October 14, 2008: The Day the Economy as We Knew It Died

From PJM:

Almost everyone who believes in the Constitution and free markets properly considers October 3, 2008, one of the darkest days in U.S. history. It was on that day that the “Emergency Economic Stabilization Act” creating the Troubled Asset Relief Program (TARP) became law. A day later, I wrote that law’s passage, accompanied by tactics and threats which amounted to orchestrated blackmail, over the strident objections of over 150 economists from across the political spectrum, only days after its initial voter-driven failure, proved that Washington’s politicians and elites “don’t care what we think.”
Abhorrent as it was, the sickening saga of TARP’s enactment was nothing compared to what transpired less than two weeks later.
Everyone’s understanding of the legislation — at least publicly expressed — was that it would, quoting from the bill’s text, authorize the Treasury Department “to purchase, and to make and fund commitments to purchase, troubled assets.” Specifically identified “troubled assets” included:

(A) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary determines promotes financial market stability;

With that congressional authorization, everyone — again, at least publicly — expected Treasury Secretary Henry Paulson to begin buying up “toxic assets.” No one expected that this would be easy, or that settling accounts with affected banks involved would occur quickly.
Ah, but there was a catch in the law which immediately followed. It authorized the purchase of:

(B) any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress.

On October 14, Paulson, with President George W. Bush’s shameful capitalism-betraying acquiescence, morphed the program into a hostile government takeover of the banking system. If there’s one thing the ignoramuses in the Occupy Wall Street crowd and the American people in general need to understand, it’s this: Hank Paulson didn’t ask.
Instead, as the New York Times reported, Treasury’s Godfather called big bank executives into a meeting with no pre-announced agenda, made them an offer they couldn’t refuse ...

Go read the whole thing.