Bailout to Be Funded by Selling off Retirement and Savings Bonds?

 I was browsing through the full text of the bailout plan and this part caught my eye:

For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.

I had to find out what “any securities issued under Chapter 31 of Title 31 of the United States Code” means, since I’m dying to know where the extra hundreds of billions of bucks is going to come from.  So I went and looked it up.  Dry stuff.  But they seem to be referring to all of the securities held by the US treasury, without exception.

(Admittedly, I had to look up “securities“, too, since all this financial stuff is gibberish to me.)

So does the scheme really involve selling (to private banks) three quarters of a trillion dollars worth of stable and marketable government assets – such as retirement and savings bonds and foreign debt certificates – in order to purchase (ostensibly from the same banks) three quarters of a trillion dollars worth of chaotic, unmarketable assets of questionable value? What does that mean? I don’t know! Maybe someone else can explain!  (Dad?)

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3 Responses to “Bailout to Be Funded by Selling off Retirement and Savings Bonds?”

  1. witetrashman Says:

    There’s a lot of money in this bailout deal being distributed behind a curtain of non-disclosure. As the plan stands, the government is not responsible for telling us where the money is coming from, or where it is going. Fear of total economic collapse is the selling point on this plan, and we’re expected to believe that it will solve our countries bad mortgage investments, which number in the trillions of dollars. It just doesn’t add up.

  2. apophaticattic Says:

    Hi witetrashman,

    I agree. The draft proposal appears to be a “concept” rather than a “plan.” The implications don’t fall under the ordinary rules of disclosure as I understand them. From an FOI perspective, in order for the government to be obligated to disclose any details, there needs to be a documented history of relevant documents and discussions.

    The “concept” seems to be that the Secretary of the Treasury should have unlimited, unregulated, discretionary access to public funds to rescue private enterprises with incomprehensibly large liquidity problems from collapse.

    I can see why that’s a great deal for investment bankers, but how (specifically) will it be a great deal for homeowners facing foreclosure? Why not spend that money guaranteeing the mortgage payments of homeowners and keeping them in their homes? That would serve the same purpose – mitigating the effect of the toxic mortgages choking the finance markets – but the people directly and immediately benefiting would be the ones facing imminent homelessness rather than the ones who have made years worth of multi-million dollar bonuses from idiotic lending practices.

  3. Neo-Logic Says:

    Hi Alceste,

    Good thread and I’m delighted someone actually took the initiative and time to do some research to back up their position. Good work!

    I hope this is one of the amendments that Congress addresses. Admittedly, that hope is a mere notion of luxury, given our precarious situation.

    As your research found, that portion of the draft is stipulating that both the costs for the logistics and implementation of the authorities are able to be funded by selling off any US treasuries – including but not only limited to – retirement and saving bonds, as you’ve mentioned.

    I should point out that while this is a scary proposition, it is one of the few options left. And just because they can do so, will not mean they will sell off the said securities of the Treasury. Yes, they could exercise the option to sell off securities, but the other option is to simply print more money and raise our national debt ceiling to cover the new sums of illiquid assets.

    Economically speaking, it is wiser to have both means. Having the choice to choose between inflation and selling actual assets to amortize costs is better than only having the choice of inflation and printing more money if that aforementioned option of liquidating our current assets to cover the costs.

    Technically speaking, there is no other way to raise more money. We either borrow, print, or sell. Here, we are choosing to utilize two options – print or sell. I believe it is better to have it and not need it than to need it and not have it.

    If printing money was the only option to cover the purchase of illiquid debts, that is no less evil for the reasons that inflation will make bonds worth less and less. So in essence, we can still have our bonds and assets, but their face value would be worth less than their real value. The end result is essentially the same – the tax payers will take the brunt of the blow.

    The only question is – how many mechanisms do we give our Treasury in order to deal with the problem. I would rather we give them both the option that would inflate and the option that would liquidate to raise capital.

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