Articles of Impeachment? Bear Stearns Buyout Illegal?

[SlowDownFast]

Crossposted from GD:
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x3050924

Posted in whole with permission from the author:

Sunday, March 23, 2008
Articles of Impeachment? Bear Stearns Buyout Illegal?

"On or about March 16th, 2008, George W. Bush, both personally and through his Treasury Secretary Henry Paulson, caused to be provided to JP Morgan/Chase a bribe(1) ultimately flowing from the United States Treasury in an amount not to exceed $30 billion dollars US, via The Federal Reserve, in order to induce JP Morgan/Chase to assume the liabilities and assets of Bear Stearns and Company at a price not determined in the free market or via public bidding, in violation of the limitations expressly set forth in The Federal Reserve Act of 1913, 12 USC Ch 6."

(1) Bribery is defined by Black's Law Dictionary as the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official or other person in discharge of a public or legal duty.

I have spent a solid week both reading The Federal Reserve Act of 1913 and thinking about the circumstances of this transaction trying to find a means under which "backstopping" Bear Stearns debt via The Federal Reserve is legally permissible.

Despite my best efforts I can't find explicit or implicit authorization for "a put", as differentiated from a loan, anywhere in The Federal Reserve Act. You can call something whatever you'd like but if in point of fact there is no recourse then it is not a "loan" at all; it is a "PUT" or a "conditional payment", and under The Federal Reserve Act such an action appears to these eyes to be a direct violation of the law.

It is widely reported that both Hank Paulson and George Bush personally "signed off on" The Bear Stearns "bailout" last Sunday. As such their direct and indirect actions, in my view, constitute a "High Crime and Misdemeanor" within the meaning of the United States Constitution and therefore subject George W. Bush to impeachment proceedings as proposed in the above sample article for same.

By the way, I'm not the only one who thinks this is an illegal transaction. John Hussman, of The Hussman Funds, has this to say in a letter with a publication date of tomorrow, March 24th:

"In my view, the deal would be palatable if J.P. Morgan was to remain fully responsible for any losses on the 'collateral' provided to the Federal Reserve, assuming shareholders were to consent to the buyout. As it stands, Congress should quickly step in to bust the existing deal and demand an alternate resolution, by clearly insisting that the Fed's action was not legal.

The Fed did not act to save a bank, but to enrich one. Congress has the power to appropriate resources for such a deal by the representative will of the people – the Fed does not, even under Depression era banking laws. The 'loan' falls outside of Section 13-3 of the Federal Reserve Act, because it is not in fact a loan to either Bear Stearns or J.P. Morgan. Bear Stearns is no longer a business entity under this agreement. And if the fiction that this is a 'loan' to J.P. Morgan was true, then the only point at which the 'collateral' would become an issue would be in the event that J.P. Morgan itself was to fail. No, this is not a loan. It is a put option granted by the Fed to J.P. Morgan on a basket of toxic securities. And it is not legal."

Finally, it appears that even the SEC Chairman, Christopher Cox, isn't sure that Bear was "done"; that is, this entire transaction might smell like dead fish:

"In what is likely to be a bit of a blockbuster, SEC charman Christopher Cox sent a letter to Swiss regulators indicating the Bear Stearns (NYSE:BSC) did not have to go the way of all flesh. According to The New York Post "the fate of Bear Stearns was a lack of confidence, not a lack of capital," Cox, the head of the Securities and Exchange Commission, wrote in a five-page letter sent to a Swiss regulator.""

So there you have it.

Now, the question is, do our Congressfolk have the necessary will to stop this raiding of the public treasury for the enrichment of a private firm - if necessary, by bringing the above article of impeachment?

If you think they should, then I have a solution for you.

SIGN THE PETITION
http://financialpetition.org/petition-impeach.shtml

to Congress for the purpose of raising debate on this exact issue and stop the mockery of our legal and regulatory systems.

PS: I'm a lifelong registered Republican, voted for George W. Bush twice, and have one of Gingrich's "Speaker's Gavels" on the credenza behind my desk, so before you go accusing me of being a "leftwing nutjob", think again. Nonetheless, what's right is right and I must stand for what's just, and when the political party I am a member of does something wrong, they must admit to it and face the consequences. Sorry Mr. President; I like you a great deal, but what happened here was, in my opinion, blatantly unlawful.

http://market-ticker.denninger.net/2008/03/articles-of-impeachment-bear-stearns.html

DU'rs - PLEASE TAKE A MOMENT TO SIGN THE PETITION IN THE LINK ABOVE.

THIS IS ILLEGAL AND TAXPAYERS SHOULD NOT HAVE TO FOOT THE BILL FOR PIGMEN BANSKTER GREED!

[chknltl]

1. Signed impeachment petition. Number 119!

2nd rec.

[SlowDownFast]

2. Someone else has spotted the illegality:

The dirty little secret about the BSC deal-

Why is Bear Stearns Trading at $6 Instead of $2?

