Wednesday, September 24, 2008

Politics: The Bailout--I Think It's Better to Wait

I've been watching the Senate Banking Committee hearings today, and after that and reading a number of commentaries, I'm convinced that any bailout plan needs to be put off until Paulson, et al, do a number of things.

The first is to stop insulting everyone's intelligence with the lying. In an "ad hoc comment" during his opening statement before the committee (click here to watch), Paulson said this:
We gave you a simple, three-page legislative outline and I thought it would have been presumptuous for us on that outline to come up with an oversight mechanism. That’s the role of Congress, that’s something we’re going to work on together. So if any of you felt that I didn’t believe that we needed oversight: I believe we need oversight. We need oversight.
This directly contradicts that "legislative outline," which would declare any decision in this matter made by Paulson absolute and non-reviewable. The way the proposal is presently written, Paulson could, without consequence, pull a Heath Ledger Joker and convert the entire $700 billion to cash, stack it on palettes, and burn it.

The second is to provide some sort of itemization for the amount sought. How was this $700 billion figure arrived at? How much is Paulson specifically planning to spend in buying the MBS portfolio of a particular bank? Given the amount of money asked for, I'd like some reassurance that the aggregate figure quoted isn't a wild guess.

Third, a fair value for the MBS securities is going to need to be determined beforehand and approved by Congress. Banks cannot be allowed to set their own price for these things, and Paulson cannot be in a position to give one bank a sweetheart deal while playing hardball with another.

Fourth, any bank seeking relief under the plan is going to have to give up equity in return for it. There are any number of banks out there that are quite solvent, and if the disincentive of giving up equity isn't imposed, they're all going to be falling all over each other to jump on the gravy train. Before you know it, there'll be some new financial instrument that turns everything to garbage that they'll have to be saved from as well. We'll never see the end of this.

Fifth, financial institutions seeking relief above a certain level are going to have to be broken up. This notion of being "too big to fail" has to be done away with. No company should be allowed to get so big that it threatens to take down the entire economy if it stumbles.

Sixth, the executives of any bank seeking relief are going to have to agree to the cancellation and renegotiation of their employment contracts before the institution can receive anything.

Seventh, some way of supervising the Treasury Secretary's actions must be imposed, including a sanction of criminal penalties if a particularly egregious abuse of authority occurs. And any such sanction should include imprisonment, as it's the only penalty someone like Paulson couldn't blow off.

There are probably a lot of other things as well, but this list seems like a good start.

For now, my feeling is that Congress should tell Paulson that they will approve outlays on a case-by-case basis until a final plan can be worked out. In this day of e-mail, teleconferencing, and air travel, it shouldn't be that difficult to keep members of Congress in the loop and get them back to Washington in time for a vote. If the banks need the money as badly as everyone seems to think, Dubya's obstinate temper-tantrum approach to getting his way isn't going to fly. These people are his base, and they won't tolerate it.

Right now, Paulson is saying "Trust me" to the American people. I'm sorry, but no one should be trusted with a carte blanche outlay of $700 billion, and certainly not someone willing to blatantly lie about what's being asked for when aspects of the request are called into question. Beyond that, no one in the current administration should be trusted any further than they can be thrown ever again. We've seen this sky-is-falling approach to things before, such as with the Iraq War and the Patriot Act, and we know how rushing into things worked out in those instances. As for Paulson being this great figure of repute and wisdom who can be trusted, well, even if he hadn't been caught lying, I have two words: Colin Powell. Life with the current administration has been like walking through a crowded cow pasture--everywhere one turns, there's something bigger and grosser than before. There's no way we should step blindly this time.

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