A modest proposal for the bailout plan

Here is the draft of the bailout plan. It gives Henry Paulson absolute, unchecked power to give any banks he chooses good cash for bad assets. Courts are specifically excluded from questioning his almighty will.

This amounts to a direct transfer of wealth from Joe Taxpayer to the wealthy Wall Street bankers who got us in this mess — at least to those wealthy Wall Street bankers Paulson chooses to shower with favors. Remember: there are no checks and balances.

Paulson will not pay fair prices for the assets. If he did, the banks would go bust as the fair prices are certainly lower than the values the banks need to stay solvent. So this is a handout: good cash for garbage. Some, if not most, of the assets Paulson buys will be worth ZERO. These are not just mortgages, which would likely have some value, but the worst tranches of mortgage-backed securities, which were designed to be worthless in a downturn to protect the AAA ratings of the better tranches.

So why is the taxpayer taking all of the losses while Wall Street gets all of the upside?

I propose a few modifications that should be politically popular with both parties in Congress:

1) Treasury gets extremely dilutive warrants from any bank that touches this facility. This is what happened at AIG: the taxpayers may lose a lot of money, but at least Wall Street’s profit from the scheme is minimized and the taxpayers get something back in a best-case scenario.

2) Executive compensation is capped at any bank that touches this facility. Nobody makes more than 10x or 20x the median employee, and no more stock options. Maybe even a clawback for ill-gotten gains during the bubble. Executives don’t go along? Push them out.

3) Substantial new funding for the Justice Department to prosecute mortgage fraud and securities fraud for everyone that caused this problem, from Angelo Mozilo and investment bankers all the way down to speculators who committed fraud on their loan applications. We saw plenty of “perp walks” with Enron, WorldCom, and Tyco. Why have we still seen none in this much larger fraud?

This must be written into law now, before Congress give Paulson a blank check and unchecked power. Please contact your Senators and Congressperson today.