"As with any contract, the parties to the agreement may modify the covenants by mutual agreement only.”

-Treasury Secretary Hank Paulson


Hank Paulson’s God Complex just got bigger. The Director of Government Bailouts, and head of the Socialism Departmant at Treasury has informed Congress to back off his turf.

"All your legislation belongs to us!"

Now, last I checked, it was Congress that had the power of authorization disbursements, and that Treasury does not have the authority to spend 5.3 trillion dollars. Comrade Paulson does not seem to understand the way the different branches of government work in the United states, and is apparently unfamiliar with a little parchment called the Constitution. Perhaps we can get Ron Paul to explain how these things work to our friend from the People’s Republic of Goldman.

Bill King: "Hank is trying to euchre the market into believing that if Congress tries to change the law, the executive branch would then sue Congress for breach of contract.  Good luck with that at the Supreme Court." Nice try, comrade, but no such luck.

The issue here is authorization. I cannot write a contract to sell you home, car, etc to a third party, without your authorization. Otherwise, its fraud. The party with the legal title and ability to convey those goods or services on the one side, or indebtedness or money on the other side of the transaction requires authorization.

The original Bazooka legislation did not give Treasury a blank check to do whatever they want. A decision, for example, to add Fannie and Freddie to the budget "wouldn’t
automatically translate into explicit government backing for the
companies’ combined $1.7 trillion in unsecured debt and $3.5 trillion
of mortgage guarantees."
To do so requires Congressional legislation to change the companies’ legal status. That’s where any of the changes — like reducing the absurd pay packages for the current idiots running Fannie/Freddie — would come in.

Here’s Bloomberg’s excerpt:

"The U.S. Treasury said Fannie Mae and Freddie Mac’s debt and mortgage-backed securities are "protected” by the government’s stock purchase agreement that put the mortgage finance companies under federal control.

"The holders of senior debt, subordinated debt, and mortgage-backed securities issued or guaranteed by these GSEs are protected by the agreement without regard to when those securities were issued or guaranteed,” the Treasury said today, referring to the so-called government-sponsored enterprises.

The federal government took over the two largest sources of money for U.S. home loans on Sept. 7, placing them under conservatorship and establishing procedures for buying their senior preferred stock if liabilities exceed assets.

The federal takeover didn’t address whether the companies’ $5.2 trillion in debt should be included in the budget, or whether it carries an explicit government guarantee. In an interview this week with Bloomberg Television, Treasury Secretary Henry Paulson cited "incongruities” in the law, saying "we should be clear, is there a government guarantee or isn’t there?”

I do not believe Treasury has purchased any stock yet, but that can change in an instant. Long live Bailout Nation!



Treasury Says Fannie, Freddie Accord Protects Debt
Rebecca Christie
Bloomberg, Sept. 11 2008

Category: Bailouts, Credit, Legal, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

45 Responses to “Paulson: Congress Has No Authority Here”

  1. Byno says:

    “All your legislation ARE belongs to us. You have no chance make your time” etc.


    Barry! Long time no write. Keep fighting the good fight.

  2. JAN says:

    Byno! you beat me to the correction”

    “All your legislation are belong to us!”

    I’ll add:
    “I, for one, welcome our new Treasury overlords”

  3. John says:

    Paulson is an Constitutional expert. He found all the missing pages as he was cleaning up his office. He discovered that the Treasury Sec. is the head of M & A for the federal government.

  4. Well, This morning, Ford is up in the futures, after they announced Federal Lending to the Auto Industry of up to $25,…….
    couldn’t remember how many zero’s because I’m not fully awake. I want to know where the line forms – I’m ready to get in line, as is every other entity.

  5. CNBC Sucks says:

    I don’t know about you guys and gals, but lately I have been thinking a lot about what it must have felt like as a Jew (or any free and clear thinking German) during the last stages of the Weimar Republic. And unlike many of you, I was a Republican.

    This is scary stuff.

  6. Unscripted Thoughts says:

    Thanks for the belly laugh! That is (or should that be are?) some funny sh!t.

