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Sidestepping Bailout Rules:

It appears that some of the restrictions placed upon the use of bailout funds is discouraging private sector participation. As a consequence, the Obama Administration is seeking ways to circumvent the rules.

The administration believes it can sidestep the rules because, in many cases, it has decided not to provide federal aid directly to financial companies, the sources said. Instead, the government has set up special entities that act as middlemen, channeling the bailout funds to the firms and, via this two-step process, stripping away the requirement that the restrictions be imposed, according to officials.

Although some experts are questioning the legality of this strategy, the officials said it gives them latitude to determine whether firms should be subject to the congressional restrictions, which would require recipients to turn over ownership stakes to the government, as well as curb executive pay.

corneille1640 (mail):
I would like to know more about the "middleman" entities the Washington Post article mentions. Are these different from the SBA and FHA already in place? The article that Mr. Adler linked to seems to suggest so.

As a matter of policy (not necessarily legality, I'm far too ignorant of the relevant laws to know what is legal and illegal in this situation), I believe that the government would get more bang for its buck by easing the restrictions required for FHA and SBA loans, and not by investing directly in banks in requiring caps on executive compensation. I certainly am not a libertarian, but I think the government will get in over its head if it starts trying to determine what does and does not constitute appropriate executive pay or what does or does not constitute appropriate restrictions on a bank's activity. Because the federal government is the actual insurer for SBA and FHA loans, it would exercise much more control in how the loans are administered than it could by specific grants to the banks. Of course, my "solution" (such as it is) does not address the issue of what to do about toxic assets, etc.
4.4.2009 11:48am
Cump (mail) (www):
"Congressional restrictions"
That would be the law as it is written, no?
4.4.2009 6:23pm
Mike& (mail):
Sounds like money laundering to me.
4.4.2009 7:23pm
ReaderY:
One may disagree with what Congress has done. But in this Country, Congress makes the laws, particularly when it comes to spending money.
4.4.2009 10:11pm
PersonFromPorlock:
ReaderY:

At bottom, 'the law is the law' is just a tarted-up version of the Nuremberg defense.
4.5.2009 8:17pm
kentuckyliz (mail):
Middleman? I bet ACORN gets a piece of this pie...and the power that goes with it.
4.5.2009 10:06pm

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