Monday, September 22, 2008

Bailout Legislation Expanding

This Mother Of All Bailouts is going to get problematic, and until this is resolved the markets will be shaky.

Sec. Paulson's draft legislation was three pages long. Sen Dodd's modified draft is 44 (at least according to the proprietary Dow Jones newsletter I get from my brokerage).

(Congressional Quarterly coverage)

I'm basically OK with the idea of Treasury taking warrants for equity in a participating financial firm, but if the Congress gets too punitive with this plan then banks aren't going to want to participate until things are much, much worse. I like Jonah Goldberg's analogy of using dynamite to put out an oil well fire -- you'd better make sure you use enough dynamite! Too strong a disincentive to use the Bailout fund will make the whole thing pointless and fail to resolve the problem.

Sen. Leahy and others aren't too excited about the explicit lack of oversight in the Paulson proposal.

Frankly, there's a reason for that. Treasury is going to have to wade around in the financial mud. They're going to have to pay too much for certain assets. They're going to have to make sure that certain firms don't fail even if that means other firms do, and that's what might determine which paper gets bought more so than the intrinsic value of the paper. That's the whole point of the bailout.

Says Leahy, legislation "that eliminates the role of the courts in reviewing the decisions and policies of the administration invites abuse."

Yes. Yes it does. But aren't we way past "abuse" when we're talking about a cool trillion dollars? This is like sending in a Navy Seal team into Waziristan on a covert mission to get Bin Laden and then wanting Congress to hold committee hearings to determine which particular huts and caves are to be stormed.

No. Just get it done. Send in the Treasury Special Forces, and don't ask too many questions. Hold your review hearings in three or four years.

2 comments:

Anonymous said...

This does not sound conservative too me.
Matt

Sockless Joe said...

It's not. It's pragmatic.

I hear certain people saying that private funds are capable of cleaning this up and are ready to go. Yet, there's nobody stepping up, money market funds were starting to fail, transactional credit is in serious jeopardy (let alone long term commercial loans), and the death spiral of bankruptcies is poised to continue.

The former CEO of AIG is a major shareholder and has been jawboning about how he can raise the money to save the company w/o gov't action, and yet, no such money has been raised.

Private capital is at the "put up or shut up" phase.