The full text of the Senate's version of the Emergency Economic Stabilization Act of 2008 is available here.
If you download the .pdf, you'll see that the 110-page version has swelled to 451 pages, larded with tax cuts for alternative energy investment and other worthy objectives, as Fleet Admiral has already surveyed.
The question is, do the additions to the bill make it "the right solution for the American people (Mitch McConnell), or has the Senate only put lipstick on a pig?
The text of the original bill is largely the same in the new bill. The one bailout/rescue change is the addition of Section 136, which increases the FDIC insurance cap, potentially a good idea with direct benefit to people concerned about their FDIC-insured checking and savings accounts. However, the new $250K limit is only temporary, set by this provision to expire December 31, 2009.
Tax-cut candy aside, the bailout remains the bailout. Section 102 still mandates that the federal government enter the derivatives market as the next insurer if the Secretary implements the Section 101 program of buying derivatives outright. Somehow, though, the federal government is going to do a better job than private markets of setting insurance premiums that will adequately cover the risk of holding the derivatives. So far, bailout discussions I've heard have focused only on the Section 101 windfall to taxpayers of buying derivatives at a low but fair price, holding them until the economy improves, and then selling them at a profit. Section 102 allows the government to collect money from banks as derivatives insurance premiums but opens the door to paying out huge sums to banks if/when those derivates default. This is the same gamble that got us all into this mess.
Section 132 suspends mark-to-market accounting, but bonddad has already told us why that's such a bad idea. Why would supporters of this bill think it's a good idea to allow financial institutions to make up values for CDOs and CDSs that favor their balance sheets and hide any sense of real value for those derivatives? You and I are not allowed to make up numbers about the value of the home that collateralizes our mortgages and home equity lines of credit. In fact, Bank of America just reduced my HELOC on the premise that my home has lost market value. If it's a good idea to suspend mark-to-market accounting rules to benefit lending institutions, then let's suspend them for borrowers, too. I know I'd like to live in the fantasy land of asset price inflation (snark). What about you?
Some of us read Matt Stoller on the 9/28 Treasury conference call with financial analysts in which loopholes to the House bill's taxpayer protections, CEO compensation limits, and tranching provisions were discussed. Since no language has been inserted into the Senate version of the bill to close those loopholes, the protections and controlled disbursement of federal funds we taxpayers might expect from the legislation remain cosmetic.
Does the Senate's array of tax cuts offset the illusory nature of the government oversight and taxpayer protection provisions in EESA? That's a vote of conscience I can't make for you.
The tragedy remains that potentially wiser alternatives aren't being discussed. For example, why not use taxpayers’ money to lend directly to Main Street and to invest in public infrastructure through the creation of what commenter James Kroeger called "a Taxpayers' Bank." This new institution could
provide MAIN ST. with all the loanable funds that small businesses, non-financial firms, and households might need while the financial sector is crumbling. Then, it could spend another trillion on increased government spending on infrastructure and other public INVESTMENTS.
Kroeger argues that this method of "pumping an additional $2 trillion into the economy" would create a "robust demand" for real goods and services. Later, when Wall Street has cleaned its own house, "Congress could re-privatize the Taxpayers' Bank, if that is what it wanted to do" (Kroeger).
This idea sounds persuasive when we consider Robert Reich's analysis of the root cause of Wall Street's current crisis: the downturning economy. Reich describes Main Street’s years of decreasing wages, sluggish job creation, and increasing unemployment, adding that this economic downturn makes taxpayers unable to bear the additional burden of carrying Wall Street’s debts, too:
The culprit isn’t just those sub-prime loans. With jobs and wages are dropping across America, many people who had been able to pay their bills no longer can.
It’s no coincidence that states where mortgage delinquencies are highest are also states with the highest rates of job losses. According to the Bureau of Labor Statistics, the official rate of unemployment in California last month was 7.7 percent. That’s up from 5.5 percent a year ago. In Florida, unemployment has climbed to 6.5 percent, from 4.1 percent a year ago. No surprise that bad debts are mounting fastest in California and Florida – and elsewhere around the country where jobs are evaporating fastest.
Note that these are just the official rates. Some 600,000 fewer jobs are listed on the nation’s payrolls than were there last year. Millions more Americans are too discouraged even to look for work. And as employers squeeze their payrolls, even people with jobs are putting in fewer hours.
Bailing out Wall Street’s bad debts when millions more Americans can’t pay their bills is like bailing out a rowboat springing more leaks while the ocean is rising. Many of the average taxpayers being asked to take on Wall Street’s bad loans are the same people whose incomes are dropping, which means they’re struggling to pay their debts and potentially creating even more bad loans.
In addition to supporting a Wall Street bailout, Reich calls for Congress "to pay direct attention to Main Street," too, and suggests "extend[ing] unemployment insurance, freez[ing] mortgage rates, and pass[ing] a stimulus package that generates more jobs." However, Kroeger’s suggestion to "create and capitalize a Taxpayers’ Bank" eliminates the planet-sized moral hazard of transferring (borrowed) wealth to rescue losing gamblers--people and institutions whose speculation in derivates was driven by a desire for short-term gains, not long-term capital investment in business and job growth-- while achieving the "direct attention" objectives for Main Street that Reich says are essential to bolster the nation’s economy.
Because the Paulson plan, even expanded to 451 pages, does nothing to address this moral hazard, it will perpetuate the "investment" behavior that created so many "toxic assets." On top of this, as Reich predicts, "Unless Americans on Main Street have more money in their pockets, Wall Street’s bad debts will continue to rise -- which means the Bailout of All Bailouts grows even larger, which means taxpayers take on even more risk and cost."
There are other direct intervention plans if you don’t like Kroeger's. Jonathan G.S. Koppell and William N. Goetzmann call for a "Trickle Up Bailout" in today’s Washington Post suggest reviving a New Deal-style Home Owner’s Loan Corporation to refinance troubled mortgages: banks with troubled assets get them paid off, and struggling homeowners get a fair, fixed-rate mortgage at an affordable rate. If we need to address a lack of business operating credit, then press the Small Business Administration into service with an expanded business-lending program. Whatever we need to accomplish, there are other options.
Senator Obama is speaking now while I finalize this diary. I take heart from his stating that this bill is not the end but only a beginning of the policies we put in place to address our nation's economic turmoil. I will always wish that Senators and Representatives would remember that their first responsibility is to Main Street, to the living and breathing persons who cast their votes and not to the fictional corporate persons who have been buying and writing the self-serving finance services deregulation legislation that is largely responsible for the current credit market meltdown. If it is seen as equally self-serving for a Main Street resident to argue for government policies and legislation that benefit Main Street first and foremost, so be it, but the moral difference is that helping Main Street creates the rising economic tide that is supposed to lift all boats, even the yachts on Wall Street. Wall Street’s claims that its wealth trickles down to us have been proven by this crisis to be the big, fat, lying elephant in the room.