Saturday, September 27, 2008

Some Questions About the Bailout

Yesterday, the WaPo gave page A-4 entirely over to ask and answer "8 Questions About the Debates." The debates are important, of course, but the bailout is freakin' HUGE.

But can they make space for "8 Questions About the Bailout"? Fuck, no.

So here's a few of mine. Mind you, this is the list I'd like to see the WaPo run. I've got a few additional questions, as a Democrat, for the Democratic leadership, but I'll put them in a separate post.

1. What happens if we do nothing, and why?
2. How will Paulson's (or the Democrats') bailout proposal keep that bad stuff from happening?
3. Is it the end of the world if Congress waits until after the election to deal with the bailout?
4. Who is getting bailed out, and why them? If Lehman's already gone bust, Bear Stearns, AIG, and Fannie/Freddie have already been bailed out, Merrill Lynch has been bought by Bank of America, and Warren Buffett's just put $5 billion into Goldman Sachs, that just leaves Morgan Stanley, and they can't possibly need $700 billion worth of rescuing, right?
5. Why $700 billion? How'd they come up with that? ("It's not based on any particular data point," a Treasury spokeswoman told Tuesday. "We just wanted to choose a really large number." OK, I guess we know the answer to that one.)
6. The Paulson and Democratic bailouts both depend on Uncle Sam paying a good deal more for
mortgage-backed securities (MBS) than anyone else wants to pay for them. What sort of sense does this make? The assumption seems to be that, post-bailout, they'll be worth enough so the government will come out OK in the end. Does Uncle Sam really know more about how to value these things than the market does, especially given that a year ago, Uncle Sam didn't even see this coming?
7. Why not do a bottom-up bailout, by mandating a nationwide renegotiation of excessive mortgage rates? To the extent that the underlying problem is a big pile of MBS which may not have much value because people are unable or unwilling to make the payments, just force a writedown that enables people to make the payments. (If your house payments are greater than, say, 38% of what your income was at the time you got the loan, then mandate the conversion into a 30-year fixed mortgage with the payments set at the 38% level.) This would cost the government nothing, but it would keep people in their homes, and it would stabilize the value of the mortgage-backed securities at a decent level, thereby unfreezing the credit markets. The holders of the MBS would take a bit of a writedown, but right now those securities are nearly worthless.
8. Rather than borrowing the $700B for the bailout, why don't we decide upfront who's going to pay for it through tax increases? Why should Joe and Jane Sixpack be stuck with the bill down the road by default if the bailout doesn't miraculously pay for itself?
9. Why is the GOP so strongly opposed to restructuring people's mortgages, even when they favor a bailout for the banks?
10. How would the Boehner plan work? (Would it work?)
11. James Galbraith has proposed a plan. How would it work, and would it work?
12. If we're going to commit to spending $700 billion, there are probably a number of alternative plans that might accomplish the underlying objective of preventing the credit markets from freezing up. Why isn't the discussion ranging a bit wider than it is?

Instead, what we get is Serious People Are Doing Important Things That Must Be Done, That Will Cost a Lot of Your Money, But That You Wouldn't Understand. It's the perfect Broder-Hiatt crisis.

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