Your chance to mark up the Wall Street bailout bill

Gabriela sez,

Congress is moving rapidly to enact a gigantic taxpayer bailout of the financial sector, with a potential cost of $700 billion or more than $2,000 per American citizen. We believe, as Justice Brandeis said, that “Sunlight is the best of disinfectants,” and that all legislation ought to be open to public comment and consideration in real-time, not just after the fact.

So, as a public service, the Sunlight Foundation just posted the proposals that are receiving the most attention by Congress and the Administration - and by you, the people. We invite you to review the bills and share your knowledge online and show Congress what you really want to see in this vital legislation.

As we ponder the significance of the Internet this One Web Day, what better way to show how we can use this awesome medium for positive change by ending secret legislation in Washington? Public Markup (Thanks, Gabriela!)

• [Cicada]

  @Pyros- It might be better to say that Americans believe the potential for government to be bad (i.e, tyrannical, destructive of liberty, etc) outweighs its potential to be good.
  I do think it’s a good thing to remember what a dangerous thing a government can be, exactly how much power it can wield and how arbitrarily it can act.

• [cstatman]

  I’m SUPER Pissed, and I do not know where to take it. (other than email to my congressperson and senator)

  I bought a regular mortgage, on a small home, which I faithfully pay.

  NO ONE IS BAILING ME OUT!

  They are using my tax dollars to bail out the assholes who bought McMansions they could not afford and bigass mercedes.

  WHERE IS MY BAILOUT? OR? stop using MY Tax dollars to bail out the bad decision makers. No one rescues me or rewards me for being responsible, so why should I continue?

• [Purly]

  I’m all for saving the economy. If I don’t get any money back in my tax return this year so that the economy doesn’t crash, so be it. BUT if you think it’s OK to give my taxpayer money to people that don’t know how to manage it, you’re sorely mistaken. The people who caused all this should be rooted out and banned from ever practicing finance in the United States again.

• [codesuidae]

  Ok, here’s my idea for some markup. The Secretary is authorized to sell the Federal reserve bank a single government bond in the amount of $1 trillion. The Fed will deposit the bond, create out of nothing $1 Trillion and give it to the Secretary in exchange for the bond.

  On Monday each week, for 24 weeks, the Secretary will submit a request for private bids for mortgages or mortgage-backed investment vehicles. At the end of the week the Secretary will start with the lowest priced bids and purchase up to 1/24th of a trillion dollars worth of mortgages.

  The mortgages or mortgage-based investment vehicles will be broken down to individual mortgage contracts and repackaged by geographical area.

  Holders of the mortgages will be contacted and offered the opportunity to convert any investment, retirement, social security and any other marketable asset into cash on a tax-free basis, provided that that cash is immediately invested into a new member-owned, chartered credit union (The Secretary is hereby granted the authority to compel any holder of such assets to release them for liquidation).

  Money invested in the credit union will be deposited at the Federal Reserve whereupon the magick of the fractional reserve system will multiply it by whatever fraction is necessary to make the total assets of the credit union equal to the total number of dollars paid for the previously mentioned geographically packaged mortgages (The Secretary is hereby granted the authority to set the fractional reserve ratio once per institution at the time the institution is charted).

  The Credit Union will purchase from the government said mortgage package for the same price paid by the government. The government will return this money to the Fed, buying back 1/24th of the original $1 Trillion bond. The Credit Union will then be dissolve, with each share holder receiving in compensation for his investment, one free and clear title to the property matching his address.

  Tax payers are saddled with the administrative fees associated with breaking down the mortgages and overseeing the creation and liquidation of credit unions, a total cost on the order of perhaps one month of war.

  Banks get paid real money for crappy assets that nobody else in their right mind would buy, that nobody in their wrong mind could scare up credit for anyway, and that were stuffing up the transparency in the market necessary to assessing risk for the evaluation of interest rates.

  Home owners liquidate their assets and are left with clear title to a McMansion a job, and a relatively stable economy.

  The Secretary’s powers under the act are terminated and we go back to business as usual.

• [Rar]

  “with a potential cost of $700 billion or more than $2,000 per American citizen”

  Although this is theoretically accurate, the mortgage-based securities the gov’t will be buying would have to become literally worthless (that is, worth zero cents) for this to be the case. In all likelihood, Wall St. is undervaluing these securities because of the current downward spiral effect (lack of buyers lowers price, lowered price of securities lowers capital of owners of securities, causing higher need to sell and causing a lack of viable buyers), so the gov’t/taxpayers actually stand to make a significant profit on this move (just like what happened with the Chrysler “bailout”). I’d say the most important thing to make sure is in the bill is that any profits are returned to the treasury/taxpayers.

