"Back in the USSA"!

September 29, 2008
P. Gardner Goldsmith

Well, the “bailout bill” is done, and so is the free market, at least until US citizens recognize the actions of their policy makers for what they are: mixes of unconstitutional socialism, fascism, and mercantilism. Rousseau, Mussolini, and Henry Clay would be proud. Bastiat, Rand, and Mises would not.
Since this document is as thick as a phone directory, let’s enjoy some good down time as we study it, and let’s keep smiles on our faces as we realize that the “Troubled Asset Relief Program” or “TARP” is a legal order to put the market to death by lethal injection.

The injection is $700 billion, handed to the Treasury Sectary to use according to his discretion, but with certain “guidelines”.

First, let’s remember that Congress is FORBIDDEN to cede any of its constitutional powers to any other body. Next, we might want to keep in mind the niggling little detail that control over financial markets, the ability to buy bad mortgage-backed securities or mortgages themselves, and the power to get involved in the market in any way other than the coinage of money and the affixing of its value are all not powers granted to Congress in the first place.

Now, let’s look at the major provisions, in order, as provided in encapsulated form by MSNBC and the “Washington Post”:

Section 101. Purchases of Troubled Assets.
“Authorizes the Secretary to establish a Troubled Asset Relief Program (“TARP”) to purchase troubled assets from financial institutions. Establishes an Office of Financial Stability within the Treasury Department to implement the TARP in consultation with the Board of Governors of the Federal Reserve System, the FDIC, the Comptroller of the Currency, the Director of the Office of Thrift Supervision and the Secretary of Housing and Urban Development.Requires the Treasury Secretary to establish guidelines and policies to carry out the purposes of this Act. Includes provisions to prevent unjust enrichment by participants of the program.”

This is not only an all-out, firm-fisted assault on the US Constitution, it is economically unwise and
will prop up housing prices that need to drop.

Constitutionally, the Founders would be grabbing muskets if they knew that there were an “Office of Financial Stability, a Board of Governors or anything else at something called the Federal Reserve System, an entity called the FDIC, or something called Housing and urban Development. This isn’t even debatable. If you’re a fan of these agencies, don’t bother trying to justify them Constitutionally, just admit you can’t and move on, okay?

Economically, this is such bad mojo, Clarence Gatemouth Brown could have sung about it. In any financial system overblown by government injections of cash, government-inspired low interest rates, or government redirection of usable capital, the time will come when the consumer begins to realize his money has been made worthless and doesn’t buy much. When that happens, the bad investments made with this excess liquidity will be recognized, and must be liquidated. When the prices of over-priced and over-valued items, workers, etc., drop to a level they find valuable, those still retaining financial strength will act, picking them up, or utilizing the cash made from selling them to invest in new, productive ventures. By propping up the home values, the government is reinforcing a fiction, and retarding true, future growth.

Section 102. Insurance of Troubled Assets.
“If the Secretary establishes the TARP program, the Secretary is required to establish a program to guarantee troubled assets of financial institutions.
The Secretary is required to establish risk-based premiums for such guarantees sufficient to cover anticipated claims. The Secretary must report to Congress on the establishment of the guarantee program.”

This means that the Treasury Secretary (also called “Secretary of the Treasuuuure” by George Clinton and the P-Funk All-Stars), can not only buy mortgages, as granted in Section 102., he can create an insurance program for firms, that, just like most government institutions, will undoubtedly offer insurance below market rates!

Section 103. Considerations.
“In using authority under this Act, the Treasury Secretary is required to take a number of considerations into account, including the interests of taxpayers, minimizing the impact on the national debt, providing stability to the financial markets, preserving homeownership, the needs of all financial institutions regardless of size or other characteristics, and the needs of local communities. Requires the Secretary to examine the long-term viability of an institution in determining whether to directly purchase assets under the TARP.”

Come on. This flaccid, “be nice”, “be responsible as we give you authority to mess with the markets until you pass out” rhetoric is noxious, vexing and tiresome. Here’s a nutty idea: Why not do what the Founding Fathers stipulated in that nutty rule-book they wrote, and LET THE LOCALITIES AND STATES HANDLE THEIR NEEDS THEMSELVES?!

Section 104. Financial Stability Oversight Board.
“This section establishes the Financial Stability Oversight Board to review and make recommendations regarding the exercise of authority under this Act. In addition, the Board must ensure that the policies implemented by the Secretary protect taxpayers, are in the economic interests of the United States, and are in accordance with this Act.
The Board is comprised of the Chairman of the Board of Governors of the Federal Reserve System, the Secretary of the Treasury, the Director of the Federal Home Finance Agency, the Chairman of the Securities and Exchange Commission and the Secretary of the Department of Housing and Urban Development.”

None of the positions of these almighty Overseers is constitutional. None of them stopped the financial meltdown in the first place. In fact, their very existence has contributed to the politicized inflation and redirection of liquidity that got the lending institutions, brokers and everyone attached to them in this quagmire. Don’t tell anyone who actually has a faint tremor of a clue about economics that these people are looking out for financial stability. That is not their raison d’etre.

Updated on Monday, September 29, 2 am. MORE SOON. BTW, anyone listen to Fu Manchu? Get an injection of intensity. You're gonna need it. And remember, as Johnny Lydon said, "Anger is an energy."