Many here have been chiding or worse the leaked proposal for the financial bailout targeting either the absolute authority the statute appears to give Secretary Paulson or the dollar amount made available through this bill. I am going to try to explain why I think it is necessary and in the end the correct (and maybe only) solution to the current financial crisis.
The first thing I want to make clear is that people need to realize just how close we were to global economic disaster this week. I am talking 1929 kind of disaster, but much worse since the world is much more advanced (in the number of people living in urban/industrialized settings) and virtually every business now runs on credit lines (ie nobody gets their materials COD). What was happening was a twofold "attack" on financial institutions by both aggressive (and foreign) short sellers along with a collapse in the CDS (credit default swaps) market. These "attacks" (some were quite just, while others ie Northern Trust were the result of nothing but panic) essentially were going to very quickly cause a domino effect where virtually all financial firms would be vulnerable to failure. The government needed to take a drastic action to prevent a total collapse in liquidity (and without liquidity the economy would seize up) and this action had to essentially attack closest to the root of the liquidity problem as possible (house prices are the root cause, but cannot really be attacked directly). This bailout package should do exactly what it is meant to do (although the devil is in the as of yet unhashed details), which is restore liquidity to the financial markets, and coupled with the ban on short sales, give the financial firms (which includes banks and trusts) to regain solid ground.
The reason that the bill gives the treasury the power to act "without oversight" is so that it can act quickly (which is very important) and insure that the money it outlays will not be able to be challenged (which is important to the institution selling to the treasury). If oversight enabled Congress to pull back funds (or challenge them), then no institutions would likely deal with the treasury (out of uncertainty) and we would be stuck where we were at the beginning of the week.
The staggering amount of funds appropriated for this bailout shows just how dire the situation is, but also will provide confidence to the markets that the "backstop" will be enough to end the liquidity problems and allow credit to return to near normal.
I will say, however, that the devil is still in the details, as I have not yet seen how the treasury will determine the price it pays for the crap paper it will be buying. This is the most important detail, as if it is too much, the taxpayer will get soaked. If it is too little, then many institutions could face solvency issues. Which means they will ere on the high side. Remember though, the treasury can hold this paper to maturity, so it will likely take very little loss on its $700 million in the end, no matter how poorly performing some of these securities are.
Finally, on to how this helps the housing situation. One of the real drivers in the price decline now, is the lack of buyers due to a lack of credit. Simply put, unless you have a great credit score and cash to put down on a house, you are not getting a loan, which means the pool of potential buyers has shrunk greatly (no banks are doing bridge loans now, so you need actual cash not equity). Without a pool of buyers, house prices will continue to fall no matter what "fair value" is. If this bailout hits its goal of increasing liquidity and credit availability, it should enable more buyers to enter the housing market and shore up prices, thus hopefully ending the entire financial crisis (note that this does not mean an end to the recession).