The Bush Administration is asking Congress to give it $700 Billion to buy up toxic mortgage debt based on a 2 1/2 page plan!
The request is just two-and-a-half pages and contains a broad outline of how this new entity would function. The government wanted to keep the plan simple, in part because it wants the flexibility to adjust what its doing as market conditions change, a person familiar with the matter said.
This is the equivalent of giving a venture capital firm a two page summary of your business and asking for $100 million of funding. God help us if Congress gets steamrolled into this. As the Journal writes, there are so many details to fill in.
The most ambitious part of the government plan is to create a new entity to purchase impaired assets from financial firms. The process could work as a type of reverse auction, in which the government would buy from the institution that sells its assets for the lowest bid.
However, the government may find itself in a quandary: Does it pay more than fair-market value for hard-to-assess distressed assets, putting taxpayers on the hook for any losses? Or does it drive a hard bargain, buying for pennies on the dollar? The latter approach would further hurt financial institutions, since they would have to write down the losses and take additional hits to their balance sheets.
There is no mention of getting warrants from the firms like Goldman Sachs that we are going to be bailing out. There is no mention of new regulations to keep this from happening again. At least Pelosi has the courage to say slow down.
In working with the administration, we will strengthen the proposal by ensuring that the government is accountable to the taxpayers in any future actions under this broad grant of authority, implementing strong oversight mechanisms, and establishing fast-track authority for the Congress to act on responsible regulatory reform.