Monday, September 22, 2008

Paulson Plan: Questions for Congress to Ask

by Bill McBride on 9/22/2008 11:11:00 AM

Since the administration is trying to railroad the plan through Congress - with no changes or additions - here are a few questions to ask:

  • How does buying troubled assets help recapitalize the financial institutions unless the Treasury pays a premium for the assets?

  • Why aren't taxpayers receiving some sort of contingent shares in the companies based on the losses to the taxpayers? If there are no taxpayer losses (as some are projecting), then the shares would not be issued - if there are substantial losses, then the taxpayers would own a sizable portion of that institution.

    Note: Senator Dodd proposed something along these lines this morning. From the WSJ: Dodd Bailout Draft Could Give Government Shares of Companies
    Sen. Dodd's plan would not allow the Treasury Department to purchase any assets "unless the Secretary receives contingent shares in the financial institution from which such assets are to be purchased equal in value to the purchase price of the assets to be purchased."
  • Why isn't the entire process transparent? There are no national security issues, so Treasury could provide an online site that listed each transaction purchased by the government. This could be updated daily and list the details of the asset, the PAR value, the selling institution, the underlying characteristics, the originators of the loans, the price the government paid (and eventually sold the asset for) and any other relevant detail. This transparency would help with pricing and oversight.

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