Wednesday, October 01, 2008

Bailout Take Two: Senate Builds on House Plan to Save U.S. Economy

Financial Times, Support Grows for Reworked Bail-Out
CNNMoney, Bailout: Game On
Text of H.R. 1424

Update 2: The House approved the Senate's revised bailout plan on Friday and Pres. Bush signed it into law on Friday afternoon. Treasury Secretary Paulson said he will act swiftly to put the plan into action. Read the new law here.

Update: The Senate overwhelmingly approved its revised bailout plan 74-25 on Wednesday night; the House of Representatives may vote on the measure on Friday. (Source: New York Times, Senate Passes Bailout Plan; House May Vote Friday)

The U.S. stock market was down before the Senate vote Monday night, but hopes were up that Congress would pass a revised bailout plan to keep the U.S. out of another Great Depression. The revised plan, which includes tax breaks and increases in federal insurance for bank accounts, came to a vote Wednesday night in the Senate, who took over the bailout after its predecessor failed to pass the House.

Democratic Senator Harry Reid (D-NV), the Senate majority whip, was charged with constructing a plan that would garner enough votes to pass the House later in the week. The strategy has produced add-on provisions aimed at “Main Street” businesses (read: not focused solely on rescuing Wall Street firms), including raising the FDIC insurance cap from $100,000 to $250,000 and allowing banks to borrow from the Treasury to cover losses that result from the higher limit. The tax breaks in the plan include extending the renewable-energy tax credit, as well as extensions of tax breaks that are about to expire: the research and development tax credit, federal deductions for state and local taxes paid, and another year of alternative minimum tax (AMT) relief.

The Senate bailout plan also contains provisions that were in the House plan, including a plan allowing businesses to sell their troubled assets (mostly mortgage-related) to the government, using $700 billion of federal funds, available in stages. To protect taxpayers, the Treasury Department would take an ownership interest in companies that sell assets or buy insurance from the federal government, and companies using those funds would be required to reimburse taxpayers for net losses after five years. Several more of the House’s key provisions are included in the Senate bill.

Opponents of the bill say that lawmakers have not spent enough time considering all the options and some oppose giving the private sector “unfettered” access to Treasury funds. But supporters say that more time to consider better plans isn’t an option at this point because inaction could push the global economy into a deep depression. Because the Senate plan includes additions, the cost of the plan will likely be higher than the $700 billion available to the Treasury. But supporters of the bill say that taxpayers will make that money back through the investments made into those financial services.

Questions for discussion:
1) Does this plan address the right problems? Are the roots of the problems addressed?
2) Are the Senate add-ons appropriate or do you think they're merely political moves to get the plan approved? Is this the right thing to do?

1 comment:

B said...

I wouldn’t be surprised if the recent overhaul of bankruptcy legislation was designed for this economic situation; it turns human debtors into indentured servants. And that is necessary for the following reason:

The ’sssssss’ we are noticing with this credit crunch is just the leak before the big burst. This credit bubble has been inflated by a logorithmic base 10 scale of dollar creation.
The practice of using 90% of ‘real’ wealth for lending that can then be invested and re-deposited for recycling again and again for more and more credit probably has the same effect of simply printing more money. The difference between those two ways of creating wealth is that creating money by credit inflation redistributes wealth for the benefit of financiers. And printed money is real; not fake.

This credit bubble burst should, then, be creating a shortage of money. And the cure may be as simple as the government printing more money. The only problem with that scheme is that there would not be another bubble to burst to correct for over-inflation. Printed dollars don’t evaporate away like the ones the financiers are trying to sell taxpayers now.

And that is why those who have engineered this bubble need those new draconian bankruptcy laws. Only wage earners can turn this fake money into real wealth. And that is why the Bush administration and other supporters of the great bailout plan are adamantly against giving bankruptcy judges the right to restructure debt according to who is most responsible for making bad loans.

Bryant Arms