If I Were Running the Democratic Party, I Would:

• No extraordinary grants of power to Treasury Secretaries who might be appointed by the erratic and unqualified John McCain:

  • Either:
    • (i) do the rescue through the Fed, or
    • (ii) follow the Marshall Plan and use an independent agency with its head chosen by the chair of the relevant senate committee, as Paul Hoffman was chosen by Arthur Vandenberg...

• Proper and appropriate congressional and judicial oversight...

• High end pay reform:

  • Cancellation of current golden parachutes...
  • Look-backs in the future--pay over $1M per year conditioned on the long-term profitability of the enterprise over more than a decade...

• Equity stakes for the government:

  • Government buys securities at current market... * For every $4 the government pays for debt securities, it pays a fifth dollar for equity warrants...

• Make it a round $1 trillion in authority...

• A no-filibuster pledge from ten Republican senators with respect to the household mortgage relief bill that will be moving through the congress immediately after the financial rescue/nationalization bill...

• If Republicans block whatever bill the Democrats propose this week, Wall Street can stagger on for a month and a half and we will come back into session the day after election day and do what is right then...

Comments

[Neil B]

Good points Brad, and very concise. I like how you've gotten angry about this and aren't just wonking out on us. It will also be necessary to counter the arguments of "lower conservatives" like the radio hacks and pseudo-intellectuals like Walter Williams that liberal ideas of egalitarianism were mostly at fault here: the pressure to lend to lower-class folks so they could have their own homes. No, that wasn't the main problem, since proper regulation would still have ensured proper payment to income ratios, requirements for honest income reporting, no "bubble" loans with higher payments to come in the future, no packaging of loans into weird financial instruments, etc.

This may all seem pretty clear to readers, but there's going to be pressure to blame this on the less responsible parties - gird your loins, as they used to say, and be prepared to fight about it.

[howard]

it's your last point that is the most important: democrats must not succumb to the "we've got to do something this instant" pressure, especially from the sort of swine that run the current administration.

if the administration is serious about doing something, they can do the right thing. if they don't want to do the right thing, then let the markets stagger on as is.

right now, what we've got here is a former head of goldman sachs creating the mother of all private equity funds, with about as much oversight as any typical private equity fund endures, which is to say, none. to hell with him and them.

[book keeper of our president's magic treasure cellar]

Looks like somebody is putting a spine into Brad Delong.

Maggie Thatcher?

[greensmile]

Sounds like a good plan to me. Hope Obama reads this blog.

[Peter Principle]

An alternative would be for the congressional Dems to cut the best deal they can in the next 48 hours (to avoid giving McCain and the swine around him a market crash they can use to demagogue their way to victory in November) and them come back and fix the whole sorry mess once Obama is in office.

Either way, the stakes in this election just keep getting higher and higher.

[ogmb]

I do not like the Ttreasury Secretary appointed by the erratic and unqualified George W. Bush to start with. This deal has all the hallmarks of a tsunami thrown after a hurricane.

[Rich S]

Concur with Brad's recommendations and would add one small tweak and one major addition. The tweak: No firm is eligible that was guilty of creating securities that repackaged this toxic stew. The reason? Currently the financial engineers of this mess pay not penalty. I want an incentive for future financial engineers to recognize that there may be a severe cost for bad decisions. It also would have the side-benefit of removing Goldman Sachs from the list of potential sellers, and the obvious conflict of interest for Paulson.

The addition: A major regulatory overhaul. The problem has been concentrated in the non-bank and non-thrift segments of the financial services industry for a very good reason - banks and thrifts undergo much more stringent regulatory review. Complain all you want about too much regulation, but the bottom line should be that if you're not willing to subject yourself to regulation then take what the market serves and don't whine.

[fgw]

Thank you, it seems very important that these kind of responses get forcefully presented into the public domain. Wonder if there are any sane republicans who would get on board.

[fgw]

Thank you, it seems very important that these kind of responses get forcefully presented into the public domain. Wonder if there are any sane republicans who would get on board.

[Mike Huben]

If the problem is that toxic debt is stopping current private players from purchasing new debt, then isn't there another alternative?

Why doesn't the US either purchase the new, non-toxic debt or help finance its purchase with responsible players, and let the foolish folks keep their toxic debt and take their just losses?

Wouldn't it be better for the taxpayers to buy good debt rather than bad debt?

[ogmb]

Can you peg this post on top of your blog, Brad?

[W. Kiernan]

BDL: If Republicans block whatever bill the Democrats propose this week, Wall Street can stagger on for a month and a half and we will come back into session the day after election day and do what is right then...

No, Bush will still vetoing everything in sight, and forty-nine Republican senators will still be filibustering everything in sight, for no other reason beside spite, all the way until mid-January. If Bush doesn't get his way (four more years!) on Election Day, I shudder to imagine the temper tantrum he is apt to throw.

Kind of like prying the "W" keys off the White House keyboards, except that instead of teasing some incoming staffers, they'll be deliberately wrecking the entire country.

[vtcodger]

At least it's a set of concrete suggestions and not the apparently unlimited whining that has dominated the blogs for the past 72 hours. I like a lot the suggestions, but what the hell do I know? What I do know is that whining is unproductive and that I ABSOLUTELY HATE being on same side of any issue as Phil Gramm.

[SERO]

"Equity stakes for the government"

Any deal must stand or fall on this.

(Great post).

[Roberto]

Let me add my "Hear! Hear!" to the other comments. I would much rather risk a continued drop in the markets than saddling my children and grand-children (not to mention me) with the consequences of a bad, rushed-through deal.

[Retrogrouch]

Why can't the Dems insist that Bush, for once in his presidency, pay for a spending bill? Don't we taxpayers deserve to know how we will pay for this?

My solution: Create a special "Series W" T-Note with some appropriate term. Mandate that all bailout funds be floated with the Series W note, and create a tax dedicated to retiring the notes. Once the notes are retired, the tax goes away.

Most importantly: ALL TAXPAYERS KNOW WHO IS PAYING HOW MUCH FOR THIS MESS.

My personal preference for this tax would be a very high marginal rate on capital gains over some reasonable threshhold like $500K.

[Kaleberg]

"If Republicans block whatever bill the Democrats propose this week, Wall Street can stagger on for a month and a half and we will come back into session the day after election day and do what is right then..."

That sounds like the best case scenario.

My alternative is to sell all the junk financial stuff on eBay. At least they have a reasonable pricing model. Maybe my problem is I don't believe in value. I only believe in price. Value is like angels or auras or unicorn hides. It can't be measured. Price, on the other hand, can be measured quite easily by asking people what they are willing to pay. I suppose I could get a price for an angel, an aura or a unicorn hide, or so said P.T.Barnum, and he knew what he was talking about.