  7. MikeBC says:

    A little irony here–I looked up the contract clause of the US constitution to see if it actually did what Paulson says it does but it only applies to the states–but look why it was included in the constitution here:

    Quote from Wikipedia:
    The framers of the Constitution added this clause due to fear that states would continue a practice that had been widespread under the Articles of Confederation—that of granting “private relief.” Legislatures would pass bills relieving particular persons (predictably, influential persons) of their obligation to pay their debts. It was this phenomenon that also prompted the framers to make bankruptcy law the province of the federal government.
    During and after the Revolution, many states passed laws favoring colonial debtors to the detriment of foreign creditors. Federalists, especially Alexander Hamilton, believed that such a practice would jeopardize the future flow of foreign capital into the fledgling United States. Consequently, the Contract Clause, by insuring the inviolability of sales and financing contracts, encouraged an inflow of foreign capital by reducing the risk of loss to foreign merchants trading with and investing in the former colonies. (See generally James W. Ely Jr., The Guardian of Every Other Right (Oxford Univ. Press 1998).)

    The more things change . . .

  8. Sam Jacob says:

    Are we becoming USSA (United Socialist States of America)?

  9. km4 says:

    > Are we becoming USSA (United Socialist States of America)?

    Yes and perhaps even USSA banana republic if McSame manages to pull off the ruse

    Comrades Bush, Paulson and Bernanke Welcome You to the USSRA (United Socialist State Republic of America)


    Right on the heels of nationalization of Fannie and Freddie we now get these assclowns helping Lehman to further the USA into the USSRA (the United Socialist State Republic of America).

    Socialism is indeed alive and well in America; but this is socialism for the rich, the well connected and Wall Street. A socialism where profits are privatized and losses are socialized with the US tax-payer being charged the bill of $300 billion ( and growing even more ).

    Vote McSame if you want to turn America into the USSRA banana republic.

    Vote Obama if you want the United States of America.

  10. km4 says:

    Constitutional law is the study of foundational or basic laws of nation states and other political organizations. Constitutions are the framework for government and may limit or define the authority and procedure of political bodies to execute new laws and regulations.


    Obama is a subject matter expert and respects it
    McCain needs lackeys to interpret for him but will likely abuse it like Bush
    Biden understands and respects it
    Palin is clueless and an abuser

  11. christofay says:

    km4, that’s a print out and clip out and save in the wallet.

  12. tulsatime says:

    Y’all be careful with them Wiki references. I have it on good authority that Barry is very anti-Wiki, because he has discovered how ‘they’ are financing their nefarious plot to run down our grate nation. I seed it over on Kedrosky’s page.


  13. christofay says:

    tulsa time, a good Clapton tune

  14. I don’t think that Paulson’s actions ARE unconstitutional. As far as I know, Fannie and Freddie as GSEs were backed by the US Government. Legislation MUST have been passed at some point by congress decades ago that gave the Treasury the power to act in this way if necessary.

  15. Mike in NOLa says:

    Even CNBC is now asking where the line forms.

    We have had 8 years of people who did not understand the separation of powers and almost as long with a Congress who did not. The Dems may, but they still seem to acquiese any time the word “terrorism” is used.

    All this is the result of an “MBA president”; he may know business (although his track record in the private sector does not show it), but he has no idea of the philosophy of our government.

    Nixon, as crazy/bad as he was, still had a basic respect for the Constitution. He violated it, but at least felt guilty.

    CNBC saying the spread on Lehman stock is $1 on a $4 stock.

  16. grumpyoldvet says:

    Hey, if Bush/Cheney can claim “unitary executive” why can’t Paulson….after all Congress has allowed the concept of “unitary executive” to go unchallenged for almost 8 years.

  17. BG says:

    What makes our situation all the more dire is that nearly all players are hedging on the extent of the damage already done.

    It’s like the game of L!ar’s P0ker, where all players l!e but at the same time know all the other players are lying as well. What makes this game fun is that it ends quickly as all players must see who’s bluffing and who was actually holding their bet.

    In this global game of L!ar’s P0ker now under way, true…everyone was lying;however, NO ONE is actually holding the cards to support their bet. That would be the Treasury, the Fed and the US Congress.

    Lastly, I read somewhere this morning where the question was asked, “Why is debt protected, while equity is sacrificed?”. Since our entire way of life is now built on debt, if the risk to holding US debt starts increasing significantly…we are all dead. That’s is the real reason why debt is protected at all cost. When you are looking at supporting $10T to $11T in debt, single digit moves in rates (basis points) mean BIG bucks.

