Lawmakers reached agreement on the 700 billion bailout. Republicans held out for an the all impotent detail of insurance:
At the insistence of House Republicans, who threatened to sidetrack negotiations at midweek, the insurance provision was added as an alternative to having the government buy distressed securities. House Republicans say it will require less taxpayer spending for the bailout.
But the Treasury Department has said the insurance provision would not pump enough money into the financial sector to make credit sufficiently available. The department would decide how to structure the insurance provisions, said Sen. Kent Conrad, D-N.D., one of the negotiators.
The bailout bears the echoes of Iraq in its buildup. Its being rushed through, with a Sunday vote by the House, and a Monday vote by the Senate. 700 Billion is a lot of debt to saddle us all with. Especially with concern about the long term impact. But what about the short term impact? (Angry Bear via Time Blog, Emphasis Mine):
[T]he problem is the price, in this case the premium. If it is vastly less than the probability of default, the House Republicans have found a way to throw money at bankers and financial arsonists instead of just bankers. If it is actuarily fair, it will force liquidity constrained firms to unload the securities — they could wait and hope for no default, but they can’t pay actuarily fair premiums. When you are insolvent, risk, variance, double or nothing is your only hope of survival. Thus aside from the contribution to financial arson (which I guess will be huge) the plan would also force distressed banks etc to unload mortgage backed securities at fire-sale prices. Now I don’t think the current problem is mainly due to systemic margin calls due to mark to market and capital requirements, but making that problem vastly worse would hasten the collapse of the US financial system even without financial arson.
Awesome.
Posted under Economy, Politics
This post was written by Dan on September 28, 2008
There’s lots to say about this, and not enough time because the situation is rapidly changing – but that’s exactly the point. We’re about to spend approximately a third of our annual budget, after considering it for less than a week, and everyone – Republicans and Democrats – are just rushing it through, as if we wouldn’t notice. “A la” the PATRIOT Act, but this is going to impact us financially a hell of a lot more than the PATRIOT Act. I think the lesson from this past week is utter subservience of politicians of all stripes – Republicans and Democrats – to the business/financial sector of the country.
And once again most of the American public opposes it.
I wonder if its a mixture of supporting the business sector (or the ownership class), or if politicians up for election simply don’t want to run against them in addition to their opponents?