Financial Dictatorship Comes to America

by Michael S. Rozeff
by Michael S. Rozeff

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My earlier articles on the current economic and financial problems begin last January and continue to today. (See here, here, here, here, here, here, here, here, here, here, here, and here) Little did I think that we would end up where we are today, with the Congress passing the Emergency Economic Stabilization Act of 2008.

My last article, not included in the above list, focused on this Act as a gigantic tax increase. This article points out the shocking increases in government power that the government has conferred upon itself in this Act.

I believe that the American public has every right to rise up in anger against what this Act does and retire from office every legislator who voted "Yes" to its passage. None of them has upheld his oath to support and defend the Constitution. There is absolutely nothing in Article 1, Section 8 of the U.S. Constitution that empowers the Congress to do what this Act authorizes, nor is this Act a law made as a necessary or proper adjunct in order to support those powers that the Constitution does delegate to Congress.

The Emergency Economic Stabilization Act of 2008 is manifestly unconstitutional. I pen these words just for the record. Since the Constitution has long since been tarred, feathered, and ridden out of town on a rail, unconstitutionality no longer excites much emotion or interest. What matters is only what the American people will stand for. How much power over their lives and fortunes are they willing to put up with?

This bill will go down in history alongside all of those similar bills in other lands and times that have odiously transformed a government from at least a semi-free institution into one that is clearly dictatorial. In the usual case, a strong man takes power and then consolidates his hold over legislation and the judiciary. Hitler’s Enabling Act in 1933 gave him power to issue edicts. The Military Commissions Act of 2006 is one of Bush II’s many power grabs. He can, if he wishes, place you or me in a prison camp without any of the constitutional protections. In keeping with the capitalistic core of the economy, dictatorship is now arriving via a more intense degree of financial dictatorship than has heretofore been the case. Up to now, Americans have had a decided lack of monetary freedom. We have had monopoly money in more ways than one (see Parker Brothers). This Act places financial intermediaries under a much higher degree of control by government. The capital markets can also expect much greater control because investment banking is merging into banking and the SEC will be brought to heel eventually. All roads lead to a financial czar. This Act marks the beginning of the end of the American Empire, in my opinion (along with the Iraq debacle). It is the first of several large-scale and last-ditch attempts by the reigning powers to maintain the financial center of the American State so that it can preserve the American Empire.

To understand the massive power that the Secretary (of the Treasury) has been given in this Act, first understand that it gives him complete and total power over "troubled assets." But the Act’s definition of "troubled assets" is so broad that it includes all assets. The definition is:

"...residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages...the purchase of which the Secretary determines promotes financial stability; and any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress."

The phrase "any other financial instrument" literally gives him power to purchase any option, futures contract, any stock, preferred stock, any bond, any repurchase agreement, any money market instrument, etc. And the only criterion is that he determine that his purchase promotes financial stability. But since the Act has no definition of financial stability, he is being given unlimited power to interfere in any market for any financial instrument anywhere.

The Act does not limit these purchases to domestic securities. It specifically authorizes the purchase of securities held by foreign banks and central banks:

"The Secretary shall coordinate, as appropriate, with foreign financial authorities and central banks to work toward the establishment of similar programs by such authorities and central banks. To the extent that such foreign financial authorities or banks hold troubled assets as a result of extending financing to financial institutions that have failed or defaulted on such financing, such troubled assets qualify for purchase under section 101."

This of course has no warrant in the Constitution, but neither do the IMF, the World Bank, foreign aid, or raising armies to defend other lands.

The control over his power is virtually zero. He is supposed to consult with the Chairman of the Fed but the Act does not say that the Fed Chairman can veto a purchase of he disagrees with the Chairman, so that this phrase is toothless. Furthermore, he has to inform Congress of his purchases but they too have no statutory authority to control his financial actions. They of course will pressure him in a host of ways to play favorites for them.

The Secretary has power to set up the bureaucracy to carry out his wishes. He gets to determine the "methods for pricing and valuing troubled assets" and the "criteria for identifying troubled assets for purchase."

The Secretary has the power to set the prices at which he buys assets. He alone establishes the terms. We read: "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..."

This provision does not appear to give a financial institution any say in the matter. It says that he can purchase assets on his own terms. He is then authorized to hold them and sell them when he wants to and at such prices that he wants to. The Secretary is to become the manager of a portfolio of very great size.

When a purchase is made from an exchange-traded company, the Secretary has a right to receive nonvoting stock or preferred stock in the institution. The government will be owning stock in many banks. (It is strange that the Secretary is made the recipient and that he is not even said to be a trustee on behalf of the government or the American people.) This provision is advertised as providing "protection for the taxpayer against losses from sale of assets." This is a cruel joke. The taxpayer has no say in the matter. She is forced into becoming a participant in this process. She has no control over her portfolio. She pays all the bills, and any proceeds, if there are any, are impounded by Congress for its own purposes. This is a socialist version of the "ownership society."

Under Section 109 (foreclosure mitigation effort) the Secretary is given power to rewrite mortgage contracts unilaterally. Of course, ex post facto laws are unconstitutional.

The powers of the Secretary in all these matters and others that I have not reviewed are shielded from judicial review in Section 119 of the Act: "LIMITATION ON ACTIONS BY PARTICIPATING COMPANIES – No action or claims may be brought against the Secretary by any person that divests its assets with respect to its participation in a program under this Act, except as provided in paragraph (1), other than as expressly provided in a written contract with the Secretary."

It does not matter in the slightest that the authority granted will expire at the end of 2009 (whereupon it will be renewed) or that various oversight boards are built into the arrangement. What matters is the powers granted. Once the ice has been broken, it is easier to break it again and again. These powers will soon be taken for granted, at which point they can be extended. This is what matters. This bill is about power even more than it is about money or saving the banks, although the two are linked.

The Paulson Plan that I discussed in April, 2008 here already revealed the same power objectives as this Congressional Act instigated by Paulson. The expansion of government power is a major, major theme in the Bush II administration. He has been aided and abetted by Congress including members of both parties and the Supreme Court.

Bush II has a fondness for dictatorship (see here, here, and here) as he made clear in 2000, again in 2007, and by many of his actions such as his signing statements that routinely ignore Congressional Acts. In this light, it is no surprise that he gave power to such figures as John Yoo, Alberto R. Gonsalves, and Henry M. Paulson, Jr. or made Dick Cheney his vice-president. Indeed, he has peopled his administration with any number of war criminals like himself.

Americans are being held hostage by their government. The government is rubbing sand in their faces and defying them, both on Iraq and on its financial measures. The government is overstepping its bounds so egregiously that it is arousing even passive Americans to action. It is only a matter of time before they rise up and cast off their bonds.

October 6, 2008

Michael S. Rozeff [send him mail] is a retired Professor of Finance living in East Amherst, New York.

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