  18. cuzin chris says:

    I believe that should read: “All your legislation are belong to us!”


  19. Winston Munn says:

    Vote “Pit Bull” Palin and stop them Ruskie Commies before them dominoes is falling down some more.

    God Save the Queen. Amen.

  20. Somebody set up us the bailout

  21. Rob P says:

    I for one am GLAD to see this kind of frustration setting in! Lets me know that sides are beginning to form and from arguements/stubborness/fighting the truth and best action (not just a quick fix) will happen.

  22. Donkei says:

    Trustees of Dartmouth College v. Woodward, 17 US 518 (February 2, 1819):

    “If these are not essential changes, impairing the rights and authorities of the trustees, and vitally affecting the interests and organization of Dartmouth College, under its old charter, it is difficult to conceive what acts, short of an unconditional repeal of the charter, could have that effect. If a grant of land or franchises be made to A., in trust for special purposes, can the grant be revoked, and a new grant thereof be made to A., B. and C., in trust for the same purposes, without violating the obligation of the first grant? If property be vested by grant in A. and B., for the use of a college, or an hospital, of private foundation, is not the obligation of that grant impaired, when the estate is taken from their exclusive management, and vested in them in common with ten other persons? If a power of appointment be given to A. and B., is it no violation of their right, to annul the appointment, unless it be assented to by five other persons, and then confirmed by a distinct body? If a bank or insurance company, by the terms of its charter, be under the management of directors, elected by the stockholders, would not the rights acquired by the charter be impaired, if the legislature should take the right of election from the stockholders, and appoint directors unconnected with the corporation? These questions carry their own answers along with them. The common sense of mankind will teach us, that all these cases would be direct infringements of the legal obligations of the grants to which they refer; and yet they are, with no essential distinction, the same as the case now at the bar.

    In my judgment, it is perfectly clear, that any act of a legislature which takes away any powers or franchises vested by its charter in a private corporation, or its corporate officers, or which restrains or controls the legitimate exercise of them, or transfers them to other persons, without its assent, is a violation of the obligations of that charter. If the legislature mean to claim such an authority, it must be reserved in the grant. The charter of Dartmouth College contains no such reservation; and I am, therefore, bound to declare, that the acts of the legislature of New Hampshire, now in question, do impair the obligations of that charter, and are, consequently, unconstitutional and void.”

    >A case pretty close to being on point re Paulson that was one of the Supreme Court’s first interpretations of the contracts clause.<

  23. Blackhalo says:

    “Somebody set up us the bailout!”


  24. MikeBC says:

    Donkei that’s a case about state legislative action not federal government action.

  25. Clint Golden says:

    Can any of the readers out there tell me if the yield on the Freddie and Fannie Notes were significanty higher then the Treasury yield at the time of a particular tissuance/Series? And, if they were, why? Shouldn’t they have been only a couple of basis points over Treasuries? Afterall, supposedly there was minimal risk because they were supposedly backed by the full faith and (voodoo) credit of the USG.

    I’m just wondering as a regular Joe.

    Also, I found on the Internet at the Fannie Mae web site a .PDF file of the Indenture/Prospectus for Fannie Mae Investment Notes Universial Debt Facility and on the first page in bold black letters it says, “The Notes, together with interest thereon, are not guaranteed by the United States and do not constitute a debt or obligation of the United Ststes…”

    Given that, why is the USG expected to pay for the bad investment decisions of China, Japan or Russia, or some individual who under the same circumstances if the relationship were reversed would say, “Tough. You lose. The risk of loss was clearly laid out in the Prospectus and if you didn’t make it your business to read it, it sucks to be you.”

    Will this turd Paulson send me a check for the money I lost in Armstrong World Industries Prefered when they filed Chap. 11 to avoid Asbestous litigation?

    I’m just askin’.

  26. Byno says:

    In AD 2007
    Chaos Was Beginning
    US Consumer: What happen?
    BR: Somebody set up us the financial time-bomb
    Byno: I get signal
    US Consumer: What?!?
    BR: Big Picture turn on
    US Consumer: It’s you!!!
    Hank Paulson: How are you!! All your mortgage are belong to us. You are on the way to destruction
    US Consumer: The fuck you say?!?
    HP: You have no chance make your time. Hahahahaha.
    US Consumer: Take off Barry Obama. You know what you doing. GoBama. For Great Justice.

