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Bush Bailout Plan Would Protect Treasury Secretary from Lawsuits

Posted Sep 24, 2008 5:55 AM CST
By Debra Cassens Weiss

Treasury Secretary Henry Paulson would be insulated from lawsuits under the $700 billion Wall Street bailout plan advanced by the administration.

Two legislators have also made bailout proposals, and one of them, advanced by U.S. Rep. Barney Frank, D-Mass., also eliminates judicial review, the Daily Journal reports (sub. req.). Frank is chair of the House of Representatives Financial Services Committee. Senate Banking Committee Chairman Chris Dodd, D-Conn., has a proposal that would allow courts to set aside a decision by Paulson when it is "arbitrary, capricious, an abuse of discretion, or not in accordance with the law."

The Daily Journal story quotes a partner in securities class action firm Coughlin Stoia Geller Rudman & Robbins who is a critic of the lawsuit ban. "Vesting a single unelected official with the right to basically control a large part of the market is dangerous at best," said partner Darren Robbins. "To also have that person be somebody who has immunity from any private right of action is a recipe for disaster."

Antitrust litigator Maxwell Blecher of Blecher & Collins in Los Angeles told the publication that the bailout could generate many lawsuit opportunities, if they are allowed. Disputes could arise over the distribution of aid or whether government intervention in an area restricts competition.

In any event, suits would be allowed for constitutional violations under Supreme Court precedent, said constitutional law professor Jonathan Varat of UCLA law school.

Comments

1.

associate
Sep 24, 2008 10:39 AM CST

Why should he get immunity?

As a shareholder in this new company, what if I have fiduciary duty concerns?

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2.

tom
Sep 26, 2008 7:06 AM CST

Can someone explain how this is legal for the feds to steal a legitimate business?  What fiduciary duty?  Paulson and the federal Gods decide who runs your company and if they don’t like you they will secretly sell it to someone else.

“The government then stepped up its efforts, at points going behind WaMu’s back to work privately with four potential bidders on a deal.”…”the seizure and the deal with JPMorgan came as a shock to Washington Mutual’s board, which was kept completely in the dark: the company’s new chief executive, Alan H. Fishman, was in midair, flying from New York to Seattle at the time the deal was finally brokered…”

http://www.nytimes.com/2008/09/26/business/26wamu.html?_r=1&hp&oref;=slogin

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3.

brad
Sep 26, 2008 7:19 AM CST

The end of our countyr is near.  The fact they are letting Barney Frank ANYWHERE NEAR THIS MESS, is laughable.

This same guy blocked critical 2003/2004 proposed legislation that would have made fannie and freddie accountable and would have stopped all this crazyness.

Paraphrasing Frank, “Fannie and freddie are strong, and even if not, the government wont need to bail them out”.  And we are allowing this guy to propose the bailout when he had a lack of foresight abou tthis whole problem to begin with?

Seriously, why you people keep electing these democrats is beyond me.

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4.

James
Sep 26, 2008 7:37 AM CST

This mess is not a Democratic or Republican mess. Both sides of the aisle participated in the feverish greed of the past two decades. What I find incredulous is that Joe and Susie sixpack got a reform in the bankruptcy law when they mismanaged their credit/debt. Congress modified their constitutional rights to chastise them for their fiscal sins. Wall Street abuses the system and they get a bailout. Go figure…

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5.

Rick T
Sep 26, 2008 8:22 AM CST

This isn’t capitalism if they are not allowed to fail.  Wall St. got itself into this mess.  The titans of their industry.  They made up new exotic securities, traded them, marked them up over and over and took home big bonuses.  Sounds like Enron paper making a round trip.  Capitalism will weed out extreme capitalism.  Wall St. never manufactured a thing, or grew anything, they just made extreme money on money.  Only the crooks who sold the toxic securities and the idiots who bought them will benefit from a bailout.  I say sue the Wall St. lawyers also.

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6.

Chris
Sep 26, 2008 8:35 AM CST

Ditto.  I for one am livid that we are even discussing a bailout.  But from what I understand, if we do not, our whole system will crash (i.e. the banking system will fail, our accounts could possibly vanish before our eyes if the FDIC doesn’t have the cash to cover failed deposits).  Is this true?

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7.

jj
Sep 26, 2008 8:38 AM CST

I’d rather give 1 million to ever us citizen (300 million) than $750 billion to wall street.  I think each citizen with a million bucks would do more for the economy that wall street would piss the 750 billion down the drain in their next gamble to get rich.

