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MAKING MATTERS WORSE? Iain Murray (h/t NRO) at Open Market  in “Why the Bailout Won’t Help Money Markets” declares here:

“It will actually divert money to the Treasury from commercial lending.

Naked Capitalism has more, concluding:

‘When Paulson dumps out his 700 billion in treasuries it’s going to be at the short end. That will drive up rates for short-term treasuries. This will obviously draw even *more* deposits into the treasury MMs. That means even less in the commercial MMs and thus less working credit, the eventual commercial MM product. Hence Paulson’s billions remove working capital by competing for the deposits that could get used to make working capital loans. That 700 billion is going to go to fairly long-term mortgage securities. So Paulson’s billions divert credit from working capital to long-term mortgages - from where it’s most needed to where it’s most wasted.. . . . . . .
“I think it’s very telling that in two days of hearings and two weeks of discussion we have yet to see *any* detailed mechanism for how Paulson’s plan will increase the supply of, say, inventory loans. It’s not that every economist in the world is an idiot, it’s just not going to help. I think people have fallen into the fallacy that if it costs a lot it must be valuable. Paulson’s plan falls into the category of very expensive way to hurt ourselves.’”

UPDATE THIS AFTERNOON OCTOBER 2! CQ Politics reports in “House Vote on Bailout Hinges on Whip Count, Leaders Say” here: “House Democratic leaders said they are working with their GOP counterparts to line up votes for a revised financial bailout plan, but warned they will not put it on the floor Friday unless they are sure it will pass. Speaker Nancy Pelosi , D-Calif., said, ‘We’re not going to take a bill to the floor that doesn’t have the votes. I’m optimistic we will have the votes.’”

UPDATE TODAY! In “The Conservative Case for Unlimited Deposit Insurance — Why Congress must act now.” Lawrence Lindsey urges in The Weekly Standard that “it is time for politicians to stop arguing that raising deposit limits is something that benefits only the rich and start thinking the way that the folks who actually run the businesses that create the jobs and pay the bills have to think every day. Unlimited deposit insurance is the only way.” Read more here.

 

Senate Bailout Drama

Here is the text of the bi-partisan Senate bailout package which members will vote on this evening.

According to an authoritative Senate source –

“The text of the amendment includes the same language from the previously considered Rescue Plan in the House plus H.R. 6049 as passed in the Senate (which includes AMT/Energy extenders - Keep in mind the extenders package passed 93-2 on September 23rd), and an increase in the FDIC provision (see pages 91-95 in the attached text).” (Underscoring Forum’s.)

For the reader’s quick reference, here is the Republican Study Committee’s analysis of that House Rescue Plan.

Columnist Dick Morris urges senator John McCain to support the House Republican alternative:

“His failure to do much of anything in Washington, after teasing the whole country and riveting its attention on him by suspending his campaign, has let the voters down — and they are turning away from McCain.

But there is still time for him to make his move. The House Republicans bought McCain another shot by turning down the $700 billion bailout package on Monday. With no House vote scheduled until Thursday, McCain still has time to do the right thing.

He should publicly announce his support for the House Republican alternative package of insurance, loans and tax changes to deal with the financial crisis. He should attack Barack Obama and the Democrats for supporting the use of tax money for a massive bailout when the same purpose can be accomplished by other, cheaper means.

McCain should draw a line in the sand and take a firm position.” 

. . . .
“By backing an alternative, McCain forces Obama to defend the Democratic/Bush package. He can tie Obama to Bush and to the Washington insider/Wall Street crowd. He can give his populism a programmatic reality and a topical relevance. Obama would have to spend the rest of the election defending the $700 billion turkey the length and breadth of the country.” (Underscoring Forum’s.)

Read the rest of Morris’ advice here.

Power Line’s John Hinderaker argues:

“Maybe there are good reasons why only a bailout will work, but at present that seems far from clear. It appears that we have some breathing space to debate calmly, and not in an atmosphere of panic, the best way to solve the current financial crisis.

It is no doubt true, as so many have said, that doing nothing is not a viable option. But it is a big step from there to say that the only viable option begins with a $700 billion taxpayer commitment. The House should not be stampeded by today’s Senate action into going down that path.”(Underscoring Forum’s.)

Here is Hinderaker’s entire post.

The Club for Growth urges a “no” vote:

“The Club for Growth remains opposed to the $700 billion bailout and urges all members of Congress to vote ‘NO’ on it. We’d like to remind everyone that the tax extenders included in the Senate version should not be seen as an enticement to support the overall bill. It’s revenue-neutral at best and much more likely anti-growth and a net tax hike in the long run. This key vote will be part of our 2008 Congressional Scorecard. You can view the original key vote alert here.”

Yesterday, Grover Norquist chief of Americans for Tax Reform wrote the president here urging three steps he could take through executive action “to address the root causes of the financial panic.”

“1.Repeal the Clinton-era regulations encouraging reckless lending
practices under the Community Reinvestment Act (CRA). In the 1990s,
the Clinton Administration used the CRA as a club to pressure lenders into giving loans to marginally-qualified borrowers. The government should not be in the business of pushing lenders into making loans they would not make in a free market
2. Direct the SEC to make mark-to-market accounting voluntary for
distressed assets. The mark-to-market accounting regime forces companies to value assets at less than their intrinsic value, merely to reflect current market uncertainty. In order to contain the bailout and protect taxpayer dollars, companies should be able to use book accounting for assets deemed by the Treasury as ‘distressed.’
3. Direct the Treasury Secretary to determine that capital basis can be adjusted for inflation by taxpayers. There is a body of legal thought which holds that the Treasury Department can do this by executive action. In order to free up needed capital and unlock frozen assets more easily, the Treasury should make this common sense change to tax rules. If there is a legal brief which details Treasury’s objections to capital basis indexation, it should be released for public dissemination.”(Underscoring Forum’s.)

At least 77 national trade groups and major businesses are listed by one source as supporting “a bi-partisan financial rescue package.” Our impression is that these voices want “something passed” although many are likely not familiar with the bill’s details or have carefully considered whether this particular $700 billion “bi-partisan” proposal will actually do the job.

They seem to be arguing that the very act of approving a $700 billion-dollar measure will somehow stem the crisis.  Perhaps such a symbolic act is necessary. But must it be so terribly expensive, with such a frightening delegation of power?

Administration sources, while admitting that there may be other approaches, claim that at this late date, only the “bi-partisan” package can be approved.  If it is not, they warn that the Democratic House majority will pass a really bad version which conservatives will like even less.

Somehow Administration voices never refer to the president’s veto power.

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