  27. Stuart says:

    State Capitalism. Look it up. It explains so much of the market behavior and behavior of the key participants, such as Paulson….

  28. Donkei says:


    Granted, it concerns state action, but the principle regarding impairment of contracts by adjustment of government charters is the same.


    If we did that, kiss our ability to borrow money to buy the oil we need goodbye.

  29. David Merkel says:


    1. Congress could modify this. They have the authority to do so.

    2. So far, the US has not explicitly guaranteed Agency debt. The guarantee is implicit… Paulson knows this, and is jawboning to strengthen the implicit guarantee. Making the guarantee explicit would require an act of Congress.

    3. Paulson has yet to buy MBS or agency debt, which would count against the debt ceiling, so if FNM and FRE are brought on budget, it would be notional, kinda like what we do with Social Security and Medicare, which go on or off as a matter of political convenience, not legality.

    4. Paulson controls the GSEs through FHFA. He has an option on equity ownership if he wants to buy those rusty tubs. Even that would not require consolidation of the debt. Government accounting does not follow GAAP.

    5. So, in short, Paulson has followed the law so far. He has implied more through his talk, but has not been able to do more. Agencies are still Agencies, not Treasuries. Congress, should it awaken, can still act and change things.

    The Constitution is still in place, though tattered it may be…

  30. Stuart says:

    Donkei, we haven’t got a chance to pay it back anyways. We’re already borrowing money from abroad to pay the interest on previously borrowed money from abroad. If you did that with your credit cards, tell me how that would work out for you. Hence the need for fictitious economic data to hide that little skeleton.

    Oh ya, as the unfunded liabilities, think HUGE credit card balance hidden in top drawer, comes due in ever larger installment payments… TILT! Default or Print.

  31. Mean Mistard Mustard says:

    I am sure this will be all be fixed by the straight shooting country bumpkin Sarah Palin!

    Shouldn’t all four on the major party presidential tickets be grilled about what they think of all this bailout stuff?

  32. Bob A says:

    just a little repricing of risk

  33. Donkei says:


    Of course we have the money to pay it back–so long as we’ve got ink, paper and printing presses.

    Monetization of the debt is obviously where all this is heading, but we have to pretend for a while that we really mean to make good on our promises.

    Once the world refuses to buy our promises anymore, the only thing that will save us is that we’ve still got nukes. Go long uranium.

  34. Mike in NOLa says:


    From my recollection they have yielded a good bit more than treasuries for the past few years at least. I was several times tempted to put some of my wife’s IRA into them, but being conservative, did not because Fannie and Freddie were such fiscal wrecks. Of course, I was a fool. Those who do not bother with risk are making out like bandits.

  35. mbviews says:

    call me crazy… but I thought you had to PAY for stock to take over a company. Paulson didn’t want to pay (after all, THAT would be a “takeover” or nationalization). So, instead he just TOOK the shares in a “bailout”. Welcome to socialism.

  36. vic says:

    I read on the web today that if f&f failed, 1.5T of CDS would be triggered and who knows at what price. It would have bankrupt many issuers of the CDS. By taking control of the firms, the CDS were triggered but very close to par value. maybe once all the contracts are settled the deal blows up and note holders lose, but the CDS gun powder has all been spent.

  37. Whaa? says:

    I believe I read Ms Palin saying the bailouts are good news because F&F WERE costing the taxpayer too much money!

    She’s either thick as pig shit or a complete liar… probably both.

  38. Richard Kline says:

    Paulson’s attitude is diagnostic of the Bushies and their inner orbitals: they talk patriotism, but they don’t walk it. Instead, he and they have a total contempt for the instututions they were sworn in to maintain and administer. It’s almost, . . . almost un-American, is what it is, to resurrect a bad old phrase which in this case applies far more than previously.