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8.

V
Sep 26, 2008 9:17 AM CST

Welfare to Wall Street to the tune of over $2000 for every man, woman and child in the country.

In term sof “Debt Bailout” -
The national debt is around 10 TRILLION dollars.
So each American owes about 30,000. 

Clearly our government should continue writing gigantic checks & hope they never get cashed in.

When the rest of the world sees the U.S. government choosing to further bankrupt itself for the sake of the multinational banks and their easy credit which is responsible for encouraging debt in regualr citizens, which in the ends will just let the banks be consolidated and emboldened (with a gov share you can be sure they’ll get many future advantages), the dollar will naturally fall in value, and it should since the action will be tantamount to declaring that U.S.’ is just like all these lenders/buyers - irrevocably in perpetual debt, with not way out.

Will China and the Saudis buy America at firesale prices?

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9.

Ron Paul knows what's up
Sep 26, 2008 9:39 AM CST

http://www.ronpaul.com/2008-09-25/ron-paul-my-answer-to-the-president/

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10.

a voice in the wilderness
Sep 26, 2008 11:58 AM CST

Love your idea, jj!  But why stop at $1m?  If every man, woman and child were granted $1B, we’d still be ahead of the game!

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11.

DCEsq.
Sep 26, 2008 2:56 PM CST

Re: post #3 - Brad, dear fellow, do a little research before you blame the current financial crisis on Wall Street on “electing these democrats.”  I will assume your ignorance of the last 20 years’ worth of “current” events.  Otherwise, the only other plausible explanation is that you are a Republican, which would make your statements, dear fellow, a display of hypocrisy - though sadly not on the gargantuan scale of John McCain (but fairly close).

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12.

George Sly
Sep 27, 2008 10:40 AM CST

Our economy is in this mess because the lessons of 1929 were forgotten.  In 1929 we had massive bank failures and a credit crunch which resulted in the Great Depression which was also a major cause of the Second World War. 
Many of the regulations created in the 1930s to protect the banking system and the economy were eliminated in the last twenty-eight years.  We bought the ridiculous idea that the “market” was self-correcting and we created economic anarchy.  The result was the S&L debacle of the 1980s, the Enron and MCI et. al. corruption at the turn of this century and now the mortgage and banking crisis. 
Adjustable rate mortgages were unknown and probably illegal when I was young.  We also had usury laws. Twenty percent interest rates used to be charged by guys named Lenny the Shark not by banks.  Granted such laws limited who got credit and how much, but fewer people got in over their heads and the banking system worked.  We allowed all of these exotic investment vehicles like “mortgage backed” securities, without any regulation to insure the value of such securities,  allowed usurious interest rates and repealed the Glass-Steagal Act so that commercial banks could invest in the stock marke tusing their depositors’ money.  Now the system is collapsing.
We will be very lucky if we get away with spending $700 billion.  If we have to spend this money to avoid another Depression then we bloody well better put the regulations back in place so these fools cannot do this again in my lifetime.  Professor Santayana was right:  “Those who forget the past are condemned to relive it.”  Buddy can you spare a dime?

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13.

R F Flickinger
Sep 29, 2008 8:37 AM CST

The Feds created this mess - in order to spur the economy, Republicans and Democrats alike joined in passing bills requiring banks to lend money to persons who could not afford to repay the loans (cf. the Community Reinvestment Act).  When that was not enough, they directed Fannie May and Freddie Mac to guarantee mortgages for people who could not afford them.  Now they want to get us OUT of this mess??

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14.

aikanae
Sep 29, 2008 7:24 PM CST

Every person in the U.S. created this mess if they believed that sitting around in an easy chair collecting checks (dividends) was “hard work”.

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15.

tom
Oct 3, 2008 8:16 AM CST

The community reinvestment act is part to blame.

Another worry is why Fannie & Freddie are not held to the same accounting scrutiny as other private firms in a post-enron / sarbanes oxley era. You can youtube the video from ‘04 of repubs blowing the whistle on Fred & Fan and the Dem overseers flatly denying there is any concern or need for regulation.
Without turning this into a partisan blame game, it does call into question the oversight committe’s judgment on wanting LESS regulation for giant quasi governmental firms that have the potential to put our whole credit economy into a tail spin?

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