Bailout Agreement Reached “In Principle”

From the FT:

Chris Dodd, chairman of the US Senate Banking Committee, said on Thursday that negotiators had reached ”fundamental agreement” on the principles of the proposed $700bn bail-out of Wall Street.

Mr. Dodd expressed confidence that the plan could be acted on “expeditiously” and would send a message to the markets.”

Robert Bennett, the Republican Senator from Utah, commented: “I now expect we will indeed have a plan that can pass the House, pass the Senate, be signed by the president and bring a sense of certainty to this crisis that is still roiling in the markets.”

Bond yields moved higher on the news while the dollar strengthened…

…Democrats and Republicans alike have so far resisted the administration’s demands for runner-stamp approval of the deal and are pushing for amendments. The Democratic aide to a senior congressional leader told the Financial Times that legislators were inching closer to a compromise, with key House and Senate members scheduled to meet on Thursday morning to put the finishing touches on a bipartisan bill.

Nancy Pelosi, the Democratic House Speaker, said Congress was “committed to passing bipartisan legislation that will stabilise the markets, protect taxpayers, establish tough oversight, and curb excessive CEO compensation. And we will pass it soon”.

Mr. Bush signaled willingness to accept changes to his proposal, including the creation of a bipartisan board to oversee implementation of the bail-out and measures to prevent “failed executives” profiting from public funds.”

At this point I think we still have to wait and see what the final provisions of the bill are before passing final judgment, but my initial prediction is that it will only be “less” abysmal than the original proposal but abysmal nonetheless. In my view so much fear and hysteria has been whipped over the need for immediate action that the government is more interested in doing “something” even if it’s the wrong thing, then they are in doing the right thing or crafting a plan that would be efficient, effective and respectful to the taxpayer.

Last September I wrote an article on the Fed’s first rate cut of the credit crisis, in which I noted that it would have little impact on mortgage rates, housing prices, the credit crunch itself, etc, etc, because it wasn’t addressing the core problem. Now here we are a year later and once again the government is fighting a symptom (toxic mortgage securities), instead of focusing on the core problem (undercapitalized and overleveraged financial institutions).

Where do we go next when the plan is implemented and many of our current economic woes remain?

You can read more here.

Sources:

The Financial Times: “Negotiators close in on bail-out deal” — Andrew Ward, September 25, 2008.

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