Chris Dodd Stares Down Paulson

By: Ian Welsh
So there was "Goldman" Hank, holding a gun on the economy and staring Congress down. "Give me the 700 billion, or the economy gets it!" he threatened. For two days it looked like he was going to get away with it, 700 billion dollars to spend on the Wall Street gang, the boys who'd already shot the economy up so bad it was in danger of bleeding to death.

Then Marshal Dodd came swinging through doors, shotgun in hand, and said "not so fast Hank. Put the gun down, and back away from the economy. We're going to do this my way."

For a moment calm reigned, then from off one side came a high pitched squeak, "you just put down that gun Dodd," said Bush as he leveled his blunderbuss "the Veto" at Dodd, "and you let my good friend Hank walk away with the money or I'll use this gun." He swivelled and instead of aiming it at Dodd, put its muzzle right against the economy's head. "I'll do it. Don't think I won't! I've killed an economy before!"

Hand still on the trigger, Dodd glanced over at Reid. The old man's fighting days, some said, were long gone. Dodd hoped Reid had one big fight left in him. If he didn't, the economy was done, and Paulson would get away, scot-free.

So yeah, the Dodd plan. Good plan. Buying up mortgages for 15% less than the current market value of the house, then reissuing a clean mortgage to homeowners helps the banks while still giving them a slight haircut (but only slight, odds are home prices will drop more than 15% before the slide is over.) It helps homeowners stay in their houses. It sets a market price so that banks know what mortgages are worth and thus what the derivatives based on houses are worth. And giving the mortgages bought to the FDIC, one of the few agencies that Bush didn't cripple, is genius.

Giving the government stock equal to the value of any bailout for the company is also only fair. If they get bailed out, taxpayers should have a chance to get their money back. If they don't like that, well, beggars, and they are beggars, shouldn't be choosers.

Having a review board is a good idea, though having the Treasury Secretary, Fed Chairman and FDIC chief on it is perhaps unwise. Still Congress chooses two of the members. I'd prefer direct oversight through the Congressional Budget Office, which reports directly to Congress, but this isn't too bad.

Clawing back compensation based on fraudulent financial reporting is a stroke of genius and may be what Dodd put in so that he could eventually trade it for something else, because fact is, almost all of these bastards have used dubious accounting to inflate their earnings and therefore their bonuses and salary. They're all guilty and they know it. Under a vigorous Department of Justice (say, oh, an Obama one) they could all be prosecuted.

Allowing bankruptcy judges to modify the terms of mortgages is both humane and reasonable, so many mortgages were sold under false pretenses. Banks really, really hate this provision, as it takes away part of the bankruptcy bill, but when they themselves are asking for all their contracts to be, in effect, modified by government (what's buying for 15% less than face when you couldn't get 30 cents on the market but modification?) they don't have a leg to stand on.

There appear to be other details, but those are the highlights. It's a good plan and it helps more than just the banks. It includes a lot of what outsiders were suggesting, especially with respect to help mortgage holders. It doesn't go quite as far as I would have liked—I would have preferred to just buy up entire failed corporations rather than their assets, but if the share program is done properly the government could wind up with effective control of many corporations anyway. This is only reasonable, if the government has to bail you out for more than half your value, the government should own you.

There is a provision that might let corporations pay off the government with superior bonds, I don't like that. However, I suspect most companies won't go for it unless they're in relatively good shape already (you want to owe more money when you might be bankrupt?)

Dodd deserves a lot of credit for putting this bill forward, as does Leahy. Leahy put back in the most important thing—no dictatorial powers for Paulson without court review. Anything Paulson or anyone else does can be reviewed by judges during or after the fact. No man should be above the law in America.

The question now is how much of this will survive negotiations and if Bush will veto a good bill. Also in question is if Republicans will vote against a good bill, handing Democrats a club to beat them with. I do wish that Dodd had put in more poison pills he could trade away, to improve his bargaining position, but in my opinion Dodd, Leahy and the Democrats still have the stronger hand here and should use it to beat the Republicans into submission. No one on Main Street liked Paulson's bill, and even most Wall Street workers, unless at the very highest levels, didn't like it either. Force the Republicans to vote for Dodd's bill or they can take huge losses in November.

Good work Marshal Dodd. Now finish the job. Make sure that the Bush gang's last attempted raid on the treasury goes down in flames.

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