The Congress Strikes Back

The Congress Strikes Back

 
Criticism of Paulson's bailout plan came swiftly after release of the details on Friday. Examples can be found here, here, here, and here. On Monday Congressional Democrats submitted counter-proposals. Key elements include oversight and the acquisition of an equity stake in institutions participating in the plan. Oversight would involve review of all transaction by either the GAO or a five man board. The counter proposals would also restore judicial review of Treasury's actions. More importantly, the government would acquire warrants for the acquisition of stock in any company that participates in the plan. This would do two things. First it provides a mechanism for the government to recapitalize those firms left with huge voids in thir balance sheets because of the buyout. Second, it allows the government to recoup some of what it paid out for the toxic debt in the event that debt turns out to be even more worthless than Treasury believes it to be.
 
Some of the other provision being discussed include help for distressed homeowners and limits on executive pay for those companies participating in the bailout. While I don't think these two elements are essential for an effective rescue plan they do make the plan more politically palatable and inject and element of fairness into the plan. If rich Wall Street executives can be saved from their screw ups then so should middle class homeowners. And if the American taxpayer is going to bail out these same rich Wall Street executives then it seems only fitting that they should have their salaries reduced as a punishment. What the counter-proposals do not contain, it seems, are regulatory changes. But at least one state isn't waiting for Congress to act.