Politics of Paulson’s bailout plan

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The widespread Congressional call for executive pay limits on executives of banks that get bailed out is logical in view of the fact that Paulson’s proposal benefits the stockholders and existing managements of these banks by keeping them in place instead of going through an FDIC bankruptcy or failure procedure that would no doubt oust them. The Bush administration is said to be resisting, and this shows its country club bias. It’s a vote-loser for Republicans.

But also of interest is that some Democrats favor the plan like Frank and Schumer while some Republicans like Jim DeMint (S.C.) are against it. He said “The government broke it. I don’t trust them to fix it.”

Frank wants the government to take equity stakes in these banks, not just take the bad loans off the books, so he wants an even more socialistic resolution! His selling point is that taxpayers would become the owners and benefit from a recovery. But of course taxpayers would never see a dime! The government would spend the money from any sale of appreciated stock in the unlikely scenario that a bank owned by the government would go up in price! The government made money on the Chrysler loan by taking call options but not an equity stake.

Schumer wants a single agency to insure deposits, a super-FDIC, which is moving in the direction of Paulson’s centralization of control over all financial institutions.

Maybe we ought to have the government give Buffett a blank check to buy up any failed banks he thinks are worth it. He can form a separate subsidiary to hold these banks and run them. We the taxpayers will hold options. Buffett will be a one-man Resolution Trust Corporation. It’ll be like we all own stock in Berkshire Hathaway and Buffett. He’ll be our government. Who needs any other investment manager? Who needs the government, when we have Warren Buffett?

8:59 am on September 24, 2008