Sep 28 2008

New and Improved Bailout Package Revealed

No I’m not sarcastic.  It really does get better.

I outlined in my post – The Rush to Bailout Wall St… Money, It Can’t wait what I’d like to see in the Bailout changed.

Well someone must be bright in Washington because the terms have gotten much better.

“This isn’t about a bailout of Wall Street, it’s a buy-in so we can turn our economy around”

                                                         -House Speaker Nancy Pelosi

Bailout Details

Money Provided in Phases:  

  • The draft would authorize $250 billion immediately.  
  • Another $100 billion would be approved by the President when needed.  
  • Another $350 billion would be available subject to congressional approval.

Treasury will Buy & Sell:

  • The Treasury would be able to buy mortgages and mortgage-backed securities.  
  • Treasury would also offer to sell insurance similar to FDIC that guarantees troubled assets in exchange for a premium.

Government Gets a Stake:

  • The goverment would get a stake in companies receiving bailout funds so taxpayers can participate in any upside in the companies post-bailout.
  • Additionally participants will be subject to varying compensation limits dependant on the level of government participation.
More Taxes for Participants:
  • Institutions that sell more than $300 million in assets would be subject to additional taxes including tax deduction limits for compensation over $500,000.
  • Additional excise tax on “Golden Parachute” clauses.  Would not be retroactive, but would apply to new contracts for participating companies.
Oversight:
  • A new Inspector General Position to keep an eye on the Treasury.
  • Treasury will be required to submit regular reports to the Congress detailing loan purchases.  
Transparency:
  • All transactions would be required to be posted on the internet within 48hours.

My Thoughts

I’m very impressed at how much has changed.  I swear someone in Congress is reading my blog.  I had concerns about the oversite and transparency.  I also thought it would be a good idea to put in some government ownership to participate int he upside.  Most of my concerns have been addressed.  Of course you have the government implementing it which means it won’t be efficient.  Of course you can’t win them all.

 

It is interesting what happens when Congress puts the brakes on things and asks “Does this make sense and is there a better way?”  The devil is in the details, but this looks like a great step forward.  It may not be perfect, but the alternative is largely unknown.  What happens if we don’t act?  Will there be a cascade of catastrophic proportions?  Noone wants to find out.

 

All this will have consequences of course.  I can’t take off my economics hat off just yet.  Images of high inflation, foreign debtors, and a flight to Euros comes to mind.

 

What are your thoughts?

What do you think of this?  
Are we doing the right thing?  
Should there even be a bailout?  
What do you see wrong with it?
Please leave your comments.  I would love to hear your opinions.

Tomorrow’s Trades

I’ll probably be trading the XLF tomorrow. Follow Me on Twitter to follow my trades.

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1 Comments on this post

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  1. Kavita said:

    I admit that changes (positive) have been made because of congress. However, I am scared if those people getting a second chance with the bill, will find a way to take advantage it. If it was a mistake, I wouldn’t be bothered by it, but this is too big to be a mistake and no one caught it, and it got out of hand. At least now there will be oversight, and congress is involved, but what if congress gets swayed by the administration? The bailout will not solve the problem, it will only temporally relieve the economy. These businesses have a lot of changes to make. They need to find out the root cause, come up with a permanent solution. That means putting aside their arrogance and greed. What bothers me the most is the irresponsible decisions financial institutions made, and the administration in making the bill. Paulson and others put a horrible 2 page bill together over the weekend hoping it would pass. I spend more time putting together a college paper than they did putting together the bill. The original draft had no over sight, no accountability in case it didn’t work, and it was vague overall. The fact that they thought this bill would pass makes me dumbfounded. These people don’t care about the people, if they did, their first draft would reflect that.

    I have mixed feelings on the bailout, I think why not give the money to the people instead. I read an interesting post on an alternative solution where it says why it would work giving it to the people instead. (I’ll post the link once I find it) I don’t know too much about the economy to know if it will work though. All I know is that our economy is in a big mess, and we have to clean up after these irresponsible companies. It is disgusting.

    That’s my opinion.

    October 1st, 2008 at 9:53 pm

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