Setting Bail
[2008-09-30 03:30]

I am not an economist nor an expert in politics, and so, like most people, I don't know what the best solution is to the current financial crisis in America. Specifically, I don't know if the $700 Billion so-called-bailout plan is the right way to go. All I have to go on is my gut, and my gut tells me four things:

1. This is a damned-if-you-do/damned-if-you-don't situation. No solution will be perfect or painless.

2. The bailout plan (with the amendments agreed to by Congress) will "work", in that it will staunch the bleeding, but the long-term costs of adopting the plan will be painful.

3. The Democrats will bear the brunt of any fall-out that occurs, regardless of whatever solution is adopted.

4. The Republicans (some of them, anyway) don't care and are putting politics before morals, ethics, and the well-being of America.

Nothing illustrates the last point better than this excerpt from a right-wing blog: "A bailout may be inevitable, but so to [sic] can be the political benefit for Congressional Republicans if played correctly."

Played correctly. This is why I can never ally myself with the Republicans. Nevertheless, it seems that House Republicans are following this advice.

Republican Representative Richard Shelby recently announced his (and other House republicans') opposition to the bailout plan. He held a letter which he claimed to be from 44 leading economists saying that the plan was flawed. But when asked by a CNN reporter (I don't remember which one), Shelby evaded all specifics. I wish CNN would put the video clip of the exchange on their website (if they have it, I haven't found it), but I saw it when it was broadcast and it went something like this:

CNN: Why do you oppose the proposed bailout plan?
Shelby: Because 44 leading economists say its flawed, and we should believe the experts.

CNN: What don't those economists like about the plan?
Shelby: The plan is fundamentally flawed.

CNN: But why is it flawed?
Shelby: It's flawed because 44 leading economists say it is. We should listen to the experts.

CNN: Were they talking about the original plan proposed by the White House, or the one being developed by the Congress?
Shelby: The plan is fundamentally flawed.

CNN: So what do you or the experts want the government to do instead?
Shelby: We want the government to listen to the experts and 44 leading economists say the plan is flawed.

I've not found a link to a copy of that letter that Shelby claimed to have and am a bit disappointed that the news agencies haven't pressed to get and disclose a copy of it either. In any event, when someone is being that evasive about what they want, it's because they don't know what they want, in my opinion. The exchange between CNN and Shelby demonstrated to me that Shelby opposed the plan simply to oppose it -- he didn't have any ideas for a better plan.

Similarly, when Democrats argued that taxpayers ought to get something back from companies who benefit from the bailout, Republicans objected:

[Republican Representative] Shadegg objected to other portions of the proposal, namely a provision that the federal government would obtain an equity stake in rescued companies.

Most recently, "Republican lawmakers offered a plan calling for Wall Street firms to purchase insurance on mortgage-backed securities and advocating tax cuts and relaxed regulations" according to Bloomberg news.

My gut tells me that this plan is ridiculous and that it wouldn't work. Even if the government made this insurance mandatory (which would contradict the conservative mantra of deregulation), the problem is that so many of the insured would need help right away. This is why medical insurance companies don't insure people with pre-existing conditions. If they did, they'd end up paying out far more money than they'd be collecting from those people's premiums (in theory, anyway).

So, who would provide this insurance? Other financial institutions? But which ones can afford to offer the insurance now? What happens if the institution that offers the insurance doesn't have enough capital to pay the claims of the insured? Isn't that the exact problem we are facing now?

What if the insurance is run by the government? Where does the government get the money to pay claims made by the insured? And what does the government (i.e., taxpayers) get in return for those payments? Even if the government could pay those claims, isn't that the same as bailing out those companies? Only, in this case, there would be no equity in return.

So, unless I completely misunderstand the idea of "insurance for mortgage-backed securities", it seems pretty clear to me that this plan by House Republicans is a smoke-screen.