Killing The Bailout: A Million Add-Ons To The Paulson Bill

Nearly everyone in Congress likes the Paulson plan to bail out American financial institutions by purchasing up to $700 billion of their troubled assets. Nearly every legislator wants to add new language to cover parts of the economic system not addressed in the current bill.

Put another way, the "quick fix" for unlocking the credit markets is based on the legislation being passed and signed into law by Friday. Fighting over what the bill should contain will sabotage that.

House Financial Services Committee Chairman Barney Frank has been waiting to get his hands on the proposal so he can begin adding baggage. Among the new features he insists be appended are limitations on the compensation of executives who work at the banks which will benefit from the bailout. Corporate compensation committees will be able to take extended vacations.

Frank has also pressed for the Comptroller General to have an oversight role in how the Treasury does its job of buying toxic paper. That would violate a key underpinning of the Paulson plan which is that Treasury would operate without interference from any outside authority, including the federal courts.

Several other Democrats insist that the new laws include "help to homeowners struggling to avoid foreclosure," according to Bloomberg. That help could only come in the form of a fund larger than the $700 billion being proposed, unless the original purpose of the project is to be castrated. Underwriting the individual mortgages of hundreds of thousands of embattled homeowners would be as time consuming as it would be expensive.

The most obvious sign that the program will not make it through the approval process came from the Speaker of The House Nancy Pelosi. According to Dow Jones, in a statement issued Sunday evening, Pelosi said a Treasury proposal received by Congress "does not include the necessary safeguards" and that congressional Democrats "will not simply hand over a $700 billion blank check to Wall Street and hope for a better outcome."

If the most near-term goal of the Paulson program is to "unlock" the credit markets and move banks toward providing credit to other banks, businesses, and consumers, the perception that the legislation will became a debating ground for saving the common man will drive Wall St. back to the brink of panic.

Both political parties, Paulson, and a number of members of Congress, each want the life boat to carry a different group of drowning sailors out of harm’s way. In the meantime, this collective weight will scuttle the dingy.

Douglas A. McIntyre