Ilargi: We’ll open tomorrow with the news that JPMorgan has quintupled its offer for Bear Stearns. Meanwhile, Here’s Karl Denninger:
Articles of Impeachment? Bear Stearns Buyout Illegal?
"On or about March 16th, 2008, George W. Bush, both personally and through his Treasury Secretary Henry Paulson, caused to be provided to JP Morgan/Chase a bribe(1) ultimately flowing from the United States Treasury in an amount not to exceed $30 billion dollars US, via The Federal Reserve, in order to induce JP Morgan/Chase to assume the liabilities and assets of Bear Stearns and Company at a price not determined in the free market or via public bidding, in violation of the limitations expressly set forth in The Federal Reserve Act of 1913, 12 USC Ch 6."(1) Bribery is defined by Black's Law Dictionary as the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official or other person in discharge of a public or legal duty.
I have spent a solid week both reading The Federal Reserve Act of 1913 and thinking about the circumstances of this transaction trying to find a means under which "backstopping" Bear Stearns debt via The Federal Reserve is legally permissible.
Despite my best efforts I can't find explicit or implicit authorization for "a put", as differentiated from a loan, anywhere in The Federal Reserve Act. You can call something whatever you'd like but if in point of fact there is no recourse then it is not a "loan" at all; it is a "PUT" or a "conditional payment", and under The Federal Reserve Act such an action appears to these eyes to be a direct violation of the law.
It is widely reported that both Hank Paulson and George Bush personally "signed off on" The Bear Stearns "bailout" last Sunday. As such their direct and indirect actions, in my view, constitute a "High Crime and Misdemeanor" within the meaning of the United States Constitution and therefore subject George W. Bush to impeachment proceedings as proposed in the above sample article for same.
By the way, I'm not the only one who thinks this is an illegal transaction. John Hussman, of The Hussman Funds, has this to say in a letter with a publication date of tomorrow, March 24th:
"In my view, the deal would be palatable if J.P. Morgan was to remain fully responsible for any losses on the 'collateral' provided to the Federal Reserve, assuming shareholders were to consent to the buyout. As it stands, Congress should quickly step in to bust the existing deal and demand an alternate resolution, by clearly insisting that the Fed's action was not legal.
The Fed did not act to save a bank, but to enrich one. Congress has the power to appropriate resources for such a deal by the representative will of the people – the Fed does not, even under Depression era banking laws. The 'loan' falls outside of Section 13-3 of the Federal Reserve Act, because it is not in fact a loan to either Bear Stearns or J.P. Morgan. Bear Stearns is no longer a business entity under this agreement. And if the fiction that this is a 'loan' to J.P. Morgan was true, then the only point at which the 'collateral' would become an issue would be in the event that J.P. Morgan itself was to fail. No, this is not a loan. It is a put option granted by the Fed to J.P. Morgan on a basket of toxic securities. And it is not legal."
Finally, it appears that even the SEC Chairman, Christopher Cox, isn't sure that Bear was "done"; that is, this entire transaction might smell like dead fish:
"In what is likely to be a bit of a blockbuster, SEC chairman Christopher Cox sent a letter to Swiss regulators indicating the Bear Stearns (NYSE:BSC) did not have to go the way of all flesh. According to The New York Post "the fate of Bear Stearns was a lack of confidence, not a lack of capital," Cox, the head of the Securities and Exchange Commission, wrote in a five-page letter sent to a Swiss regulator.""
So there you have it.
Now, the question is, do our Congressfolk have the necessary will to stop this raiding of the public treasury for the enrichment of a private firm - if necessary, by bringing the above article of impeachment?
If you think they should, then I have a solution for you.
to Congress for the purpose of raising debate on this exact issue and stop the mockery of our legal and regulatory systems.
PS: I'm a lifelong registered Republican, voted for George W. Bush twice, and have one of Gingrich's "Speaker's Gavels" on the credenza behind my desk, so before you go accusing me of being a "leftwing nutjob", think again. Nonetheless, what's right is right and I must stand for what's just, and when the political party I am a member of does something wrong, they must admit to it and face the consequences. Sorry Mr. President; I like you a great deal, but what happened here was, in my opinion, blatantly unlawful. The $30 billion "backstop" must be rescinded until and unless Congress explicitly authorizes that act through legislation and you sign same.