Tuesday, September 23, 2008

Paulson is not in a position to bargain

The WSJ reports that Paulson is backing down on some key Democratic demands, but not all.

Paulson has agreed "to allow tougher oversight over the cleanup and provide fresh assistance to homeowners facing foreclosure" whatever that means.

So far Paulson is resisting provisions to allow bankruptcy courts to adjust the terms of mortgages and most offensively, the imposition of limits on executive compensation.

If Paulson wants a $700 BILLION taxpayer bailout of Wall Street he is in no position to dictate terms.

The key to the Treasury plan, as Ben Bernanke explained today, is that the taxpayer buy the most troubled mortgage loans on the books of financial institutions at prices "close to 'hold to maturity' prices instead of the fire-sale price". With taxpayers assuming the most rancid loans on an institutions books, the institution should resume profitability. The thought of executives taking multi-million dollar personal bonuses accuring directly from taxpayer money is beyond outragious and must be a deal breaker. Pauslon's argument that small banks and credit unions won't participate if their executives are "limited" to $400,000 per year in compensation shows how out of touch Paulson is with the non-Wall Street world or just dishonest.

Finally, the Democrats need to make it very clear to Paulson that aid to homeowners facing forclosure (in and out of bankruptcy), serious oversight and limits on executive compensation are not negiotable.

From a poltical perspective, there should be no problem explaining to voters that a deal is being held up because the republican administration is demanding that multi-million dollar executive bonuses be preserved and that individual Americans be left out of the $700 BILLION.

And finally, Democrats need to also make clear to Paulson and Bush that no deal will come up for a vote that doesn't have the votes from the GOP leadership and rank and file and winning that support is their problem. It is absurd to expect such monumental legislation be passed without both parties necks on the block.

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