During a time when most of the commentary and news “analysis” has been in favor of the Wall Street takeover plan, Rep. Brad Sherman of California was on Larry Kudlow’s CNBC show on September 30 to cite evidence that the legislation potentially “provides hundreds of billions of dollars of bailouts to foreign investors,” including those in Communist China.
The offensive provision is Section 112, “Coordination With Foreign Authorities and Central Banks,” which “Requires the Secretary to coordinate with foreign authorities and central banks to establish programs similar to TARP”―the Troubled Assets Relief Program.
In another strange twist, in order to get around the constitutional requirement that revenue raising bills must originate in the House, the Senate attached the Wall Street takeover plan to a House bill, the Paul Wellstone Mental Health and Addiction Equity Act of 2007. The socialist-style bailout passed 74-25 with one senator (the ailing Senator Ted Kennedy) not voting. Of the 25 opponents, 15 were Republicans.
Presidential candidates Senators Barack Obama and John McCain both voted for it.
Obama, perhaps the most radical candidate to run for president on a major party ticket, is coming in for strong criticism from supporters of Ralph Nader, who is running for the presidency on a third party ticket. An article on the Nader-for-president website says Obama has been fronting “for the most vicious predators on Wall Street.”
Those Senators voting against the legislation, known as the Emergency Economic Stabilization Act, were Allard (R-CO), Barrasso (R-WY), Brownback (R-KS), Bunning (R-KY), Cantwell (D-WA), Cochran (R-MS), Crapo (R-ID), DeMint (R-SC), Dole (R-NC), Dorgan (D-ND), Enzi (R-WY), Feingold (D-WI), Inhofe (R-OK), Johnson (D-SD), Landrieu (D-LA), Nelson (D-FL), Roberts (R-KS), Sanders (I-VT), Sessions (R-AL), Shelby (R-AL), Stabenow (D-MI), Tester (D-MT), Vitter (R-LA), Wicker (R-MS), and Wyden (D-OR).
During an appearance on the Fox News Channel, Senate Republican Leader Mitch McConnell of Kentucky said he supported the legislation and cited a conservative Heritage Foundation study in favor of it. The Heritage study, however, acknowledged constitutional problems with the legislation and warned that it threatened “centralization of power” in the U.S. Government.
McConnell’s colleague from Kentucky, Republican Senator Jim Bunning, doesn’t buy McConnell’s reasoning. “Since Treasury Secretary Hank Paulson first came to Congress with this plan I have opposed it,” he said. “And while some of the language and the length of this bill may have changed in the last week, it is still the same old bailout for Wall Street with a few extra sweeteners intended to buy off votes. In the end, this bill still puts the taxpayers on the hook for Wall Street’s losses and takes America’s free market system down the path towards socialism. I cannot and will not support that.”
One of the most surprising votes in favor of the plan came from conservative Republican Senator Tom Coburn of Oklahoma, who suggested in a statement that while the bill was not really so good, it was in line with other legislation passed by Congress.
“This bill does not represent a new and sudden departure from free market principles as much as it represents an emergency response to congressional actions that have ignored free market principles, and our Constitution, for decades,” he said. He vowed to “do everything in my power to ensure that this bill does not lead us down a slippery slope of European style socialism and slow economic growth.”
But the foreign bank bailout provision alarmed Senator Pat Roberts, Republican of Kansas, who said, “The plan permits taxpayer dollars to be used to buy assets of foreign financial institutions that have a presence in the United States. If U.S. taxpayer dollars are going to be put at risk, those dollars should be used to shore up U.S. based companies.”
Senator Elizabeth Dole of North Carolina alluded to this as well, saying in opposition that “It bails out foreign investors before American homeowners struggling to pay their mortgages.”
“It’s very clear,” Sherman explained on CNBC. “The Bank of Shanghai can transfer all of its toxic assets to the Bank of Shanghai of Los Angeles, its subsidiary, which can then sell them the next day to the Treasury. I had a provision to say if it wasn’t owned by an American entity, even a subsidiary, but at least an entity here in the U.S., the Treasury can’t buy it. That was rejected. The foreign markets are being told they’re getting the money.”
Sherman is a liberal Democrat. But the other guest on the show, Republican Rep. Paul Ryan, who supported the bill, did not dispute what he said. “It’s on purchases before March 18, 2008, and the assets there,” Ryan said. “It is for―if you had a U.S. subsidiary―you could sell them [the assets] because that’s clogging up the U.S. financial system.”
In a Sunday morning September 21 exclusive report, Mike Allen of Politico had broken the story, reporting, “In a change from the original proposal sent to Capitol Hill, foreign-based banks with big U.S. operations could qualify for the Treasury Department’s mortgage bailout, according to the fine print of an administration statement Saturday night.” That day, appearing on ABC’s “This Week” program, Paulson confirmed the change, saying, “If a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution.”
Asked if the bill was socialism, he admitted it was “big government intervention” in the economy.
On Monday, when 95 House Democrats voted against the bill, joining 133 Republicans, it went down to defeat. But it could come back on Thursday or Friday for another vote.
It is Sherman who is working hard to get other Democratic votes against the bill. Sherman’s number one concern, reported USA Today, “is that the bill would allow foreign banks to transfer toxic assets to their U.S. subsidiaries and unload them on American taxpayers. The bailout at first only applied to U.S. banks but was expanded to include foreign banks with U.S. operations.”
“Under the Bill,” Sherman explained in an October 1 release from his office, “the Administration can buy any asset from any financial institution for any price. Some think that only U.S. investors will be bailed out. Major foreign investors have already been assured that they can benefit from the bailout. Under the Bill, the Bank of China can sell a portfolio of toxic assets to a U.S.-headquartered investment bank on Monday, and that investment bank can then sell those same assets to the Treasury on Tuesday. The foreign financial press indicates that foreign investors are sure that they will get at least tens of billions of dollars.”
On the House Republican side, conservatives are attempting to persuade Reps. Paul Ryan and Eric Cantor to come out against the bill after they had supported it previously.
Rep. Jeb Hensarling of Texas, the chairman of the Republican Study Committee, the caucus of House conservatives, said that while Ryan and Cantor had helped improve the legislation by adding increased taxpayer protections and additional Wall Street accountability, “…mere improvement is not the test for support.”
He explained, “The test is whether, after weighing both the good and the bad, you believe that the plan ultimately leads America in the right direction. Using that test, I cannot in good conscience support this legislation.”
Hensarling had introduced the Free Market Protection Act (H.R. 7223) as an alternative economic plan.