Bailout Plan Stalled; Is There Hope?

In a surprising turn of events, the bailout plan that seemed so certain to get bipartisan approval yesterday was held up during negotiations. Republicans suddenly decided to take a stand against the bill and are trying to push for alternative measures that involve less taxpayer money. The main idea on the table right now is for the government to insure these toxic mortgages rather than to buy them outright. It seems that these politicians must have received a heavy dose of taxpayer complaints over the last couple days in order to make such a drastic shift.

The other big news from yesterday, of course, was seizure of Washington Mutual, which earned the distinction of becoming the largest bank ever to fail. But you can rest assured that if some sort of major bailout plan is not agreed upon, Washington Mutual probably won’t keep that title for long. The state of the financial industry is so bad right now that there will surely be many more bank failures to come if the government doesn’t intervene.

I should add that I’m not advocating for government intervention; I’m actually overjoyed that the current bailout plan is being held up. Buying up $700 billion of toxic assets with taxpayer money doesn’t sound like a good idea to me. You might be able to sell me on the importance of saving the financial industry and all that jazz, but you’re not going to convince me that the only way to do this is by taking all this bad debt off the books of failed companies and adding it to the government's books. Personally, the insurance idea sounds much more reasonable to me, but I would want to know a little more about the proposal before I gave it my support.

I was reading a New York Times piece this morning about the bailout’s stall, and I found it humorous--and suspicious at the same time--that at one point during negotiations, Treasury Secretary Henry Paulson got down on his knees and begged House Speaker Nancy Pelosi to support the bill. It made me think, what would make Paulson feel so strongly about the bill that he would stoop to such levels? Either he truly feels like this bill is the only thing that can save the country he loves so dearly, or he wants the bill to pass so badly because he has a huge financial stake in the outcome. I don’t have the information on all of Paulson’s holdings, but since he was the former CEO of Goldman Sachs, I would venture to say that he probably still holds a substantial amount of his wealth in that stock. If this is the case, it would certainly make one wonder about his motivations.

It will be interesting to see how things end up shaking out. How are the markets going to perform if the bailout talks continue to drag out? How many more banks will fail? I’m still not sold on any sort of bailout, but I’m adamantly opposed to the one that was on the table. I also hope that the politicians opposing the bill are doing so because they recognize the flaws in the bill rather than just using it as a political ploy for John McCain, as some Democrats are suggesting.