John P. Hussman, Ph.D.

SNIP

Bear Stearns is trading at $6 instead of $2 because unelected bureaucrats went beyond their legal mandates, delivered a windfall to a single private company at public expense, entered agreements that violate the the public trust, and created a situation where even if the bureaucratic malfeasance stands, the shareholders of Bear Stearns will either reject the deal or be deprived of their right to determine the fate of the company they own. Very simply, Bear Stearns is still in play. Still, when all is said and done, my own impression is that the ultimate value of the stock will not be $2, but exactly zero.

In effect, the Federal Reserve decided last week to overstep its legal boundaries – going beyond providing liquidity to the banking system and attempting to ensure the solvency of a non-bank entity. Specifically, the Fed agreed to provide a $30 billion “non-recourse loan” to J.P. Morgan, secured only by the worst tranche of Bear Stearns' mortgage debt. But the bank – J.P. Morgan – was in no financial trouble. Instead, it was effectively offered a subsidy by the Fed at public expense. Rick Santelli of CNBC is exactly right. If this is how the U.S. government is going to operate in a democratic, free-market society, “we might as well put a hammer and sickle on the flag.”

SNIP

full article:http://www.hussman.net/wmc/wmc080324.htm

[chknltl]

3. Do You mind if i take this over to The Ed Shultz show?

I am a member and I wish to post this info there, I am also a member of the Thom Hartman and the Randi Rhodes Forums as well. Rachel Maddow would likely put it to best use but I am not yet a member of her forum.

[kdenninger]

4. Fine with me...

Have at it

(Its my petition and blog) :)

[chknltl]

7. Done, but sent it to Rachel Maddow instead.

I sent her the entire DU thread. I felt your post:#2 in this thread was equally important. I hope someone on her staff sees this because this sort of topic screams out for her attention. Ed and Thom and Randi may read this but I don't see them working the material into their show.

(Important caveat: I chose my name chknltl deliberately but as time goes by I find myself becoming like my namesake. I constantly pass along gems that I THINK are VERY important yet they turn out somewhat less than earth shaking. To me, this is the very kind of thing Ms. Maddow would find more than useful....I suppose we shall have to wait to see what we shall see)

[seafan]

5. 'The Fed did not act to save a bank, but to enrich one.'

(Using public money to subsidize a private company that is NOT in financial trouble... sounds like what Jeb Bush is doing with his pals at CSX. But, I digress.)


Why is Bear Stearns Trading at $6 Instead of $2?

John P. Hussman, Ph.D.
March 24, 2008

.....

I'll cut straight to the chase.

Bear Stearns is trading at $6 instead of $2 because unelected bureaucrats went beyond their legal mandates, delivered a windfall to a single private company at public expense, entered agreements that violate the the public trust, and created a situation where even if the bureaucratic malfeasance stands, the shareholders of Bear Stearns will either reject the deal or be deprived of their right to determine the fate of the company they own. Very simply, Bear Stearns is still in play. Still, when all is said and done, my own impression is that the ultimate value of the stock will not be $2, but exactly zero.

In effect, the Federal Reserve decided last week to overstep its legal boundaries – going beyond providing liquidity to the banking system and attempting to ensure the solvency of a non-bank entity. Specifically, the Fed agreed to provide a $30 billion “non-recourse loan” to J.P. Morgan, secured only by the worst tranche of Bear Stearns' mortgage debt. But the bank – J.P. Morgan – was in no financial trouble. Instead, it was effectively offered a subsidy by the Fed at public expense. Rick Santelli of CNBC is exactly right. If this is how the U.S. government is going to operate in a democratic, free-market society, “we might as well put a hammer and sickle on the flag.”

What is a “non-recourse loan”? Put simply, if the homeowners underlying that weak tranche of debt go into foreclosure, they will lose their homes, and the public will lose as well. But J.P. Morgan will not lose, nor will Bear Stearns' bondholders. This will be an outrageous outcome if it is allowed to stand.

In my view, the deal would be palatable if J.P. Morgan was to remain fully responsible for any losses on the “collateral” provided to the Federal Reserve, assuming shareholders were to consent to the buyout. As it stands, Congress should quickly step in to bust the existing deal and demand an alternate resolution, by clearly insisting that the Fed's action was not legal.
The Fed did not act to save a bank, but to enrich one. Congress has the power to appropriate resources for such a deal by the representative will of the people – the Fed does not, even under Depression era banking laws. The “loan” falls outside of Section 13-3 of the Federal Reserve Act, because it is not in fact a loan to either Bear Stearns or J.P. Morgan. Bear Stearns is no longer a business entity under this agreement. And if the fiction that this is a “loan” to J.P. Morgan was true, then the only point at which the “collateral” would become an issue would be in the event that J.P. Morgan itself was to fail. No, this is not a loan. It is a put option granted by the Fed to J.P. Morgan on a basket of toxic securities. And it is not legal.

