Bailout Bill 3.0

The Paulson Plan? A no go. The Paulson Plan + an extra 30 or 40 pages of fluff? Also a no go. Now, in round 3, we have the Paulson Plan + a whole lot of fluff. Only this time everyone expects it to pass. According to many news sources, such as CNN, the Senate version of this bill is just the House bill with a bunch of vote-grabbing incentives added.

Unfortunately, after the House bill failed, I recycled my highlighted and post-it flagged copy, so I don't have all my notes to share, but I can remember a lot of what was wrong with the bill. First and foremost, it doesn't address the actual problem.

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What's wrong with that picture? What was supporting that growth in house prices? It certainly wasn't a result of Americans suddenly getting richer and buying more expensive homes. It was easy money flowing from banks and the idea that homes were get-rich-quick schemes - flip that house! Add to this the fact that Wall St. and investment banks realized that they could securitize people's mortgages. This led to a situation where people were buying like crazy - well above their means - and banks were handing out mortgages left and right because they could turn around and sell them to someone else. Then people stopped paying their mortgages and the whole pyramid scheme came crashing down. If you haven't seen it already, this comic tells the story with a bit of humor.

So anyway, that's how we got to where we are now. We've seen the financial institutions who bought up these bad loans going broke and more and more people losing the homes they shouldn't have purchased in the first place. So what's the solution? Well, the Treasury Department decided to pick a really big number that sounded impressive and said that if they got that much money, they could fix the whole ordeal. What did they want to do with the $700,000,000,000 of taxpayer money? They wanted to buy up the bad loans from the banks. This would get the expensive mistakes off the banks' books and allow them to keep handing out easy money. In the meantime, the government would hold on to these garbage loans, and with a little help from magic, they would be able to sell them for a profit in the future. The problem with this is that it would take a whole lot of magic. How are people going to suddenly be able to afford these homes again? There's really only two ways - people start making a lot more money or house prices go back up. No one is saying anything about increasing people's incomes, so everyone is focused on propping up the housing market. This is just not sustainable though. They're only trying to prolong the bubble, which will inevitably cause a bigger burst.

So on to the bailout bill. The government plan is to give the Secretary of the Treasury a massive chunk of money, (most likely borrowed from China) to do whatever he wants, with little to no oversight. Now, I know what you're saying - but congress added an oversight board. Henry Paulson wasn't going to get away with those "unreviewable actions." Well that's true, but the oversight board was going to be made up of Ben Bernanke, Henry Paulson, the head of the SEC, and Director of the Federal Housing Finance Agency, and the Secretary of Housing and Urban Development. I'm sure they'd do a good job regulating themselves...

There was another little gem buried in the bill that said the Secretary of the Treasury would be required to issue regulations or guidelines necessary to address conflicts of interest. That's helpful. More self-regulation.

And then there was the FAS 157 repeal. FAS 157 requires companies to "mark to market" their assets. If they bought one of these steaming piles of mortgages for, say $100M, but it's now worth $500k, they have to report it on their books at $500k. The plan would allow the companies to keep their $500k investment valued at $100M. Opponents of FAS 157 say that it's unfair to make them write down their assets due to temporary fluctuations. But again, how do they know they're temporary. Are the people who have had their homes foreclosed suddenly going to start paying their mortgages again? Somehow I don't think so.

There was so much more that was wrong with this thing, but I threw it in the recycling bin with pleasure when I saw the bill go down in defeat, so you'll have to trust me or read it yourself. But it doesn't end there, we now have to look at what the Senate has added.

They've added a provision to increase FDIC insurance from $100,000 to $250,000. This does not address the problem either. This just allows them to print even more money when banks fail.

They've added renewable energy tax incentives. I'm all for renewable energy, but if the bill stinks, the bill stinks. This has absolutely nothing to do with the current situation.

They've added Alternative Minimum Tax relief. Again, I think something needs to be done about AMT creep, but this is not the place to do it.

What else? "The revised bailout bill also includes a "Mental Health Parity" provision, which would require health insurance companies to cover mental illness at parity with physical illness." Oh yeah, that's a solution to the economic situation. I blame mental illness for this too, but I don't think we're talking about the same people.

Awesome. So we take a bad idea and bundle it with unrelated fluff. This plan doesn't address the actual problem, but instead hands over a massive amount of cash to the people who caused it in the first place. Oh, and it's probably going to kill the dollar. Where's my tiny American Flag? I just want to stand outside and wave it for a while...