This Week in Financial Deception, Hypocrisy, and Corruption
This week closed with a flourish of news in the world of finance that could turn even the sunniest optimist into a die hard cynic. (Mr. ToughMoneyLove made that transition some years ago.)
Let’s start with the tiresome story of car company bailouts. I listened to the press conference called by Ron Gettelfinger, president of the UAW. I wasn’t sure why we needed to hear him live on Fox Business News but it quickly became apparent that Gettelfinger’s objective was to transfer blame to the Senate Republican Caucus for the failure of negotiations on a bridge (to nowhere) loan package for the Detroit Big Three. (Why do they call them the “big” three? There are only three of them, period. How about the “Desperate Executives” Three? Or the “Honey I Shrunk the Company” Three?)
Anyway, with the rescue plan DOA in the Senate, the Democrats, car companies, and the UAW immediately shifted gears and demanded that the Treasury Secretary release TARP funds to the car companies. With the White House also seemingly in favor of the the TARP strategy, this is where the smell of political corruption starts to emerge.
First, the arrogance of the Executive branch in plotting an end-run around Congress is appalling. Do Bush and Paulson really intend to appropriate for themselves the power to select particular industries to rescue with our money, independent of Congressional action? Second, despite officious pronouncements to the contrary, Paulson has no legal authority to use TARP funds for a car company rescue.
The Emergency Economic Stabilization Act of 2008 (EESA) that implemented the TARP program defines the authority of the Treasury under the program as follows:
The Secretary is authorized to establish the Troubled Asset Relief Program (or “TARP”) to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary, and in accordance with this Act and the policies and procedures developed and published by the Secretary.
Contrast that statutory language with what the Treasury is being asked to do. GM is not a “financial institution” and the only “troubled assets” that GM owns are too many unsold vehicles. Is Paulson planning to buy unsold cars from the car companies and store them until the market improves?
I think the reason that Secretary Paulson has not yet released TARP funds to the car companies is that he is being told by government lawyers that he lacks the legal authority under the EESA. (Yes, sometimes lawyers can be helpful.) Maybe our government is scheming to put together a consortium of banks then cut a deal to buy “troubled assets” from the consortium at prices favorable to the banks. In exchange, the consortium would agree to lend the proceeds of the asset sales to the car companies. Voila! We don’t need no stinkin’ Congress.
Switching to this week’s big deception, Wall Street legend Bernie Madoff fessed up to suffering from chronic money kleptomania, to the tune of about $50 billion. This is yet another blow to a hope that anyone on Wall Street will emerge with credibility intact. Who wants anything to do with these people? I don’t.
Do you know what the cure for hope is? Despair. That’s what I’m feeling right now about the integrity of those having the most power to influence our economy and the stock markets. Now I need a cure for despair. Anyone have any suggestions?