  Don’t be fooled by the term “bailout”. This is actually a prudent financial investment on the part of the gov’t. It’s classic buy-low-sell-high, taking advantage of the fact there are no other buyers who have the capitalization to make the move.

• [Purly]

  codesuidae, It sounds really tricky.

  Giving people a window of time to convert all of their assets they can’t touch (401k, HSA, etc) into penalty free cash that can be used to pay debt might not be so great of an idea. The problem is that half of America would be withdrawing from their 401ks, which would drop the worth of the mutual funds they were invested in and cause more issues in the market. If it’s done little by little it will still be a problem because suddenly the people doing it first will make more money relative to the people going later.

• [TiwazTyrsfist]

  @ #8

  I also got a normal, fixed rate mortgage at the time that the morons were running low APR variables (AKA Sucker-bait).

  However, the whole economy is being drawn down by this millstone of financial institutions floundering.

  While I don’t like my taxes being used to bail them out, I like that a WHOLE HELL OF A LOT MORE than I like the concept of having my bank fold and steal all my savings, or my company folding because business is so far down and leaving me unemployed.

  I want a strong economy, I want to be able to feel confident that my 401k will be there tomorrow. I want to know that my entire mortgage wont suddenly come due next week because my lender folded under bad debts and some predatory financier bought up their debts.

  So, yes, there should be consternation over this. But because this situation should never have been allowed in the first place.

  NOT fixing the problem now is NOT A SOLUTION! Because, here’s the thing, if we don’t step up now and plug this hole, the collapse will just continue.

  You didn’t do anything wrong. You did what you were supposed to. But I’m betting your mortgage company, or one of it’s infinite other faces, sold a whole ton of sub-prime variable rate mortgages that are going to default soon. And if we don’t bail them out, when they tank YOU TOO WILL LOSE YOUR HOUSE, unless you can pay off the entire remaining balance on demand.

  So, pass me a bailing bucket.

• [ivan256]

  #5 is exactly right. The problem, however, is that the government really has no business making these types of investments under normal circumstances. They should liquidate them as quickly as is prudent. If they have this kind of cash floating around (they don’t) they should use it to pay down their debt.

• [davejenk1ns]

  My personal hope for direct democratic action is to open up the budget allocations:
  1. I make $100K and would owe the same $20K in federal taxes that I currently pay
  2. Congress would get discretion over a portion of that– say 1/4th– so $5000 of my $20K
  3. I turn my tax return over to the back, and see a list of all govt depts: defense, agriculture, education, FEMA, interior, SEC. Anything with a cabinet level, and maybe one level down from cabinet.
  4. I now have $15K, to dole out as I damn well please– $4K for defense, interior gets $6K, and the CDC gets the other $5K. SEC– suck it. Education– not on the federal level (my opinion, and I am putting my money where my mouth is).

  Here’s what might happen in such a system: these depts become aimed at pleasing me: their shareholder. They’ll have to clean up their acts, market a little, and justify why I should give them my money. The Air Force will have to esplain why it needs so many B2 Bombers; FEMA will show that they’re not throwing good money after bad, etc.

  Farmers in the midwest will give all their money to price supports, but then realize that they are the only ones doing so, and pretty soon it will dawn on them that it will just be easier to keep their money in a bank amongst themselves– voila! smaller government.

  Education-minded parents will give all their money to the dept of education, only to realize that by the time their money goe3s all the way to washington and back, it could have been spent directly at the local level– voila! smaller govt.

  I’ll be running for office in 2012. Vote for Dave!

• [codesuidae]

  Hm, that’s a good point.

  We’ll have to create a government sponsored corporate banking institution that takes an applicant’s promise to pay, deposits it as an asset and creates a revolving credit account with a limit of approximately 1/10th the outstanding balance on the applicants mortgage, with terms that stipulate that the credit can only be used for a single cash advance that will then be used to fund the creation of a member-owned credit union.

  The credit union will use it’s assets as before to purchase mortgages and then dissolve itself leaving it’s creditors holding it’s only assets, the free and clear mortgages.

  The former credit union members will go to a standard commercial bank to obtain a standard home equity loan against their property, the proceeds of which they will use to pay off the revolving credit line that was used to fund the credit union.

  Market funds are preserved, and the home owners remain in debt, though not as deep.

• [codesuidae]

  More or less. If you poke around on the tubes you’ll find that there is a subculture that would believe that such a scheme as I outlined there would work, as it would be entirely in keeping with the principles behind the management of a fiat currency.

  Some of those principles are: that the Fed creates dollars from nothing; that the practice of fractional reserve banking multiplies Fed created dollars; that it is possible to create a line of credit backed by an asset such as the borrower’s contractual obligation to repay (a similar principle by which the Fed puts money into circulation, by purchasing, for example, a government security, which is the governments contractual obligation to repay).