  39. tom a taxpayer says:

    On Thursday four Democratic senators urged the mortgage companies Fannie Mae and Freddie Mac to “temporarily” freeze foreclosures on loans they hold. This Congressional meddling into Paulson’s bailout deal is why the Japanese and others may not believe Treasury Undersecretary David McCormick’s assurances about the Fannie Mae and Freddie Mac. The ink isn’t even dry on the deal, and Congress can’t wait to meddle. There is no crisis so bad that Congress can not make it 100 times worse when it tries to fix the crisis.

  40. euthyfro says:

    Whoa guys, slow your roll…
    Socialism has never & will never have anything in common with stealing from poor workers to enrich already wealthy exploitive corporations.
    I don’t know who the double-agent that introduced the “socialism for the rich” oxymoron is, but he & his capitalist masters are sharing a laugh at all the “progressives” being raped by fascist economic policies while calling those policies their opposite. How about instead of whining about a need for “effective regulation” of the profit driven banking industry we all demanded the right to make loans at a low fixed interest rate directly from a government that has plenty of liquidity from shutting down & seizing the assets of the criminal derivatives & securities market? That could accurately be called a “Department of Socialism”.

  41. Eric says:

    Can’t resist referencing this old interview:

    “Rowan Gaither was at that time president of the Ford Foundation. Mr. Gaither had sent for me when I found it convenient to be in New York, asked me to call upon him at his office, which I did, and on arrival after a few amenities, Mr. Gaither said: “Mr. Dodd, we’ve asked you to come up here today because we thought that possibly, off the record, you would tell us why the Congress is interested in the activities of the foundations such as ourselves.” Before I could think of how I would reply to that statement, Mr. Gaither then went on and said: “Mr. Dodd, all of us who have a hand in the making of policies here have had experience operating under directives, the substance of which is that we shall use our grant-making power so to alter life in the United States that it can be comfortably merged with the Soviet Union.


  42. skulz fontaine says:

    A foggy day in Wall Street town. Which is a reasonably good thing as the touristas can’t see the bankers jumping from the windows. Bye bye Ms. American Slice of the Financial Pie!

  43. Nick says:

    Since when have Constitutional limitations of power actually limited the power of unelected government employees? Especially in times of financial meltdown.

    Anyway, all of this is entirely in line with the US Constitution. “General welfare” clause, “interstate commerce,” “unitary executive,” and so on.

    -Bailing out banks protects the American citizen from the negative consequences a financial collapse would engender – general welfare.
    -The movement of money across state lines – interstate commerce.
    Congress has no authority as the Treasury -Secretary is nominated by the President and only confirmed by Congress – unitary executive.

    In conclusion… you can’t give government a document that is originally designed to limit its power… and then give that same government the power to interpret its powers under that same document. This is what happens — everything is constitutional.

  44. T says:

    NWO right on schedule:

    Secret “closed door” meeting with Congress
    Liveleak.com ^ | March 14th, 2008 | Liveleak

    Posted on Monday, March 31, 2008 6:40:27 PM by RobRoy

    Sent: Friday, March 14, 2008 4:20 PM Subject: CLOSED Congress Session Last Night: Only 4th Time In 176 Years !


    This was only the fourth time in 176 years that Congress has closed its doors to the public. What was it that they were discussing that they do NOT want us to know about?

    Word has begun leaking from last nights special, closed-door session of the United States House of Representatives.

    Not only did members discuss new surveillance provisions as was the publicly stated reason for the closed door session, they also discussed:

    1. the imminent collapse of the U.S. economy to occur by September 2008,

    2. the imminent collapse of US federal government finances by February 2009,

    3. the possibility of Civil War inside the USA as a result of the collapse,

    4. advance round-ups of “insurgent U.S. citizens” likely to move against the government,

    5. the detention of those rounded-up at “REX 84″ camps constructed throughout the USA,

    6. the possibility of retaliation against members of Congress for the collapses,

    7. the location of “safe facilities” for members of Congress and their families to reside during expected massive civil unrest,

    8. the necessary and unavoidable merger of the United States with Canada (for its natural resources) and with Mexico (for its cheap labor pool),

    9. the issuance of a new currency – THE AMERO – for all three nations as the proposed solution to the coming economic armageddon.

    Members of Congress were FORBIDDEN to reveal what was discussed. Several are so furious and concerned about the future of the country, they have begun leaking info. More details coming later today and over the weekend.

  45. gmathol says:

    Sends a clear message to foreigen investors: stay out of the US.