Some thoughts on the bailout bill. Sorry if I'm incoherent, these are just random notes.

How did we get here? The mortgage crisis. What brought on the mortgage crisis? Subprime loans with terrible terms. Why were banks giving out subprime loans? The government ENCOURAGED them too. It had to do with giving minorities and low-income renters home ownership.

So the banks went hog wild. For a time, you could even get a no-doc loan. One didn't have to provide proof of income, ability to pay, or anything.

The first bailout package, in which we, the US taxpayers, will buy junk assets off of banks that took huge risks, failed.

Drafters of the bill then piled on more stuff, including changes to the alternative minimum tax, and raising the FDIC insurance limits (from a current $100k to $250k).

Rep. Culberson, who represents me, says this:

To be clear, I understand that Congress must do something to restore liquidity and ease credit, but yesterday’s bill was focused more on protecting Wall Street institutions than protecting taxpayers. Handing over unlimited power to the Treasury Secretary to purchase toxic assets with our tax dollars under a new system that will take weeks or months to set up and raising the debt limit to more than $11 trillion (or 78% of GDP) is not the solution; instead we should focus on preventing a run on banks by raising the FDIC limit to $250,000 for deposit insurance in checking and money market accounts.

I will admit I was guilty of shooting my mouth off about this on someone's blog, but now I get why the FDIC insurance raise is necessary. I didn't even consider corporate entities day to day liquidity needs!

Rep. Culberson explains it this way:

As former Federal Reserve Governor and National Economic Council Director Larry Lindsey said, “Nearly 40% of the assets in the banking system are not protected by FDIC insurance because they are in accounts that exceed the $100,000 insurance limit. Most of these are not ‘investments’ in the usual sense of the word. They are often the transaction accounts of businesses that have to meet payrolls and pay vendors. If you have to make a biweekly payroll for 50 people, it is sheer folly to expect the paychecks to be drawn on accounts in three or four separate banks. Sometimes individuals who would normally keep a balance well under $100,000 might be over the limit to make a down payment on a house, purchase a car, or pay quarterly taxes.”

So the FDIC thing seems to be a good thing. But do we really want to buy up assets no one else wants? Is it possible the holders won't sell to free market buyers, because they think they can get more money from us poor, duped taxpayers? Are government owned securities, and taxpayer meddling in our free market economy a good thing?

Read the bill here. The House votes Friday. Call your representative! If we reward failure, what will we get more of?

Labels: politics