Homers On The Range

Word comes that the Senate will vote today on the $700 billion bailout bill that failed to get through Congress on Monday. Make no mistake, this is strictly being done to put pressure on the House to pass this bill. That’s it. Sure, they’ve added a few incentives that they think will draw enough Republican reps in the House to get this thing done. But at it’s core, this bill stinks.

Let me be clear, I agree that raising the FDIC insurance on depostis and accounts from $100,000 to $250,000 is a good thing. They already have that threshold on retirement accounts and I think it will do some good in restoring faith in the banking system and it’s strength. But, what I don’t understand is that Congress voted against the bill in the first place because it was attempting to spend money that we DO NOT HAVE and it was executing a poor plan that would only serve to benefit the very companies that made the bad choices in the first place. If I were in a position to react, I would sit down and say, “Okay, what other alternatives are there to accomplish the same goal without spending billions of dollars we don’t have and without totally bailing out these companies?”

If you ask that question, there are several options that are readily available. One of those options is to follow Warren Buffet’s lead in using preferred stock to stiffen the balance sheets of these troubled companies. Those companies would then have to cut their operating expenses, pay bare minimum salaries, and give no bonuses, until the government gets its money back. In othe words - work hard and make some sacrifices in order to dig out of the hole you’ve dug. Another option is to insure the bad mortgages and loans so they instantly have value in the market place again. This would cost some money when roughly 15% of those loans do eventually go into foreclosures, but only about $40 billion compared to $700 billion. Both of these plans put the troubled companies in positions to succeed, but the responsibility shifts to them instead of to the Federal Government who has shown us how well they manage finances over the past many years. Hint: it ain’t pretty.

But, instead of exploring other options, what do the politicians do? They just try to put lipstick on this pig with some renewable energy tax incentives, some permanent relief from the Alternative Minimum Tax (which should’ve been taken care of LONG ago) and a “Mental Health Parity” provision, which would require health insurance companies to cover mental illness at parity with physical illness. WHAT?! That would be like me telling my wife that she can’t buy a $10,000 dress because we can’t afford it and she then talks me into it because I will get a new Callaway driver, three breakfast burritos, and a new pair of $45 jeans.

This bill that the Senate is voting on today is not significantly different - at its core - from the bill that Congress failed to pass on Monday (for good reason) and I am holding my Senators feet to the fire if they vote for it. I’m looking at you John Cornyn and Kay Bailey Hutchison. Don’t make me come up there…

I don’t agree with everything that this guy says, but in this case, I think he’s spot on. Check out his plan for the economic bailout bill. Seems like great minds think alike…

One of our commentors made his plan known in the comments section of Steve’s post regarding the $700 billion bailout bill that was voted down in Congress yesterday. My thoughts on his comments are below:

MJ, I’m with you a few points. I agree that the mark-to-market law needs to be updated, I agree that the FDIC insurance rate should be increased, but I think $1 million is a bit high. Maybe doubling or tripling it to $200,000 or $300,000 would be sufficient. I disagree with giving each American family $1 million as well.

With this bailout plan as it stands, even without the necessary addendums and revisions it’s going to get to make it better, the government still stands to receive most of the investment back over the next 5 years. Giving that money to American families would yield little or no return to the government investment and would only serve to get people in even bigger holes. People who have poorly managed their finances in the past will not suddenly be good money managers when you gift them $1 million. The same is true for these mega corporations (I’m talking to you Fannie Mae and Freddie Mac) who were not only allowed to increase lenient lending practices to the sub-prime borrowers, but encouraged to do so by the Clinton Administration.

I think the additions of the FDIC insurance increase, the mark-to-market law revisions and the increased oversight and longer payout of the $700 billion are all good steps that will help get this bill passed. I would MUCH prefer that the government just insure the bad loans that these banks and mortgage institutions have on their books instead of purchasing them, but apparently that’s not an offer that’s on the table right now.

Side note - if the only thing that makes these loans worthless in the marketplace is the fact that other businesses think they will go into default before being paid out, why doesn’t the government just insure them, thereby restoring value to these sub-prime mortgages? That would cost some money when some of the mortgages do default, sure, but nothing even remotely close to $700 billion. If the answer to my question is that the money has to be injected into the marketplace right now, instead of whenever the mortgages can be sold, then I say we don’t have the money now, anyway. Mortgaging the economic future of this nation on money borrowed from countries who despise and detest us is a much worse option than having to tighten the pursestrings a bit and live within our means for a while.

I commend the House Representatives, Democrat and Republican alike, who voted against the first version of this bill. I just hope they all have the courage and fortitude to thoughtfully approach the next version with the same standards for America in mind. Special big props to Reps. Culberson and Hensarling, who are from our neck of the woods, for voting no. I guess my calls to the House and Senate offices of our reps do get noticed from time to time. Who knew?