Congressional leaders believe they have drafted an acceptable bill to save the U.S. from the Great Depression II. Some of my initial pessimism about the bill has wanted now that I’ve read more about it. Like everyone, I wonder whether we’re throwing good money after bad. Here’s a copy of the draft, which will be voted on this week. Makes you wonder why we can’t publish all legislation for public commentary before it goes for a congressional vote. This would be most meaningful for Chicago. Oh imagine our budget surpluses if someone would fetter Daley’s vendor relationships and spending sprees. I’ve been saying for years that technology can bring back the days of a direct democracy…then again, now that I see how near-sighted the American people can be, I don’t know if that’s preferable.
I was ecstatic when Bush selected Paulson to head the Treasury less than two years ago. He left the most successful I-Bank (check the history books if you’re reading this years from now and don’t remember what an I-Bank was) to serve. Now he’s running the biggest one ever. Unfortunately, he’s made it clear he has no intention of staying beyond the Bush presidency. I fault him for that and have less confidence in his plan since I don’t know who will carry out the structure he designed. I hoped some congressman bothered to read the entire 110-page bill to confirm that they’re not giving away all management of the country to the executive branch. You saw what happened the last time the current administration was at the center of crises: that was the first $700 B check we taxpayers wrote. At least this latest debacle shouldn’t cost 4,000 lives (unless we start counting the increasing crime rates caused by the weakened economy).
In addition to bringing liquidity, this “break the glass” plan, as the Treasury and Fed Reserve officials have dubbed it, is supposed to develop a market for – and therefore value of – the CDO’s. Much has been written, and so I have wondered, about the affects of the SarBox mark-to-market rules which have created this cycle of continual asset write-downs. Why didn’t the government pass regulations to either temporarily suspend this rule or develop some global assumptions (i.e. 70% subprime default rate) which companies could use to value these securities since no market exists (hence price doesn’t equal value). By the way, I’ve read (though can’t represent the accuracy of the sources) that RMBS are pricing in subprime default rates between 70% and 100%.
This brings me to another complaint about U.S.’s society: why doesn’t the media ever talk numbers!?* It drives me nuts that they believe (probably accurately) that Americans don’t understand or appreciate the numbers but I want to know: what the prices of these securities are telling us about the expectations on foreclosures and loan recoveries; how big is the market for each CDO, etc. Then each can decide for themselves if the Plan is worth the potential cost. While were at it, someone should study the effects of corporate tax rates and the George Bush tax cuts on the economy, corporate profits and tax revenues. U.S businesses have enjoyed incredible profit growth over the past four years. Much of it was financial related. I wonder how that will look after this debacle is over.
*FD: this complaint was initially developed by Rich Karlgaard, the great Forbes publisher, in his column a few months ago.