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Is there a "Bailout Clause" in the U.S. Constitution???

By sleepin'dawg ·
There isn't, but there is a Bankruptcy Clause (Article I, Section 8, Clause 4).

The framers of the U.S. Constitution specifically anticipated that the nation would encounter economic troubles from time to time. So they gave Congress the power to enact bankruptcy laws, as opposed to ?bailout? laws. And throughout U.S. history, the various economic ?Panics? ? which occurred every couple of decades ? always led to one direction or another in the evolution of state and federal bankruptcy laws. Hey, bankruptcy works.

At times in U.S. history, the bankruptcy laws favored the creditor class. During other times, the bankruptcy laws favored debtors. The point is that the economic hardships were eventually manifested in bankruptcy proceedings.

Just as all rivers flow to the sea, bad debt must find its way to discharge. So bankruptcy court was where judges and attorneys and other financial experts (like accountants and actuaries) could deal with each case on the merits. The problems could come to some sort of resolution. Some people came out OK. Other people lost everything. But capital flowed from weak hands to strong hands, and the economy moved along.

Why Not Bankruptcy Process?

But not today. Indeed, according to the New York Times many law firms ? including firms that focus on bankruptcy work ? are actually scaling back and laying off staff. Why is that? Why are the politicians so eager to avoid seeing companies go into bankruptcy? The government is trying to solve the problems of gargantuan levels of debt ? along with chronic insolvency and illiquidity within the economy ? without resorting to the constitutional-based legal mechanisms and tools that have served the nation well for over 200 years.

Consider the problems of derivatives. Few understand them. Many so-called derivative ?contracts? are little more than mathematical formulae based on a series of futuristic occurrences that are entirely speculative. Their initial value in the best of times was entirely somebody?s guess. So is it any surprise that it is all but impossible to place a value on such things during the throes of a recession? Yet derivatives are some of the ?troubled assets? that the Treasury is attempting to bail out. This is ridiculous!

Why is the Treasury allowing even one dollar of taxpayer money to get near a derivative? Why not use the bankruptcy process in this kind of situation? The companies that hold unsalable derivatives should have to go into a Chapter 11 proceeding and let a bankruptcy court sort it out. If the derivatives have value, let someone say so ? under oath ? in front of a federal judge. If the derivatives are worthless, let the judges do what we pay them to do ? void the instruments and allocate the losses.

Sure, bankruptcy cases take time to roll through the courts. But could Chapter 11 bankruptcy be any worse than the current drip-drip-drip, hemorrhage of funds into the black hole of the likes of AIG? And at least some bankruptcy judge might just put a stop to the AIG exploits of taking nice vacations to exotic resort locales.

Or what about the U.S. automobile industry? Now the domestic carmakers want some of that TARP money too. Or else what? They?ll have to file for Chapter 11? Yeah? And then?

Well on the day that the automakers file for bankruptcy, the automobile factories will still be there. The patents and designs aren?t going anywhere. The workers and design teams will stick around for a while ? it?s not like there are a whole lot of other jobs out there, except maybe raking leaves in leafy suburbs.

It seems to me that General Motors, Ford or Chrysler ? without the legacy costs of pensions and health care and featherbed contracts for non-working union members ? would actually be a decent investment for a Debtor-in-Possession (DIP) form of financing. Any DIP-lender worth its salt would certainly go into the management suites to take names, kick *** and get rid of the deadwood. And over the long term, if U.S. automakers actually paid more for steel than they have to pay for retiree health care, then we might actually see a revival of that industry.

At present we are losing time and once time is gone, it is gone forever. It is the same thing with the declining U.S. and world economies. The world?s central bankers and treasury ministers dither, and squander capital into bottomless pits of a deflationary recession.(and dare we say it? Perhaps Depression)

But the great villain in all of this is debt, pure and simple. And much debt is just a collection of bizarre debt instruments, exotic forms of speculative contracts, and obligations so massive that they will never be repaid. So why prolong the agony? Liquidate it now. Let the bankruptcy courts do what the framers intended.

Dawg ]:)

Ah, they're all probably saying Ol' Sleepin' Dawg is runing on about the U.S.Constitution again,?as if anyone gives a damn, or pays attention to that ol? thing.

