NightBlogger

Douglas A. McIntyre
247wallst.com
Most dictators get to wear general’s uniforms, have multiple palaces, and several wives. Henry Paulson had better call his tailor. The Administration’s proposal to buy up to $700 billion in mortgage-related securities from financial institutions gives the Secretary of the Treasury colossal powers which have not been since the times of Napoleon and Ghenghis Kahn. The legislation, if approved by the Congress, would also pass these powers on to Paulson’s successor, no matter whom that person might be.

The section on buying assets is unusually vague and stupendously broad: “Authority to Purchase.–The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.” In other words, there is no mechanism set to determine the price of these assets. Will it be by auction or at the whim of those within Treasury who do the buying? Which institutions will be within the realm of the purchasing action and which will be left out without aid or recourse?

In almost all ways, the bill, if passed, would put the Treasury Secretary outside the law. “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.” The power of the Judicial Branch as an element of the Constitution’s mandate for “checks and balances” has been suspended, undercutting a critical principle established by the Founding Fathers.

An additional subversive part of the bill is that “The term “Secretary” means the Secretary of the Treasury.” Once Paulson has retired and a new President is sworn in, the chief executive will have the right to appoint a new man who may well not share Paulson’s view of how the act should be interpreted or enforced. The rules for enacted the program might, at that point, be radically changed.

FORTUNE (New York) The Treasury secretary and Federal Reserve chairman have spent September dashing off blank check after blank check in a bid to quell turbulent markets. Since Sept. 5, the feds have pledged $200 billion to shore up mortgage giants Fannie Mae and Freddie Mac, $85 billion to prop up insurer AIG, and $50 billion to guarantee money-market funds. Then there are the untold sums the U.S. might spend under the plan Paulson unveiled Friday to set up a bad bank to relieve institutions of their troubled mortgage assets. And let’s not forget the hundreds of billions the Fed has poured into the markets in the name of maintaining liquidity. Even in a U.S. economy that produces $14 trillion worth of goods and services a year, that’s a lot of cash. Spending all that money, sooner or later, will intensify long-standing questions about the nation’s fiscal health, possibly at the expense of another drop in the value of the dollar. More

Video: To understand just how gloomy the state of the US economy is, watch this Video of The assistant Treasury Secretary, Phillip Swagel, on the US economy. Try as he might, he cannot hide his fear and gloom.

LATimes
U.S. Treasury Secretary Henry M. Paulson Jr. on Wednesday called for regulatory changes that would allow financial firms to fail without threatening broader market stability. The Treasury chief also proposed steps providing for the president to approve of any use of taxpayer funds to aid a financial company. In a speech in London on Wednesday, Paulson identified a legal gap that leaves unspecified how to deal with failures of companies that don’t take deposits, such as investment banks. Paulson’s proposals aim to tighten supervisors’ oversight of lenders and dealers while at the same time discourage companies from depending on a government rescue if their bets go wrong. His speech comes a week before a congressional hearing to debate a regulatory overhaul in the wake of the credit crisis that caused the near-bankruptcy of Bear Stearns Cos. More