  So what happens to all the money that was tied up in those mortgage contracts? Vanished, sent back into the void from whence it came. How? Think of it like a particle and it’s anti-particle. A promise to repay is antimoney and a bank is the mechanism by which money and antimoney are held apart. If the two ever come together they vanish.

  It’s kind of like if you are the sole proprietor of a debt collection company. If you go to the dentist and receive $10,000 worth of services in exchange for your contractual obligation to pay him, then default, he will sell the contract to a debt collection company for, say 10% of the contract value. He get’s something up front and the debt collector gets the contract that still binds the debtor to pay (it can be enforce in a court of law). If however you are the debt collector in question, you’ve just bought your own promise to pay. What happens? Poof.

  But wait, that’s just a service, no actual product was involved, so it’s different, right? Not really, all product creation can be considered to be a service. The price you pay for a product embodies the actions performed on it by people. Even in the case of the price of raw materials (coal in the ground, for example) the price is the ‘service’ of the mineral rights holder allowing someone to extract the material.

  Going back to the dentist example. How did you manage to pay only $1000 for the $10,000 worth of service? It turns out that in that market the service was not worth $10,000. The dentist could have paid a lawyer to take you to court himself to get a judgment in his favor where he’d then have the documentation necessary to compel other agents to collect for him (such as having your wages garnished, or sending the Sheriff to your place of business to do a ’till tap’).

  It wasn’t worth his time to do so. By not paying him you forced the market to revalue the service, which turned out to be $1000. If you were a clever private citizen rather than a debt collector you would have several strategies to pursue with the new owner of the contract, including renegotiating the terms of the contract (e.g. paying off at 15%, or maybe at 30% with a contractual obligation from the debt collector to never report the debt to credit rating agencies).

  This is what should happen to the mortgages. The banks have just discovered that it isn’t worth the trouble to collect on their defaulting/high risk mortgages and they’re looking for debt collectors. The dollar value on the mortgage doesn’t really matter, because it represents the market value from a different market. By creating some debt to a government sponsored entity, leveraging it through a credit union, allowing the money and antimoney to cancel out and then finally transferring the government-sponsored debt back into the private market through the creation of a new mortgage with values that reflect the price of the mortgage in this market, the problems are corrected.

• [Anonymous]

  Here’s an idea… Instead of having the taxpayers buy the bank’s “distressed assets” (our mortgages), why not just write off all those mortgages so that taxpayers can flood that extra money into the economy? It’s a real win-win.

  Makes just as much sense as taxpayers buying out the banks to stabilize the stock market.

• [soupisgoodfood]

  Fuck Wall Street. Government aid goes against most of their ideas so they should get nothing.

• [trr]

  I don’t have a lot in my 401k but the tax burden from this proposal (if it were equally distributed among all taxpayers – thankfully it won’t be, right?) eats about half of it.

• [codesuidae]

  I have to agree with Rar @5ish.

  The government would likely be buying mortgages from the lowest bidders first. So the most desperate companies would be fighting to underbid each other to unload their bag-of-crap mortgages to the government.

  The reason these mortgages are bags-of-crap is because they are contracts with terms that the mortgage holder can’t meet (and that the financial institutions are unable or unwilling to renegotiate). The government, now holding the contract, can renegotiate the contract (something it cannot do unless it is a party to the contract), magically converting the loan from a bag-of-crap into a bag-of-compost. Still a bit stinky perhaps, but definitely something with value that you can sell to someone who is willing to sit around and wait while it grows.

  In the meantime, banks will have all moved these bags-of-crap out of their portfolios and they’ll have a reasonable expectation that other banks will have done the same. Once again they’ll be able to make those all-important short-term loans to each other without the fear that the other guy is hiding a huge bunch of bags-of-crap just waiting to bury him.

  I wonder if any of these ARM’s that the government buys will be converted to something like 100 year fixed? The interest rate would be way low, but it would be an extremely safe investment, kind of like a government security. You’d think there would be quite a number of banks that might be interested in such an investment vehicle.

• [Pyros]

  The secretive nature of Washington isn’t going to change as long as we have a House of Lords and a rotten borough system similar to the one England used to have. It is the structure of our government that has brought us to this, and this, unfortunately, is not something that anyone wants to talk about, or indeed is even informed enough to talk about. Part of being American has to do with feeling superior in just about every way compared to people of other countries (even though the facts belie this belief) and the way we feel most superior is by thinking our government is better than theirs.

  This is kind of funny because Americans don’t really believe in government as a positive force. But successful democracies cannot be maintained by citizenries who do not believe in the positive power of government. To the American way of thinking the government is and always will be the enemy, and this belief system makes upholding democratic ideals impossible. This contradiction, tragically, is lost of the American people.

• [Purly]

  codesuidae, this last suggestion was you joking, right?