Wednesday, September 24, 2008

The NewRTC: Jupiter Size Me!

After President Bush’s address to the nation on Wednesday night September 24, 2008, I am more convinced that the coming NewRTC will be (if compared to a planet in out solar system) the size of Jupiter. This is no Pluto (planet?) this is no Mercury, this massive shadow casting new federal agency is Jupiter.

The numbers defy human understanding. Consider: England as we know it was founded by force in the year 1066 (The Battle of Hastings). 942 years have run off the clock to today. If British Kings spent 2 million dollars (its an analogy, ok) everyday from 1066 to the present, they would not have paid out the amount of money that Congress is prepared to appropriate for The NewRTC1. Think of it: Everyday, $2,000,000.00. Tick. Tick. Tick. They have not consumed 700B dollars by September 24, 2008.

It’s coming. Bush is behind it. The US Treasury and Federal Reserve are behind it. Both the House and Senate are close to a proposed bill. Candidate McCain is behind it. Candidate Obama says we must act on something, now.

Less than a month ago, U.S. Rep. Barney Frank was ridiculed for proposing the very thing the Bush Administration says is mandatory.

U.S. Rep. Barney Frank, D-Massachusetts, who will hold hearings on the subject this week, The Washington Post reported Tuesday, was laughed at sixth months ago when he talked-up redeploying the RTC, or a new, modified agency to buy the bad assets and/or the mortgages / bonds associated with them. Few lawmakers are laughing now. The RTC can buy distressed debt at fair market value and help keep hundreds of thousands of citizens in their homes, and in the process preserve businesses, and perhaps, whole local economies. FoxNews

I thought the 1989 RTC was the model from which all bailouts should be measured. Looking backward further into history, it appears that this bailout might be likened to the granddaddy of all bailouts, the Reconstruction Finance Corporation or 1932. It was created in the last gasp of the Hoover Administration and turned over to FDR.

Reconstruction Finance Corporation (RFC), former U.S. government agency, created in 1932 by the administration of Herbert Hoover. Its purpose was to facilitate economic activity by lending money in the depression. At first it lent money only to financial, industrial, and agricultural institutions, but the scope of its operations was greatly widened by the New Deal administrations of Franklin Delano Roosevelt. It financed the construction and operation of war plants, made loans to foreign governments, provided protection against war and disaster damages, and engaged in numerous other activities. [It disbursed $1.5 billion in 1932, $1.8 billion in 1933, and $1.8 billion in 1934. Wiki] In 1939 the RFC merged with other agencies to form the Federal Loan Agency, and Jesse Jones, who had long headed the RFC, was appointed federal loan administrator. After Jones became (1940) Secretary of Commerce, Congress transferred (1942) the RFC to his department. The Columbia Electronic Encyclopedia, 6th ed. Copyright (c) 2007, Columbia University Press.

As a Real Estate Litigator this NewRTC looks to me like a whole new economic continent to be explored and savored. The legal vista is wide as the eye can see.

As a taxpayer, I am more circumspect. I cannot bring myself to approve giving the US Treasury a blank check for 700B dollars – imminent peril or not. Maybe I am a running contrary to my personal economic interests as a lawyer who stands to gain from this gargantuan new bureau; however, this hysteria strike me as part “The Sky is Falling,” Chicken Licken and, someone else’s ox will be gored in the Financial World if Congress does not act "now!". The last time we spent 500B dollars in a few days, the world was ending based on one country’s possession of weapons of mass destruction (and I am a member of their political party). The world did not end, but out 500B ended.

Again, it’s too much money going out with too little oversight – too fast. Give them 10B to 50B in increments to keep the sky from falling, but don’t give them 700B in one week. By writing this, at least I can tell my grandchildren that I urged restraint.

At this breakneck speed, we may have a new improved, fully funded, NewRTC by this weekend. Gee, don’t we just love the smell of new money on those newly minted carpets.

Hugh Wood, Atlanta, GA

1 $700,000,000,000.00/343,830 days = $2,035,889.00.

1 comment:

Hugh Wood said...

PostScript: It seems the NewRTC will be named The OFS.