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Thursday, September 25, 2008

Bush Bailout Plan is Unconstitutional debt servitude

The Thirteenth Amendment to the United States Constitution prohibits "debt servitude." The 13th Amendment prohibits the use of "fear" and "intimidation" to coerce payment of debts. The prohibition of debt servitude includes peonage. For a primer, read this wiki on it:

13th Amendment Wiki

The Bush plan violates the 13th Amendment, because it is a plan to socialize the debts of wealthy onto the backs of the taxpayers using fear tactics. On the one hand, the President argues a bailout is needed to prevent "financial panic", but what does that mean? Bush, in his address to the nation, defined "financial panic" as a "recession."

And ultimately, our country could experience a long and painful recession.

Text of Bush' speech

A recession is a normal part of the economic business cycle. America has gone through many recessions. The normal recession last about 6-9 months, the longest recession since 1953 lasted 18 months.

On average, the market peaks about six months prior to the start of a contraction and begins to decline more aggressively as the contraction begins. Based on the 9 previous recessions since 1953, the market bottomed an average of 6 to 7 months into the recession (the average recession has lasted 11 months). But this average masks a lot of variability. There have been important bear markets that lasted longer. The market bottomed 18 months after the beginning of the 2001 recession and 10 months after the start of the 1973 recession.

A recession, even a severe recession, doesn't justify pushing capitalism aside and socializing debt of the wealthy and forcing taxpayers to pay for it long after the recession is over.

This bailout is not in the best interest of the taxpayers and is not intended to help them. The fear mongering isn't justified. For example, last night Bush tried to scare the taxpayer by saying if the bailout wasn't approved immediately, their local banks might close. Here's what Bush said:

The government's top economic experts warn that without immediate action by Congress, America could slip into a financial panic, and a distressing scenario would unfold:

More banks could fail, including some in your community.

Text of Bush' speech

This isn't true. The bailout won't prevent community banks from failing. The problem is, the subtle lie is, the bailout is not intended to help the local banks and won't help the local banks. In fact, for over a year now, the FDIC has said that in 2009 they expect numerous regional bank failures, and the causes of these failures will not be alleviated by this bailout plan. In fact, as Bush is asking for $700 billion bailout, the FDIC, which insures the banks, is asking for a $150 billion in insurance based on an its estimate that 100 banks that are going to fail next year.


Further, this banking expert says the banks can weather this storm just fine, that the bailouts aren't necessary.

So you oppose the idea of the government putting preferred equity into solvent but troubled banks that cannot raise capital on reasonable terms?

Ely: Yes, it is not necessary, even now. There is absolutely no need for the Treasury to have the authority, as you suggested, to "inject capital into solvent banks that are temporarily unable to raise new capital." If a bank truly is solvent, it can raise additional capital or sell itself, if its present owners are realistic about what their bank is worth. The reason solvent banks have a problem raising capital, or selling themselves to a stronger bank, is that they set their price too high, as did AIG. As an aside, I am glad to see AIG's shareholders getting whacked by the warrants associated with the Fed's taxpayer's loan to AIG. There is absolutely no need for the taxpayer to subsidize banks so they can stay independent, provided no barriers are erected to prevent new entrants into bank or specific banking markets.

This bankinNaked Capitalism

So, Bush is full of crap. He is fear mongering. He is using unjustified fear of calamity to coerce the American people to pay the debts of the wealthy, which is classic indentured servitude prohibited by the Constitution.