Bailout Nation — the Latest Deal

So after John McCain went to DC last week to collect his credit for the prior deal (and certainly without having one of his own), the news today is that there is apparently a new framework for a new bailout deal:

• The total is still $700 billion, but is structured to allocate in 3 phases — $300 billion now, $100 billion at the President’s discretion, $350 billion only with Congressional approval;
• Institutions selling assets to the government have to issue warrants, providing taxpayers an asset stake as a way to get back some of the bailout funds;
• They expanded the pool of institutions who could participate, including small banks, pension funds, local governments
• Executive Golden Parachutes are cut for institutions that get bailout funds;
• An oversight board is created and that board has some accountability to and oversight by Congress;
• Judicial review is preserved;
• Private insurance funded by the banks to insure MBS;
• The Government would somehow renegotiate bad mortgages that it owns either directly of via the securities.

Krugman weighs in and says Meh. It is what he expected and hope that it can be fixed next year.

As for me, this looks much like the plan last Thursday with the addition of the insurance scheme. I think that the Executive Compensation stuff makes people feel good, but I’d bet turns out not to survive judicial challenge. The insurance for these securities seems like the beginning of the next Ponzi scheme and still wish that everyone had walked away and ramped up serious hearings on this perhaps even in a Special Session. There are multiple smart economic types out there who have written in some detail on what a real fix might look like, and none of them came up with this. Frankly, if I’m John McCain sitting in one of my houses right now, I’m definitely thinking that the Hail Mary play here was to blow the whole Paulson plan up — not just go through the theater.