hosed...,
2008-09-30 16:56:55
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how the senate lubes up...,
2008-10-01 17:30:01
"The senators issued no details of their proposal.":
Somebody (DeFazio D-OR) has finally proposed a banking bill that makes sense, based off this proposal by a former FDIC chairman.
Aside some trivial SEC re-regulations regarding short-selling: It allows banks to value income-generating MBS on the income it generates rather than a fictitious market value it isn't trading at, which would help settle their capital balances. It increases FDIC deposit insurance to $250,000 which would prevent more bank runs like what happened to Washington Mutual. Most significantly, rather than buying bad debt securities from banks at inflated prices with little equity in return, at a cost of $700 billion dollars we don't have, the plan implements a "net worth certificate program" in which the FDIC would recapitalize banks by exchanging net worth certificates and promissory notes. I read that the same as "preferred shares for bonds" with less paperwork: presumably it allows banks to avoid failure due to falling debt-to-equity ratios, thus restoring confidence in interbank lending, without actually costing us anything. Well, except the half of the financial sector that needs to burn down anyway.
Since the mood of the day is to add to the cost of the Paulson-Dodd bailout by including further tax cuts - when you're talking about tossing another trillion dollars onto the firestorm of national debt this makes a lot of sense - DeFazio and his ilk probably ought to just offer the House GOP their 15% capital gains tax cut. The bailout would then only give some 200 billion to the wealthy, and probably not those in the financial sector: a half-trillion dollar "savings" with less moral hazard.
Meanwhile, the Senate is voting on a super secret version of the Paulson-Dodd bailout. Apparently it's too important to worry voters with the details.
