UPDATED: Bailout Bill: The good, the bad, the necessary
UPDATE: The Bill just failed in the House. This is not good news, no matter how much you hear Republicans and Progressive Democrats say it is. Hold onto your hats, the ride is going to get rockier from here on out.
There are some disturbing provisions in this bailout bill, alongside some that are for the benefit of those in precarious mortgage situations, facing foreclosure. First, the concerns:
- Expansion of definition of rescued assets – Section 9 seems to expand the scope of the bailout to assets that are not backed by mortgages:
(9) TROUBLED ASSETS.—The term ‘‘troubled
assets’’ means—
A) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary determines promotes financial market stability; and
(B) any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress.I ran part B by several people who are familiar with language like this and they agree — this language essentially opens the definition to any security traded on the markets. Think money market funds as an example. Or sector funds. Or currency-backed funds. It is possible that all of these could fall into definition B without public disclosure and behind the doors of Congressional oversight.
- Mortgage Guarantee Insurance Fund – The bill establishes a fund which banks will have to make contributions toward the guarantee of these assets. Having had many years of experience with the Pension Benefit Guaranty Corporation and its precarious financial condition, I am not confident that establishing a fund makes much of a difference, nor that it cures more than it poisons.
- Waiver of requirements for contractors – This provision has me bothered more than any other, because it possibly hands control of the taxpayers’ money back to the same people who caused the problem in the first place.
What I like:
- Specific provisions to mitigate foreclosures by requiring banks to renegotiate loans with qualified homeowners.
- Requirement that transactions be published made public within 2 days.
- Incremental release of funds with oversight as to when and why additional funds are approved for release.
- Timely and rapid reporting and disclosure of the use of funds
- Limits on executive compensation for those leading failed institutions.
What concerns me in general is that this does not really shore up the overall credit markets. I’m concerned that home loans are really the small tip of the iceberg, and some real problems will arise as mortgages recover but people default on their credit cards issued with ridiculously outrageous interest rates and high balances. The same with student loans. All of these are at risk, too. It’s just that mortgages are the canaries in the coal mine.
I have seen some commenting about concern about where the money will come from for this bailout. It’s a fair concern. I think it’s worth noting that the transactions at stake here are an exchange of cash for an asset — a piece of real estate that will have value again.
While I’d like to have the luxury of seeing the speculators and robbers penalized and punished, at this point I will settle for stability here and worldwide with the hope that we can work together to shape a policy and set of laws that protects homeowners, 401k investors, and limits the greed and excesses of those who drove us to this precipice.