Until the House actually passes something, we won't know for sure exactly what form the bailout will take. However, for now we're still operating in the shadow of the Paulson plan.
According to Krugman, in order to gain necessary political cover, congressional Democrats had to adopt the Paulson plan as the basic framework. By starting with a good plan, Democrats supposedly risk passing a bill without substantial Republican support, setting up a mother-lode for GOP demogoguery in the eleventh hour of the 2008 campaign.
Fundamentally flawed as it is, the Frank-Dodd bills at least gets tax-payers equity in the troubled assets they buy. How much equity tax-payers get in each case, however, is left to the discretion of an oversight panel, which means it's left largely to Paulson, with Bernanke, Cox, and two congressional representatives "advising" him. [More below]
Based on the current plan, even if a President Obama replaces members of the oversight panel, at least $350 billion (and probably all $700 billion) will already have gone out under Paulson's management. So what oversight we get at the beginning is likely the only oversight we will ever have until all the deals are made.
Considering that Paulson initially proposed no-strings-attached debt clearing, without tax-payer equity, it seems very fox-guarding-the-hen-house-like that the current plan allows him to determine the equity piece as he administrates the program. (It seems unlikely that the 80% ownership stake tax-payers received in the AIG rescue will be the model here.)
At best, we seem to be heading towards a bailout that allows Democrats to have bipartisan political cover in addressing the crisis, lets Paulson play Santa Claus with Wall Street as he sees fit, and lets some margin of Democrats and Republicans pretend that they are political outsiders standing against Bush and the Democratic majority on behalf of the pissed-off electorate.
If the Democrats succeed in making this deal, one would hope they intend to hammer on the causes of the crisis and loudly criticize abuses in the way Paulson goes about making each of his deals. However, in passing a bill that gives Paulson wide deal-making lattitude, they would also be criticizing their own failure to craft a better bill; and I don't see how they gain any political advantage from that.
Before today's failed vote on the bailout plan, House Speaker Pelosi made a speech in which she listed these provisions without which Democrats would not support the plan:
This legislation must contain independent and ongoing oversight to ensure that the recovery program is managed with full transparency and strict accountability.
The legislation must do everything possible to allow as many people to stay in their homes rather than face foreclosure.
The corporate CEOs whose companies will benefit from the public's participation in this recovery must not benefit by exorbitant salaries and golden parachute retirement bonuses.
Our message to Wall Street is this: the party is over. The era of golden parachutes for high-flying Wall Street operators is over. No longer will the U.S. taxpayer bailout the recklessness of Wall Street.
The taxpayers who bear the risk in this recovery must share in the upside as the economy recovers.
And should this program not pay for itself, the financial institutions that benefited, not the taxpayers, must bear responsibility for making up the difference.
None of these provisions are meaningfully represented in Frank-Dodd: The limits on executive compensation paid for with bailout money are easily finessed (just a matter of using bailout money for other things while existing company assets are used for executive compensation); there's nothing that forces mortgage-holders to stop foreclosures; there's no mandated level of equity benefit to tax-payers.
I'm not sure what it means that, should the bailout not solve the crisis, "financial institutions that benefited, not the taxpayers, must bear responsibility for making up the difference." If the bailout doesn't work, many of the firms that receive bailout money may go under. How do they bear responsibility then?
Ironically, despite the fact that Pelosi's speech does not reflect the actual provisions of Frank-Dood, House Republicans are pointing to it in defending their opposition to the bill. If Boehner and his cohort were very clever, they would oppose the bill because it doesn't truly have the provisions that the Democrats insist it must have.