Bailout 0.1 beta2

Okay, I admit it. If I'd had a seat in the House the other day, I'd have been one of the many "It sucks but we have to try something" votes. Now that the Senate has tacked on a few hundred pages of unrelated nonsense -- much of which the McCain campaign, under different circumstances, would identify as "pork" -- nothing much has changed.

The Senate bill still gives entirely too much unbridled power to Henry Paulson. Bush may be the lamest duck in the history of the presidency, but somehow Paulson has managed to dissociate himself, in the public eye, from the administration he serves. Let's not forget that Paulson's last job was CEO of Goldman-Sachs -- and that his next job is likely to be something very similar.

Speaking of Goldman-Sachs, Warren Buffett negotiated a pretty sweet deal with that firm. Goldman is only minimally exposed to the kind of toxic debt Paulson will be buying with taxpayer money, but Goldman will be paying huge dividends -- the equivalent of credit card interest rates -- on the $5 billion dollars of preferred stock it sold to Buffett's Berkshire-Hathaway. Don't expect Paulson to drive that kind of bargain.

The missing factor in the bailout bill -- the one that actually could make the whole thing worthwhile to those of us who will be funding it -- is a provision that would give government a chance to turn a profit on its investment. If a bank wants to unload its bad debt, perhaps it should be required to toss in some stock options -- redeemable in five to ten years at current market price. If the bailout doesn't work, taxpayers still absorb the loss -- but if the banks bounce back as they're supposed to, the public gets back its initial investment and then some. In some alternative universe, the House might amend the Senate bill to accomplish something like that. In this universe, it's next to impossible. In this universe, if the government of the United States of America managed to turn a profit on anything, it would be decried as socialism.

Today, Obama said that if elected he'd make a point of regaining the taxpayer investment in the bailout bill -- which he and McCain both support. If Obama wins, and we get somebody like Robert Rubin (or, better still, Robert Reich) as Treasury Secretary, I think that pledge will be fulfilled. If McCain wins, and we get Phil Gramm or some similarly unreasonable facsimile, there's no saying what kind of economic calamaties might befall.

In the meanwhile, though, we'll have to sweat through as much as $350 billion of Henry Paulson's judgment. Keep your fingers crossed.