The deal was made under duress, to the benefit of a private company, on the basis of financial assurances that the bureaucrats involved had no business making. The Federal Reserve is going to put up public assets and accept default risk so that Bear Stearns' own bondholders are effectively immunized?! That's not sound monetary policy – it's a picnic for insiders, bought and paid for through the abuse of public funds by government officials too unprincipled even to recognize the abuse. The only good thing about this deal is that it buys time while principled ways of busting and restructuring it can be settled.

.....

So Bear's stock is selling at more than $2 for two reasons – one is that the market evidently believes there is some chance for the deal to be busted, either by Congress or by shareholder rejection. And second, because Bear's bondholders are frantic to own the stock so they can vote for this lousy deal to go through. After all, buying up a few hundred million in stock to secure $75 billion of debt doesn't seem like a bad trade. Whatever happens, this is not over, for the simple reason that it is wrong. ..... The Fed overstepped and the Treasury overstepped. At the point where unelected bureaucrats pick and choose who to subsidize – who prospers and who perishes – in a free capital market, and use public funds to do it, more is at risk than just $30 billion. Instead, we cross a line, and stumble off a very clear edge down an interminably slippery slope. We speak up now, or forever hold our peace.

.....

(Hat tip to utopiansecretagent for finding this article.)

[truedelphi]

13. Senator Clinton, however, stil thinks enough of the Federal Reserve

that she suggsts giving Greenspan oversight of the Wall Street Debacle.

[SlowDownFast]

18. That figures.

The Clinton admin shares a good part of the blame for this mess with NAFTA and Wall Street deregulation.

[Earth Bound Misfit]

6. k & r

I will forward this to everyone I know.
:toast:

[Spurt]

8. k&r

[livvy]

9. Signed, passed along, and a knr, too. n/t

[rateyes]

10. Have you forgotten the "unitary executive" and Pelosi

taking impeachment off the table. Herr Bush is above the law.

[DemocratInSoCal]

11. I Admire You Naive Folks For Thinking You Still Have A Voice

More power to you for wasting your precious time, trying to make your voices heard.

Somewhere in Washington, many beaurocrats & CEO's are having a good laugh right now at your expense.

Impeachment only applies to Democrats, and only when sexual favors are involved.

[leftofthedial]

12. king george's crimes are off the table

haven't you heard?

[truedelphi]

14. I love the "truthy" humor of this statement

If the market was “certain to crash” in the event that Bear Stearns failed, then the market is certain to crash anyway, because Bear Stearns wasn't the last shoe to drop – it was one of the first. Unfortunately, we're standing in a shoe store. Wasn't the market “certain to crash” without the Fed's surprise rate cut in January too?

[Celebration]

15. you know, I still don't understand this deal

At least when there was the Chrysler bailout the Congress voted on it. Is this a Fed guarantee of Bear Stearns holdings, or our Treasury? I can't see the Treasury guaranteeing anything without the approval of the Congress.

Either way, we are screwed. Heck, I don't even know the major stockholders of the Fed.

[femrap]

16. As someone who voted for

W TWICE and I am sure will vote for McCain, I hope Karma comes around and bites your investment accounts so hard that you find yourself at the local food bank.

All of sudden, you see W breaking the law....you poor, little selfish son of the devil. You, too, have blood on your hands with this illegal war.

Go back to your Freepers and cry on their shoulder....I imagine you were a Bear Stearns shareholder.

Ignored. Go away. Rot.

[sbyte]

17. Extension of credit to non-banks

A Pfennig For Your Thoughts
Friday, March 21, 2008
http://www.dailypfennig.com/currentIssue.aspx?date=3/21/2008

The Federal Reserve, in its first extension of credit to non-banks since the Great Depression, lent $28.8 billion to securities firms over the past 5 days
~~~


So if the banks weren't going to take the money and lend it out to the securities firms, the Fed decided to just go direct and cut out the middlemen. They opened the Fed window to firms who really need the liquidity. And since these firms don't have much in the way of good solid assets to put up as collateral, the Fed relaxed the requirements and agreed to accept the CDOs and subprime mortgage debt which these firms have been stuck with. While the move may end up stabilizing the credit markets, it leaves me with an uneasy feeling. These securities firms are the ones who overextended themselves in the first place and now the Fed is supplying even easier credit to them.

The Fed also bypassed its own emergency lending policies to let these securities firms borrow at the same interest rate as commercial banks. Guidelines revised in 2002 say the Fed should charge non-banks a higher rate than the commercial banks pay. But Helicopter Ben wanted to make sure the money would hit the streets, so he agreed to lend to the securities firms at the same low rate as the big banks.
``````````````````````````````````````

The FED has a lot of nerve. Easy money and bailout schemes.
It's the new deal, Bernakie style.

Is the economy healthier cause of these actions?