Over on his blog Ezra rounds up the 5 biggest problems with the bailout:
The Imperial Treasury: The bailout plan, as currently designed, gives Hank Paulson almost unlimited power with virtually no oversight. The bill says, "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." You almost wonder if they included that line as a gag, or if it was originally a hyperlink that got you RickRolled. As Yves Smith writes, "This puts the Treasury's actions beyond the rule of law. This is a financial coup d'etat, with the only limitation the $700 billion balance sheet figure. The measure already gives the Treasury the authority not simply to buy dud mortgage paper but other assets as it deems fit. There is no accountability beyond a report (contents undefined) to Congress three months into the program and semiannually thereafter. The Treasury could via incompetence or venality grossly overpay for assets and advisory services, and fail to exclude consultants with conflicts of interest, and there would be no recourse." It makes Hank Paulson the country's economic czar, and fairly few of us were even aware that was an open position.
At What Price?: "Within hours of the Treasury announcement Friday," wrote Sebastian Mallaby, "economists had proposed preferable alternatives. Their core insight is that it is better to boost the banking system by increasing its capital than by reducing its loans." Buying the bad assets is an odd strategy: It requires paying much more than the market currently thinks they're worth, but hoping that the amount you paid is less than they eventually will be worth. But no one knows how to price these assets. Mallaby continues: "Bad loans are weighing down the financial system precisely because private-sector experts can't determine their worth. The government would have no better handle on the problem. In practice this means the government would make subjective choices about which bad loans to buy, and it would pay more than fair value."
Read the rest here.
--The Editors
