Friday, October 3, 2008

The Secretary of the Treasury is Now CZAR over the EERA of 2008



The appointment of the next Secretary of the Treasury just became far more important. An almost unnoticed provision buried in the gargantuan EMERGENCY ECONOMIC STABILIZATION ACT of 2008 (“EESA”) (passed as H.R. 1424) grants the Secretary of the Treasury god-like powers to create, oversee and manage the 700bn entrusted to his care.

The EESA passed the Senate, 74 – 25, on October 1, 2008. After 150bn of Christmas Ornaments were attached as bait, the House reversed course and passed it 283-171 on October 3, 2008.

When Secretary Paulson originally begged the House of Representatives for 700bn with his little 3 page Bill, the House objected, partially, because there was “no judicial oversight” of the Secretary’s actions.

Unless I missed something, Congress has passed (in its final version) a Bill that substantially insulates the Secretary from any meaningful judicial review. Congress has created some oversight to oversee (vaguely) what he invests in, when he sells managed assets and how much money is returned to the Treasury (if any) from those sales.

His actions, though, may not be challenged except for “abuse of discretion.” No (read that “No”) form of challenge may be lodged against him in any Court on equitable grounds. No (read that “No”) challenge may be filed in any Court with regard to Sections 101 (Sec. 101. Purchases of troubled assets.), 102 (Sec. 102. Insurance of troubled assets.), 106 (Sec. 106. Management; sale of troubled assets; revenues and sale proceeds) and 109 (Sec. 109. Foreclosure mitigation efforts) of the Act.

His actions may only be set aside if they are “unconstitutional.” While possible to craft such a constitutional claim against a sitting US Secretary, its technically unlikely. It’s the standard that was used to overturn the District of Columbia’s gun ban. That only took 10 years of litigation to the United States Supreme Court to obtain review on the standard of “unconstitutional.” Thus, practically, there is no judicial review of the Secretary of the Treasury’s actions.

Any judicial action seeking an injunction, whether temporary or permanent, is stayed before it begins. Gee, that is almost a standard of protection I have never seen before. Injunctions – dead on arrival.

If you take his money $$$$$, you give up your right to sue. If you are one of the companies, banks or investment firms that wish to sell your toxic assets to the Secretary, you waive any right to sue when you accept his money. That was a cool; it would be interesting to see if private companies or private citizens could ever obtain such legal immunity.

With regard to the little homeowner’s mortgage and related foreclosure – no effect; no legal bar. Any claims that could have been asserted are still there. Section 109 is just a bulletproof vest for the Secretary of the Treasury, not anyone else.

Oh, and its not mutual. The Secretary can sue you, but you can’t sue him back.

What a deal. Don't you just love rushed legislation.

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Here is Section 119 of the EESA:

SEC. 119. JUDICIAL REVIEW AND RELATED MATTERS.
(a) Judicial Review-
(1) STANDARD- Actions by the Secretary pursuant to the authority of this Act shall be subject to chapter 7 of title 5, United States Code, including that such final actions shall be held unlawful and set aside if found to be arbitrary, capricious, an abuse of discretion, or not in accordance with law.
(2) LIMITATIONS ON EQUITABLE RELIEF-
(A) INJUNCTION- No injunction or other form of equitable relief shall be issued against the Secretary for actions pursuant to section 101, 102, 106, and 109, other than to remedy a violation of the Constitution.
(B) TEMPORARY RESTRAINING ORDER- Any request for a temporary restraining order against the Secretary for actions pursuant to this Act shall be considered and granted or denied by the court within 3 days of the date of the request.
(C) PRELIMINARY INJUNCTION- Any request for a preliminary injunction against the Secretary for actions pursuant to this Act shall be considered and granted or denied by the court
on an expedited basis consistent with the provisions of rule 65(b)(3) of the Federal Rules of Civil Procedure, or any successor thereto.
(D) PERMANENT INJUNCTION- Any request for a permanent injunction against the Secretary for actions pursuant to this Act shall be considered and granted or denied by the court on an expedited basis. Whenever possible, the court shall consolidate trial on the merits with any hearing on a request for a preliminary injunction, consistent with the provisions of rule 65(a)(2) of the Federal Rules of Civil Procedure, or any successor thereto.
(3) LIMITATION ON ACTIONS BY PARTICIPATING COMPANIES- No action or claims may be brought against the Secretary by any person that divests its assets with respect to its participation in a program under this Act, except as provided in paragraph (1), other than as
expressly provided in a written contract with the Secretary.
(4) STAYS- Any injunction or other form of equitable relief issued against the Secretary for actions pursuant to section 101, 102, 106, and 109, shall be automatically stayed. The stay shall be lifted unless the Secretary seeks a stay from a higher court within 3 calendar days after the date on which the relief is issued.
(b) Related Matters-
(1) TREATMENT OF HOMEOWNERS' RIGHTS- The terms of any residential mortgage loan that is part of any purchase by the Secretary under this Act shall remain subject to all claims and defenses that would otherwise apply, notwithstanding the exercise of authority by the Secretary
under this Act.
(2) SAVINGS CLAUSE- Any exercise of the authority of the Secretary pursuant to this Act shall not impair the claims or defenses that would otherwise apply with respect to persons other than the Secretary. Except as established in any contract, a servicer of pooled residential mortgages owes any duty to determine whether the net present value of the payments on the loan, as modified, is likely to be greater than the anticipated net recovery that would result from foreclosure to all investors and holders of beneficial interests in such investment, but not to any individual or groups of investors or beneficial interest holders, and shall be deemed to act in the best interests of all such investors or holders of beneficial interests if the servicer agrees to or implements a modification or workout plan when the servicer takes reasonable loss mitigation actions, including partial payments.


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Hugh Wood, Atlanta, Georgia

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