In these heady days of government bailouts and money creation, bringing up the Constitution is like quoting scripture at a bacchanal, or farting in church.

Would anyone be willing to take odds that Congress and our next President will continue to pretend the Constitution doesn?t really exist?


Dawg ]:)

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Well.....

by JamesRL In reply to Is there one in the Canad ...

Given that Canada has 10% of the population of the US, and therefore is 10% of the market, maybe it should be 10% of what Congress gives....

The government is still smarting from giving GM some billions years back for investing in new plant, on the understanding it would be net new jobs, and one year later they close the old section of the plant layoff the workers and have fewer employees than before. The government feels like they were swindled, and I understand why they feel that way. Nevertheless the government will end up doing something, but they are waiting for the US package to set the precedent.


James

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It's fascist economy

by jkameleon In reply to Is there a "Bailout Claus ...

"the State pays for the blunders of private enterprise... Profit is private and individual. Loss is public and social."

(Gaetano Salvemini, Under the Axe of Fascism 1936)

http://www.questia.com/library/book/under-the-axe-of-fascism-by-gaetano-salvemini.jsp

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I'ts Not About the Constitution

by TheChas In reply to Is there a "Bailout Claus ...

The present bailout cycle which started with the big banks is not about what is Constitutional. It is about keeping the politically connected from facing the results of their errors.

Besides, since when has the Bush administration worried about what is or is not Constitutional.

Aside from who is helped out by what method of Federal bailout, the US economy has become much like the game Jenga. You have to take apart your foundation in order to make the tower taller.

The US economy no longer has a strong foundation of low level manufacturing jobs to hold up and support the rest of the economy. Without a firm foundation, any strong ill winds threaten to bring down the entire economy.

The Fed is now in the process of shoring up the areas where the structure is about to collapse. The problem is that since there is no foundation, as you shore up one area, another area weakens.

My big hope in all this is that we do not find out in a few years that there was no actual crisis, and the bailout was just another way to help out those with political connections.

Chas

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It's ALL about the Constitution

by maxwell edison In reply to I'ts Not About the Consti ...

Or at least it should be. Otherwise, people in Michigan will trample all over it in favor of their own best and selfish interest.

P.S. Michigan might be the poster boy that illustrates the failure of the collectivism mind-set.

P.P.S If you want proof as to why NOT to do something, Michigan is all you need to see.

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No, it IS all about the Bush Legacy

by TheChas In reply to It's ALL about the Consti ...

The bailouts for the financial and auto industries are nothing more than than diversions to keep the US economy from going into total collapse before Bush leaves office.

Not that that will stop history from placing blame on the Bush administration for both destroying the US economy, and ignoring the Constitution.

If you read my comments in the Wal-Mart thread closely, you will see that my support for any bail-out for the big 3 is limited. I would even go as far as to say that except for those citizens of Michigan who are either employed by the auto industry, dependent on auto-worker spending for their livelihood, or part of government, there is a strong opinion that the auto industry SHOULD be forced into bankruptcy rather than given a bail-out.

While there is now way to prove this, I firmly believe that GM in particular would still be in deep trouble even if their burdened labor cost was half that of Toyota.

Blaming only the UAW for the problems in the US auto industry is sort of like blaming the security enhancements for the low upgrade rate for Vista. While both are contributing factors, neither stands on it's own as the root cause.

Chas

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This IS about the UAW

by plymouth In reply to No, it IS all about the B ...

If this can be laid at the feet of George Bush, then it can be laid at the feet of the current Congress.
I support neither.
The fault, or responsibility, lies at the feet of greedy union officials, as greedy corporate heads and above all a greedy rank and file.
These three forces have been at work for decades, back to the 40's and 50's anyway. Yes, before George Bush even came into office.
These groups: auto manufacturers, union heads and employees are having to face the reality the the little socialist model they built is broken.
I have already supported these people with the Chevrolet I bought.
The rest is up to them.
Perhaps they can learn something from the auto maufacturers who exist below the Mason-Dixon line and seem to be quietly successful.

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Problems Run Deep, Good Solutions are Few

by TheChas In reply to This IS about the UAW

The problems with the US automakers do run very deep.

