How Not to Build a Bailout Proposal

Let’s see. There are a bunch of people ready to riot on the streets—or at least do the White Person version of rioting and vote Republican, mainly because of the lies of several House Republicans.

And there are a precious few people who believe action needs to be taken and—while they might prefer, say, The Swedish Model as both more efficient and more likely to succeed—are willing to give Paulson/Bernanke a chance to be immortalized, even knowing that the odds are rather higher than Brad DeLong hopes that the immortality will be of the James Buchanan/Herbert Hoover variety more than General George Marshall. (Daniel Davies Three Laws have not been repealed, but the wolf really is at the door.)

So what do we see from the Democrats who, one way or the other, are going to be credited blamed with anything that passes? Besides arch-idiocy from the “progressives”, there was the rumor that they might actually produce a bill that Democrats can vote for?

You know how this story ends.

Kathryn notes that the Senate bill is even more of a giveaway than the House version was.

[N]ews reports suggest that the plan to be voted on by the Senate involves tax cuts. Tax cuts have no place in a bailout plan of this magnitude. Instead, the repealing of Bush’s tax breaks to the wealthy and large corporation should possibly be part of such a plan. Somehow this has to get paid for.

She means reports such as this one:

“I’m optimistic that we’re going to have a significant bipartisan victory on the rescue plan here in the Senate tonight,” said Senator Mitch McConnell of Kentucky, the Republican leader, who Tuesday reached an agreement with Senator Harry Reid of Nevada, the majority leader, to add $100 billion in tax breaks….

“This bill has been packaged with a lot of very popular things to give it even more momentum,” said Senator Jeff Sessions, Repubican of Alabama, an opponent of the measure that is expected to easily clear the 60-vote threshold in the Senate, providing some momentum for the House vote now set for Friday.

But the new items also increase the burden on future taxpayers. The $100 billion in tax breaks, which offer incentives for the use of renewable energy and relieve 24 million households from an estimated $65 billion alternative-minimum tax scheduled to take effect this year, will not be offset by spending cuts or tax increases elsewhere.

and while Kathryn was optimistic about one part of the bill:

I do support some of the smaller scale proposals, such as raising the FDIC insurance level to 250,000.

The Devil in the details makes even this a c.f. of major proportion:

Moreover, the increase in federal deposit insurance will not be financed, as the insurance program now is, by assessing a higher fee on the banks that benefit. Instead, banks will get an open-ended line of credit directly to the Treasury Department — meaning, taxpayers.

and when a chance of sanity appears, the power of the Republican Party is, as usual, never to be underestimated:

House officials spent much of Tuesday considering their own changes, including an extension of unemployment pay and a $1,000 tax credit for less affluent homeowners.

But those plans are not likely to advance, given the Senate decision. While the Senate left the door open slightly to other additions to the bill, such revisions would need the agreement of the full Senate, and the House proposals were likely to be blocked by Senate Republicans.

Right. Because the unemployed and “less affluent” homeowners would actually spend that money and stimulate the economy, and, in turn, the financial services industry.

As it currently stands, the “bailout” makes no sense, especially given the other actions that largely made it unnecessary. (The Financial Services industry will be running no better, but at least they get to gull some investors for a while longer. And those that fail in such an environment have enough cash flow problems that propping them up is a waste of resources.)

Call your Senators; tell them to vote “No.”