The Congressional Budget Office analysis of the bailout plan makes for some depressing reading. The list of tradeoffs is not good. For instance: The bailout isn't a guaranteed fix in the first place, but it's really unlikely to work if the governments pays a realistic price for the assets. Or, in CBO talk: "It therefore remains uncertain whether the program will be sufficient to restore trust, especially if the program is limited to the asset classes in which the government is least likely to overpay for its purchases." But there are alternatives! Sadly, moving in the direction of an equity stake comes with its own problems. On the one hand, it will "provide some upside to taxpayers in the form of dividends and capital gains on preferred stock...[and] avoid the challenge of pricing and then selling individual assets." On the other hand, an equity approach could "fail to address directly the illiquidity problems for some assets and the associated uncertainty." Worse, "the assistance may not be targeted to the institutions most in need of help, and the firms that most need capital may be most reluctant to take it." It's sort of exciting to try and understand complicated new legislation and game out how best to better the package, but it's worth remembering that no matter how this goes down, taxpayers are getting epically screwed. The fact that Wall Street isn't groveling for help and seeing mass resignations is evidence that something in our business culture is deeply sick. The fact that Bernanke and Paulson are willing to kowtow to the continuing arrogance of the Masters of the Bankrupt Universe is evidence that something in our political culture is profoundly captured.
