Mike the Mad Biologist

Dodd Has a Good Bailout Plan

It’s not great, and I would like to see more things in it that can be negotiated away, but it still hits most of the points I raised. Outsourced to Ian Welsh:

So yeah, the Dodd plan. Good plan. Buying up mortgages for 15% less than the current market value of the house, then reissuing a clean mortgage to homeowners helps the banks while still giving them a slight haircut (but only slight, odds are home prices will drop more than 15% before the slide is over.) It helps homeowners stay in their houses. It sets a market price so that banks know what mortgages are worth and thus what the derivatives based on houses are worth. And giving the mortgages bought to the FDIC, one of the few agencies that Bush didn’t cripple, is genius.

Giving the government stock equal to the value of any bailout for the company is also only fair. If they get bailed out, taxpayers should have a chance to get their money back. If they don’t like that, well, beggars, and they are beggars, shouldn’t be choosers.

Having a review board is a good idea, though having the Treasury Secretary, Fed Chairman and FDIC chief on it is perhaps unwise. Still Congress chooses two of the members. I’d prefer direct oversight through the Congressional Budget Office, which reports directly to Congress, but this isn’t too bad.

Clawing back compensation based on fraudulent financial reporting is a stroke of genius and may be what Dodd put in so that he could eventually trade it for something else, because fact is, almost all of these bastards have used dubious accounting to inflate their earnings and therefore their bonuses and salary. They’re all guilty and they know it. Under a vigorous Department of Justice (say, oh, an Obama one) they could all be prosecuted.

Allowing bankruptcy judges to modify the terms of mortgages is both humane and reasonable, so many mortgages were sold under false pretenses. Banks really, really hate this provision, as it takes away part of the bankruptcy bill, but when they themselves are asking for all their contracts to be, in effect, modified by government (what’s buying for 15% less than face when you couldn’t get 30 cents on the market but modification?) they don’t have a leg to stand on.

There appear to be other details, but those are the highlights. It’s a good plan and it helps more than just the banks. It includes a lot of what outsiders were suggesting, especially with respect to help mortgage holders. It doesn’t go quite as far as I would have liked–I would have preferred to just buy up entire failed corporations rather than their assets, but if the share program is done properly the government could wind up with effective control of many corporations anyway. This is only reasonable, if the government has to bail you out for more than half your value, the government should own you.

There is a provision that might let corporations pay off the government with superior bonds, I don’t like that. However, I suspect most companies won’t go for it unless they’re in relatively good shape already (you want to owe more money when you might be bankrupt?)

Dodd deserves a lot of credit for putting this bill forward, as does Leahy. Leahy put back in the most important thing–no dictatorial powers for Paulson without court review. Anything Paulson or anyone else does can be reviewed by judges during or after the fact. No man should be above the law in America.

Feel the Doddmentum!

Comments

  1. #1 eddie
    September 25, 2008

    Useless.

    Any provision where executives stay out of jail is not addressing the root problem: that executives lied, cheated and stole.
    Any provision where taxpayers foot the bill is not addressing the root problem: that those who have not paid their fair share have sucked the blood of us all.
    Any provision where those who irresponsibly sold loans have any claim to be owed a dime is not addressing the root problem: that those who lend stupidly need to lose or we all lose.

    Maybe we can make a deal, but only after wall st has done the massive jail time they have earned. It’s the only thing they have ever earned.

    Anyone loses their home needs to be balanced by a banker going to the chair.

  2. #2 G Barnett
    September 25, 2008

    Since this is being reported as a broadly-accepted bipartisan plan, it could potentially have enough support in house & senate to go thru unmodified, and Shrub’ll have to sign it or face an override.

    That would be a happy thing to see.

  3. #3 TomJoe
    September 26, 2008

    Wait a second …

    Buying up mortgages for 15% less than the current market value of the house, then reissuing a clean mortgage to homeowners …

    Does that mean that the homeowners have to pay on a mortgage that is 15% less than the one they’re currently trapped in?

    If so: Whiskey. Tango. Foxtrot.

    Here I am, someone who bought their house in the beginning of 2007, when the bubble hadn’t quite bursted yet, who has been making their payments like their life depended upon it, and is still stuck with a house that has most likely depreciated. WHERE IS MY 15% BREAK?

    Yeah, this idea is stellar. A stellar piece of shit.

  4. #4 Troublesome Frog
    September 28, 2008

    I’m with you on that one TomJoe. My wife and I are among the young professional couples in California whose home ownership prospects have consistently been, “You get to overpay by a ridiculous amount and then get raped by Prop 13.” We saw this crash coming and have been waiting for it for years. The last thing I want is for the government to use my tax dollars to artificially prop up overinflated home prices just to save the asses of the people who have kept us out of home ownership. The idea that keeping home prices artificially high is somehow good for the little guy needs to be put to rest.

    The rest of the Dodd plan makes good sense. Recapitalize banks to prevent a looming financial collapse (and I really don’t think that most people understand how bad that could be), but include a stick that keeps the shareholders and executives from getting free money. Dodd’s plan may not be perfect, but it’s a lot better than the “free money for idiots” plan that Paulsen proposed.

  5. #5 magic
    August 9, 2009

    very thanks for article sesli chat

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