Monday, September 29, 2008

Is The Big Bailout Bill really dead?

Yes, The Big Bailout Bill really is dead. It is dead, dead dead. Having said that, the $640 billion question is how dead is it? For sure, it is dead in its current form, but with some changes, it really could be brought back to life. I listened to the last hour of the House debate, and there were a bunch of changes suggested which might be enough to get a revised bill passed. Not everybody can be readily satisfied, especially in an election year, but some threads of opportunities were obvious:

  1. People just need more time. One week just won't cut it.
  2. People need more time to study the proposal.
  3. People need more time to ask questions about the proposal.
  4. The rank and file, not just the congressional leadership and designated negotiators need to feel that they are part of the process.
  5. There has to be great clarity about the degree of relief that homeowners will get, including reduction in principal, reduced rates, and better protection from foreclosure.
  6. There has to be some clarity that responsible howeowners are not subsidizing irresponsible homeowners and speculators. There has to be a sense of fairness.
  7. Congressional representatives and senators need time to travel throughout their states and districts to present the proposal and discuss it with their constituents. And then there has to be time to incorporate some of that feedback into fine tuning of the bill. People need to feel that their concerns are being addressed.
  8. Citizens need enough information to see that it is they, the people, and not Wall Street that are likely to reap a windfall.
  9. People need more information about enforcement to understand that enough people will be tried and sent to jail for causing this crisis.
  10. President Bush needs to be much more deeply involved in give-and-take discussions with individual members and groups within Congress so that they can feel that they are getting a fair hearing.
  11. There has to be at least fairly detailed preliminary discussions of a new regulatory regime which makes the point that we actually did learn from our mistakes.
  12. Do a better job of phasing the outlays so that people do not reject the proposal simply based on sticker shock.
  13. Drop the threat of a Great Depression. Yes, the failure to have a bail-out results in A Big Mess or even A Bigger Mess, but nothing on the order of a Great Depression. I would also note that Benanke got overly worried about deflation back in 2005, so people need to discount his worries at least a little bit.

There are probably more changes needed, but that is a start. In truth, it is really more about process than the actual details of the bill. Put simply, too many people felt that they were being railroaded. Oddly, it was the Republicans who felt most railroaded.

Ultimately, the vote was very close, so even a modest degree of change to the bill coupled with some elapsed time for people to work through it may do the trick.

I suspect that we will have a revised bill and process proposal within a couple of days, maybe the end of the week or next Monday.

Meanwhile, Treasury, the Federal Reserve, and the FDIC will continue to do a great job of coping with the crisis on an ad hoc daily basis. And, I would add that the private sector itself is actually doing a semi-decent job of working through the mess. With WaMu and Wachovia now out of the picture, the number of looming disasters is incrementally shrinking.

-- Jack Krupansky


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