"The Reckoning Will Be Worse Than You Can Imagine"
Jonathan Weil at Bloomberg explains why we're getting such a terrible bill everyone knows won't work (emphasis mine):
That brings us to this question: Why would a smart guy like Hank Paulson -- the former boss of Goldman Sachs -- advance such a dumb, shady plan? Let us count the reasons:
No. 1: It delays our national reckoning until after the presidential election.
Paulson first floated a bailout Sept. 18, at the very hour when shares of Goldman Sachs Group Inc. and Morgan Stanley looked like they might go into a death spiral. It's not so much a bailout, as it is a timeout. He had to follow up with something, anything, to stop the freefall from resuming. It didn't have to make sense.
So it doesn't. The plan is about creating the illusion of stronger financial institutions, not strengthening them.
The banks know this. Otherwise, they would have stopped charging each other near-record rates for three-month loans by now. The reason they haven't is because they're still afraid their customers -- other banks -- might go broke.
No. 2: The reckoning will be worse than you can imagine.
If Paulson were serious about recapitalizing rickety U.S. banks, he would infuse them with hundreds of billions of dollars of fresh government money, in exchange for ownership stakes. And if he wanted to create market liquidity for all those troubled assets on their books, he would be ordering banks to disclose everything there is to know about them, so Mr. Market could figure out their present value.
He can't let that happen. Not now. If everyone could see how much the toxic waste is worth, the writedowns would be so huge that many banks would have to be declared insolvent.
Better to let the next administration deal with the clean- up. The trouble is, the longer the government waits to address the banks' lack of capital, the worse it gets, barring a miracle.
No. 3: He's helping his friends.
Is there any doubt? Let's see.
As of yesterday, Morgan Stanley Chief Executive John Mack owned 2.75 million shares of his company's stock, valued at about $67 million. If Mack can get Morgan Stanley to trade reams of sketchy paper for billions of dollars of our Treasury's cash, without diluting any of his stake in the company, who benefits?
Paulson would have us believe it's you.
No. 4: There's an excellent chance the Congress will pass it. Leave someone else to figure out the costs another day.
Paulson and Bush have managed to find a way to push this off on the Democrats and Obama, Pelosi, and Reid were only too happy to take it if it would make their corporate pay masters happy and keep up the charade everything is fine and dandy a little while longer.
But as Weil says, the reckoning will be worse than we can imagine and, barring a miracle, it will be even worse tomorrow than it will be today. This bill makes sure the reckoning is tomorrow.
A complete failure of every part of government - a failure to prevent this, a failure to respond adequately, a failure to act timely, and a failure to hold anyone accountable. It's the financial version of Katrina.
(h/t naked capitalism)