i've had the draft resolution in my hands since yesterday afternoon about 2pm. the draft is 106 pages (most of that is actually because they only write on like 4 inches of the paper, leaving the rest for editing room, lol. i was rather pleased with the bill up until title 3.
title 1 and 2 setup the basis for the package to work. there's a fair amount of oversight. the bill is capped at $700bln, but what most people don't understand is that there's 3 levels of spending that sectreas goes through. the first authorization is only for $250bln. the next, requires approval from the president and it appeared to be a joint (house and senate) oversight committee to commit up to $350bln (which again, appeared relatively quickly). to reach the $700bln number, it required approval from the majority of the house, and something like a 10-14 day waiting period. all purchases would have to be justified, and the sectreas would have to report regularly on the health of the program.
there's also quite a bit built in on renegotiation of the aquired assets if they were in danger of default. i didn't get into the executive compensation limitations, but they're there. i'm not sure the level of protection that it provides. i was still caught up in the setup of oversight as i read through the bill this morning. i honestly probably won't be able to get through it today.
what really bugged me was title 3. in essence, it's a tax break for banks/financial institutions. under normal circumstances, gains and losses on investments held are classified as capital losses, subject to a 15% rate (at the personal level, and i believe at corporate as well). what title 3 (in it's 4 pages of glory) says is that any bank or financial institution that held fannie or freddie preferred stock (again, i'm not 100% clear on the definition of preferred - if it's true preferred or just all stock), and sold after the beginning of september, are eligible to take those losses and transfer them to the income statement - effectively reducing the taxable income, thereby reducing the amount of tax paid by a financial institution. it reeks of pork barrell/special interests to me. i'm not sure of the fannie/freddie exposure or capitalization, and whether or not it's a blip or dent in things, but if we're proposing additional spending, why cut taxes?
i should point out that the spending was specifically directed by the bill to raise additional funds through issuing new t-bills/notes. remember that those are obligations of the government, and are only obligated to pay current interest (the balance is due at the end of the term). by my current math, using a 3.75% rate (current is 3.63%) on the 10-year note, the government additional spending per year would be up to $28bln. assuming 100mil individual taxpayers (there were actually 134 million individual returns in 2006), that comes out to up to $300/yr extra in per person tax revenue that would need to be generated to keep current on those obligations. obviously, the idea, is that in buying those assets, the government would be able to generate current revenue to offset that $300/person number, and be able to re-sell those assets for at least the amount they paid for them, and therefore retire the debt that was issued (ideally, they'd retire debt that was paying a higher interest rate - but that's just getting into the matter of whether or not the government can manage money effectively).
i think the main reason for the failure and the overwhelming support against the bill does lie in the failure of representatives/media to adequately explain the provisions of the bailout. all that we've ever heard is the $700bln number, not what it means on an individual level. sure, i don't want to see my individual taxes go up by $300/year (if even), but at the same time, i sure don't want the economy to tank and be out of a job, either.
the precedent for the culmination in what was ultimately known as the great depression had its roots in the freezing of liquidity, the decline in the value of assets, and the subsequent run (and failure) on the banks that were overly leveraged because of frivolous debt granting. anyone else see the parallels here? the foundations for the great depression were in a lack of oversight, which ultimately spawned the massive regulation of the financial markets in the 33 & 34 securities acts. where we went wrong here, was a lack of oversight in trying to create the american dream for every man, woman, and child, regardless of ability to pay. i hate to play politics on this one, but the foundations of the subprime business can be laid directly at the feet of the democrats - carter's initiative in the late 70's to open home ownership to those of lower income or poor credit histories, and subsequently by the clinton administration in 94-95 to expand the program that ultimately created the benefit to the financial markets to expand and "ride" the subprime mortgage markets.
now granted, i'm a product of the subprime market. my house, bought on foreclosure for $5k below tax value, and the fact that i was able to finance 100% of the purchase price because of the relaxation of lending standards started in 94-95. but, the difference is - my loan is not considered subprime, and i entered into the transaction with my eyes relatively wide open. but - under pre-94 standards, would i have been able to be a homeowner at 28? doubtful.
my politics, at least when it comes to fiscal policy, are decidely republican. it's a tricky slope that we now face. i suggest that if you opposed the bill, saying "let them pay for their mistakes", or know someone who opposed it, re-examine what you know or think about the bill and urge your representatives to re-consider the legislation. as bad as it may be to pay a bit more per year in taxes, is it nearly as bad to lose your job and possibly a good chunk of your life savings because you wanted to say "stick it to the companies - it's their own fault"?
it's possible to avert or mitigate this crisis without the bill - but at what cost to individuals or the economy? the fed, the treasury, and the fdic can continue to work in their current capacity, but it's a slow process, that may not be able to fully mitigate a systemic failure of the underlying banking system as we know it.
there you have it - my take on things (albeit a bit scattered). disregard the fact that i don't capitalize things when i post on most message boards. i also don't bother with much in the way of grammar and/or punctuation.
i've read some pieces this morning that actually shed a new light on how the voting went down yesterday.
less than 90 days before an election, and an important piece of legislation gets shot down because of politics. had this happened a year ago, i doubt we'd have seen all the political maneuvering that we did in the last week. but at the same time, this might not have even been brought to vote nearly as quickly.
i know that i'm not the most educated (in terms of papers on walls) person, but you'd think that if i could figure it out with a bs in financial planning and working towards a masters in accounting, anyone of those ivy league yuppies that congress keeps on staff could figure it out and explain it.