result of lobbying by the psychiatrists' union and the pharmaceutical industry.
  • "Experts" will be hired to manage the bailout loot. They have a tough job, picking which of their friends receive a huge paycheck.
  • There was a token small benefit for individuals owing mortgages in default.
  • There was some language about "protecting taxpayers". It was nonsense. The Treasury Secretary may spend the money as he pleases, and may give as much corporate welfare as he pleases to his friends.
  • The national debt limit was raised to $11.3 trillion. The bailout is not free. Everyone is paying the cost as inflation.
  • There was a tax cut for native Americans.
  • There was a tax cut for railroads.
  • There was a tax cut for people who manufacture certain kinds of wooden arrows.
Let me know if I missed anything important!

The bailout law is entirely corporate welfare. If the goal is to "stimulate the economy", every American could have been directly given a check for $2000, and that would have the same "beneficial" effect as giving $700 billion to a handful of financial industry insiders. (Due to the Compound Interest Paradox, deficit spending by the Federal government helps solve the money supply crunch during a recession/depression.) Suppose each American were given a check for $2000. What would they do? They would deposit that money in a bank, or the money would be deposited in a bank when it was spent. Direct payments to everyone is how the pro-State version of Social Credit works.

The economic and political system is completely unfair. It is biased against individuals and in favor of insiders. The only way a non-insider can benefit is to refuse to play. You should boycott the Federal Reserve and income tax. The best solution I've read about is agorism.


Anonymous said...

FSK, This is not a comment, I just don't know how to reach you by email, so here it goes:

You may want to check this link, if you think we're in some kind of emergency situation:

Thursday, October 2, 2008
The Prearranged, Preplanned, and Premeditated Bailout ...

Take care, bud.

Anonymous said...

Once again, if you are not on the steamroller, you are destined to become part of the poad.

Femin said...

What about financial crisis

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