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Commentary

Bailout plan: some details are out

Pelosi’s draft of the changes to the US bailout plan are in (thanks to Calculated Risk):

  • $700 billion in two installments, congress can say no if they don’t like what happened to the first one.
  • Ownership stake in companies that participate. Looks like preferred but even senior to the senior most debt. (first call on assets)
  • No golden parachutes, limits on CEO comp
  • Huge oversight by Congress, includes putting transaction details online
  • Right to modify owned mortgages (this can severely reduce value and “profitability”)

Not much clarity in terms of specifics but these are fluid times and lots of things can happen before a plan is finally agreed upon. There is lot of voter opposition to any kind of plan – because simply put, there is no more trust. Everyone’s an asshole, especially those in these banks, and this kind of bailout is likely to produce even more hatred once the recession takes control of the general economy. I do not envy the winner of this election.

Note: A lot of people are saying “it’s not a bailout, it’s an asset purchase”. I respectfully disagree. (Which is the formal way of saying, “Puhleeze.”) There is a rescue being mooted, the target of the rescue being current banks. If it was an asset purchase plan, the US could have created a taxpayer owned entity called Mortage Mae or Maggie Mae or whatever, and let it buy everything, funded by T-Bills. And then could have taken it public, sold all of its shares at a hefty price and paid back the t-bills when it made a profit. But that doesn’t help the current banks, no? So it’s a bailout.

  • DK says:

    >Well.. At least this plan is way better than the first draft.

    But I am not sure whether it is the popular view that it is an asset purchase plan. The idea is to restore liquidity and your idea wouldn’t help much there. But you are right, it is still a bailout.

    But I am still not sure things are as bleak as you point out. Forget the fundamentals, they dont matter in these circumstances. But I don’t see much safe-haven buying to indicate that things are going that much downhill. Or am I reading things wrong?

  • Anonymous says:

    >It is Universal. Most Politicians are inside the pockets of Big Money. They do these dramas to just to do lip service to the Public. Inside their minds they know Public is only Sheeps.

  • shyam says:

    >Deepak, on an unrelated note, you are not on twitter, are you?

  • Deepak Shenoy says:

    >dk: I don’t know – market down 4% today and it’s not looking good..

    shyam: Am on it – deepakshenoy.