Make This Plan Insurance (Rescue) and Not a Purchase (Bailout)
Michael Barone has the scoop on how to get this rescue plan done. Alter the plan so it is insuring tax-payers against Wall Street excesses and not bailing out Wall Street and you can get a deal done:
What do House Republicans want? A senior House Republican gave me and some other reporters a look yesterday at what a working group headed by Assistant Minority Whip Eric Cantor is demanding. The senior House Republican (hereinafter SHR) has what sounded to me like an ingenious approach. He cited Ginnie Mae loans to low-income borrowers, which the government can insure. He proposed that the government (presumably through the entity envisioned by the Paulson plan) offer to sell insurance to financial institutions that hold mortgage-backed securities (hereinafter MBS). Premiums would be determined by the rates of foreclosure on each class of securities so far. Under this plan, the government would be taking in money, not paying it out. Of course, if the premiums are not enough to cover losses, the government might eventually take losses, as it did when the savings and loan industry collapsed. But losses don’t seem inevitable and in any case will mostly occur in out-years, not now.
[Would] House Republicans would go along if Paulson pledged to use authority in the statute to set up an insurance program within a month of passage. “That would go far toward convincing [Republican] members.”
As one of the few people that actually understands the inner-workings of these banks and what needs to get done to avert disaster, I like this plan. A deal needs to get done, but Paulson and the Democrats need to take a few more steps closer to tax-payer protection to get the deal done. It’s that simple.
19 comments September 26th, 2008