I will not deny that the compensation and work-rules package that the union workers have contributes to the problems the big 3 have.

As posted in another thread, GM is just getting what it deserves for setting up the conditions that created the labor union movement.

The point of my post is that the present round of government bail-outs ARE all about preventing Bush from being blamed for the collapse of the US economy.

Yes, the US automakers probably should be left to fester and die on their own. However, right now the issue is not if but when the automakers fail.

If you are a Republican party strategist, you want any failures in the economy to happen after the new President is in office. This both preserves some of the legacy of GWB, and sets up an issue for the 20010 and 2012 campaigns.

All that said, I still doubt that GM could survive even if the compensation package paid to workers was less than even the Korean auto companies pay. True, lower labor costs can lower prices and increase profits. But, labor costs do not take care of the core issues of poorly designed and poorly conceived cars.

Besides, the big 3 are not loosing ground on just the low end cars and trucks. Toyota and Nissan are both taking over the top end of the car and truck markets with vehicles that have higher prices than what the big 3 offer. They are winning the market because they have better designs with more innovative features that people actually want.

As opposed to GM and Chrysler competing on how many cup holders they can design in.

Chas

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You're blinded by your disdain for President Bush

by maxwell edison In reply to Problems Run Deep, Good S ...

A president (any president, any party) gets too much blame when things go bad, and gets too much credit when things go well.

The seeds for what grew into what's currently going on in the financial sector were planted years ago, well before George Bush ever took office. Moreover, Economic issues and business regulation are more controlled by Congress than a presidential administration.

Your desire to blame Bush for anything and everything is naive', and only goes to lessen your credibility.

By the way, President Bush opposes any auto bailout. It has majority support in Congress, however, so Bush will probably go along with it rather than fight a losing battle.

In addition, President Bush warned as early as 2003 that a crisis in the financial sector - particularly the mortgage industry - was imminent if Congress continued as it was. If you want to find a person - or people - to point the finger of blame, it should be pointed directly at Barney Frank and Chris Dodd.

But no, not from you. Whatever it takes to blame Bush is what you'll convince yourself to believe.

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I Still Contend

by TheChas In reply to You're blinded by your di ...

Gee Max, let's look at all the good things GWB has done for the US.

Increased the national debt significantly. And, left us over half a trillion in debt to China.

Trampled all over the Constitution at every opportunity.

Ignored the needs of working Americans in order to respond to the desires of top executives.

Let us not forget the failed initiatives that GWB attempted:
Social Security privatization
Guest workers as part of immigration reform

Based on his past history, GWB has no issue saying no to Congress. I doubt that his lame duck status actually changes that. However, the prospect of the US economy starting the spiral into a full depression while he is still President, that WOULD impact any near term chance for a positive legacy.

I still contend that history WILL rate GWB as one of the 10 worst US presidents.

Further, I believe that future historians will single out the Bush administration as the beginning of the end of the United States dominance as a world power.

In economic terms, the Bush years will be pointed to as the beginning of the end of the middle class in America and the transition of the US to a 2 class society.

While the US has been clearly heading in the wrong direction for the past 8 years, I have my doubts that anyone on the present political scene has the skills or the strength to turn things around.

Chas

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Chas - Instead of more Bush-bashing, try answering my message

by maxwell edison In reply to You're blinded by your di ...

A president (any president, any party) gets too much blame when things go bad, and gets too much credit when things go well.

The seeds for what grew into what's currently going on in the financial sector were planted years ago, well before George Bush ever took office. Moreover, Economic issues and business regulation are more controlled by Congress than a presidential administration.

Your desire to blame Bush for anything and everything is naive', and only goes to lessen your credibility.

By the way, President Bush opposes any auto bailout. It has majority support in Congress, however, so Bush will probably go along with it rather than fight a losing battle.

In addition, President Bush warned as early as 2003 that a crisis in the financial sector - particularly the mortgage industry - was imminent if Congress continued as it was. If you want to find a person - or people - to point the finger of blame, it should be pointed directly at Barney Frank and Chris Dodd.

But no, not from you. Whatever it takes to blame Bush is what you'll convince yourself to believe. Like I said, you're blinded by your disdain for President Bush.

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