The new Golden Rule governing bailout initiatives planned by the Obama administration is based on the premise that those handing out the gold can break their own rules.

A Washington Post article, dated April 4, entitled “U.S. aims to help firms sidestep bailout rules” is found here.  It begins with,

“The Obama administration is engineering its new bailout initiatives in a way that it believes will allow firms benefiting from the programs to avoid restrictions imposed by Congress, including limits on lavish executive pay, according to government officials.

Administration officials have concluded that this approach is vital for persuading firms to participate in programs funded by the $700 billion financial rescue package.

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.”

“This strategy has so far attracted little scrutiny on Capitol Hill, and even some senior congressional aides dealing with the financial crisis said they were unaware of the administration's efforts. Just two weeks ago, Congress erupted in outrage over bonuses being paid at American International Group, with some lawmakers faulting the administration for failing to do more to safeguard taxpayers' interests.”

“In one [bailout initiative] program, designed to restart small-business lending, President Obama's officials are planning to set up a middleman called a special-purpose vehicle — a term made notorious during the Enron scandal — or another type of entity to evade the congressional mandates, sources familiar with the matter said.” 

“But while much of Enron's SPV use was illegal, most SPVs are proper and they can serve a variety of functions. Many are separate business-financing operations whose transactions do not appear on the parent company's books. They can be used to create easily traded asset-backed securities that allow their "sponsor" companies to convert cash flows expected over many years into immediate lump-sum payments, says Gary B. Gorton, professor of banking and finance atWharton.” (p. 1)

(snip)

“The Enron case left many people with a bad impression of special purpose vehicles, since that company used them to improperly hide its financial problems from shareholders and regulators. But when used properly, SPVs can benefit the broad economy as well as the sponsoring companies. SPVs allow lenders and other businesses to shift risks to investors willing to shoulder it, Gorton says. ‘If you spread risks, you don't have risks concentrated in the banking system," he
says, adding that the sponsor's implicit guarantees help make this market possible.’” (p. 3)

“Yet as the Treasury has readied other programs, it has increasingly turned to creating the special entities. Legal experts said the Treasury's plan to bypass the restrictions may be unlawful.

"They are basically trying to launder the money to avoid complying with the plain language of the law," said David Zaring [remember that name], a former Justice Department attorney who defended the government from lawsuits involving related legal issues. ‘They are trying to create a loophole to ignore Congress, and I think the courts will think that it's ridiculous.’"

“Government responses to crises have their own pattern as well. The problem often begins with the scramble of governments to keep up with fast-paced and deleterious market events, leading to an initial, ad hoc phase in government action, where emergencies are responded to with emergency-style rules, and emergency-style process. The next phase is usually a legislative one – beginning with outraged congressional hearings and then new legislative authority. At about this time, implementation of the criminal investigations hit their stride, leading to the ex post punishment – often quite severe punishment – of a few symbols of the crisis – high ranking CEOs, and some unfortunate exemplars of excess.”  (p. 63)

“How should we understand the federal government’s response to the financial crisis? The government’s team, largely staffed by investment bankers, pushed the limits of its statutory authority to authorize an ad hoc series of deals designed to mitigate that crisis. It then decided to seek comprehensive legislation that, as it turned out, paved the way for more deals. The result has not been particularly coherent, but it has married transactional practice to administrative law. In fact, we think that regulation by deal provides an organizing principle, albeit a loose one, to the government's response to the financial crisis.”

“In short we view the government’s turn to the EESA [Emergency Economic Stabilization Act of 2008] as a signal that it felt bound by legal restraints, and ultimately could not push past them until it acted to adopt a more comprehensive, confidence building program designed to alleviate the lost confidence, fear and information asymmetry in the markets. It was at this point that the principle of moral hazard was abandoned for more practical approaches.

But then, it structured the biggest deal of all – acting in a similar
manner but with a more comprehensive tone. This big deal, mirrored on the pattern of smaller ones did make a difference. But the bailout deal
underscored the lack of a holistic approach to the crisis. Ultimately, the
financial institution bailout marked the end of the beginning of the crisis,
but not the end of the government’s action in the crisis. In fact, as this draft
is being finalized, an announcement has come of yet another big
government deal, the bail-out of Citigroup. But the bailout is now being
administered and implemented – this will constitute the middle stage of the
crisis.” (pp. 64-65)