Going into the weekend there was a lot of talk about Paulson’s bailout plan and just how much it would end up costing. Well, now we have a number: $700 billion. The bill is just waiting to be signed into law now, although Democrats are trying to add some provisions to the bill which would provide more assistance to troubled homeowners, as well as some taxpayer protections. One of the biggest debates is on whether or not the government should be able to limit the amount of executive compensation, and specifically their severance packages. Democratic leaders make a great point that if the bill stands as is, it could lead to many executives jumping ship and taking a nice little bonus with them, courtesy of taxpayers. Republicans, of course, oppose that measure and for the most part want to see the bill pass as is.
Beyond the $700 billion cost of this whole thing, there are certainly some things for taxpayers to be scared about in regard to the bill. One big one is the amount of power that would be given to one man, Treasury Secretary Henry Paulson. The following is an excerpt from a Washington Post article about the bailout:
“The administration's proposal would give the Treasury secretary sweeping authority to purchase assets from any financial institution, whether headquartered in the United States or abroad, over the next two years. It would place no limit on when the assets could be sold. And it would allow the Treasury secretary to spend up to $700 billion without oversight or review by other federal agencies or the courts.”
I don’t know about you, but that scares me a lot, especially considering that Paulson is a Wall Street guy himself. He seems to be a nice enough guy and everything, but I still don’t feel good about giving him a $700 billion blank check. I think it would be a bad idea to pass this bill without proper oversight into his activities. This is just too much power to place in one man’s hands.
There was a lot of press, obviously, about the bailout plan this weekend, and the response from the public has generally not been warm. Most people are flat-out ticked off about this bill, and rightfully so. Basically, taxpayers are picking up the tab for these short-sighted loans made by Wall Street bankers who have made millions from them. Now that the assets are worthless and they are preparing to pay for their mistakes, the government is going to step in and buy all those assets, essentially saving them. Many people already feel like they were taken advantage of by being put in these risky loans, and now the originators of the loans get to walk away scot free. This series of events does not sit well with the public, and it shouldn’t. By bailing out these institutions, we are encouraging them to go out and do the same thing next time around. Why wouldn’t they? They get to make millions, and if anything goes wrong, the government will step in to save them.
Personally, I’m not a big fan of bailouts in general, but I also know that this one is sure to pass, so there is not much sense about complaining now. I just hope that it goes smoothly, and that somehow the government is able to get the message through to Wall Street that this can’t happen again. I’m doubtful that this will happen, but for my daughter’s sake I sure hope they figure it out. I know that I’m going to be adding a little extra gold exposure to her investment portfolio just in case. For some reason my faith in the U.S. government isn’t all that high right now.