The bill previously referred to as “The Bailout” but appropriately classified as a “workout” (I’ll explain more later) looks to be heading for another vote. While the timing is still to be determined, some sources are suggesting that the Senate may vote first and do so as early as Wednesday evening.
Folks have been working to figure out what adjustments need to be made to pick up the additional 12 votes that the first vote lost by. While there were rumors, and frankly I thought the likely path, that SanFranNan was going to load up more socialism into the bill to get her more liberal folks on board, it now looks like there are a combination of items that are being considered.
Included in the “let’s get more libs on board” are these items: my comments in italics
- Banning some forms of short selling – I’d have to see more details but I can’t imagine a situation that I would support long term. We have seen in the current short selling curb, numerous examples where the removal of short selling has actually hurt the price of the stock. How can that be? Turns out that folks who buy long on companies use short selling to help protect themselves from unexpected down turns in the stock. If they can’t protect their downside, especially in situations of high volatility, they won’t play on the long side.
- Extending Unemployment Benefits – No and hell no! This is the kind of stuff that would allow the Republicans to sit out another vote. This bill needs to stay focused on restarting the credit markets. This issue does nothing in that area!
- Double the Property Tax Deduction for People Who do not Itemize Deductions – Again, no and hell no for the same reasons as #2
- More Spending on Transportation and Infrastructure – Ditto 2 and 3. The argument is that this is putting money into the economy. If Paulson is right, there is no money needed in the economy. In fact, Billions of dollars have already been pumped into the economy. We don’t need the Govt. borrowing more especially when we don’t know where the next fire is that we may need to fight.
Other ideas being proposed:
- Increase FDIC insurance to $250K for each depositor – OK, sleeves out of your vest on this one. It may provide some help in stemming runs on banks but I don’t know that it addresses the credit issues. My understanding is that during the RTC days, and even today, FDIC uses some pretty broad authorities to determine the amount that actually gets covered by each depositor. I believe many depositors with balances over the current $100K mark, were fully covered by the FDIC.
- Remove/Adjust Mark to Market requirements – As I understand it, the SEC could do this on their own. In fact, there are rumors that they may do that even if not in the bill. This absolutely needs to happen. Mark to Market works when their are fluid markets for the assets you are valuing. When the market become illiquid or worse, functions essentially as multiple fire sales, mark to market can actually mis price assets. Many people will debate the level, or if mark to market has impacted our current financial situation. Trust me, Mark to Market has not caused this mess but it has surely exacerbated and accelerated the deterioration of balance sheets.
Where does that leave us? it looks like for the most part, the bill will come back as it was on Monday. I don’t expect any changes that do more than allow some group of Representatives to change their minds. After rereading Monday’s bill again, my biggest concerns remain that Paulson can buy assets from pensions and (and I just picked this up in my last rereading) no where in the bill do I see that he must specifically buy only the mortgage backed securities.
In short, this bill leaves me feeling like the guy who has a bomb ticking down from :30 and he needs to decide which of 50 wires to cut. I know we have to cut a wire. If we’re right, we live. If we’re wrong, well, stay tuned for tomorrow’s show!
Postlude: I referred to this as a “workout” earlier. This bill has been badly sold…that is if it is as many are selling it i.e. a situation where Paulson will buy assets, hold them for a while and place them in the hands of a healthier institution later, hopefully without a loss. If the program works as that, this looks much more like a typical financial system workout i.e. at the end of the day we get our money although we may have to adjust the terms or payment amounts along the way. If this really is a “workout” (as I believe it is intended to be) than Paulson and others should be making that point and selling it as such. If it is a bailout, buyer be ware!
