Congress is nearly done pulling together terms for a $700 billion bailout of the nation’s banks. It will keep a hand on the purse strings. At first, Treasury will get $250 billion. After that money will be put toward auctions of toxic paper held by the banks at the rate of $100 billion to $150 billion at a time.
It is likely that the pay packages of CEOs at companies which take advantage of the facility will be very modest. The Treasury will also probably get warrants for future ownership in the institutions that they aid.
Every one of these provisions could change before the document makes it to The White House.
As Congress and Treasury began to make progress on getting the bill into law, conversation moved from whether the legislation would be passed to whether it will work. Only the fortune-tellers with small shops on narrow streets in old cities know that answer.
What the bill fails to address in any meaningful way is the flat spin in housing. Figures out today indicate that home prices and sales continue in a murderous climate. Saving banks does not force them to lend. That would seem to be the one tremendous weakness of the Paulson plan.
The stock market is in the midst of a furious rally. It is not entirely clear that traders understand what the rally is about. Several big banks will probably be saved, but the economy may not be aided at all.
GE (GE) warned today. Jobless claims hit a seven-year high. Durable goods orders were brutalized. Housing is wretched. Oil is moving up on the assumption that the economy will get stronger.
If the world has been saved, it does not feel like it.
Douglas A. McIntyre
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