The bailout bill explained...

I am not a financial wizard, so I rely on folks I trust to tell me if we are getting the shaft. From ThinkProgress.org, the Progress Report:

Yesterday, the Bush administration and congressional leaders "said they had struck an accord," agreeing to spend "up to $700 billion to relieve Wall Street of troubled assets backed by faltering home mortgages." The bailout legislation, titled the Emergency Economic Stabilization Act of 2008, was discussed by both congressional chambers throughout the weekend, and is expected to come to the House floor for a vote today. Senate Majority Leader Harry Reid (D-NV) said that the Senate will vote on the bill by Oct. 1. The final legislation, which President Bush praised as a "very good bill," is necessary to prevent a wider financial meltdown that would cause more job losses. Also, the bill charges the Treasury Department with attempting "to prevent avoidable foreclosures." That said, the legislation still falls short, and does not give adequate coverage to taxpayers and homeowners struggling to stay in their homes.

BETTER THAN THE ALTERNATIVES: New York Times columnist Paul Krugman writes today, "The bailout plan released yesterday is a lot better than the proposal Henry Paulson first put out -- sufficiently so to be worth passing. But it's not what you'd actually call a good plan, and it won't end the crisis." Indeed, the bill does provide some important improvements over prior proposals. Instead of giving $700 billion to the Treasury all at once, the money will be doled out in three installments: an initial $250 billion, another $100 billion "upon a Presidential certification of need," and the final $350 billion if the President submits a written request to Congress, which Congress can deny within 15 days. The bill also establishes a Financial Stability Oversight Board "to review and make recommendations regarding the exercise of authority" and "ensure that the policies implemented by the [Treasury] Secretary protect taxpayers." By contrast, the initial Bush administration proposal included no oversight mechanism. The bill also includes provisions limiting compensation for senior executives, "with especially severe limits on 'golden parachutes' at failing firms." It allows the Treasury to conduct reverse auctions of securities, which means "firms that can afford to will dump their toxic waste at low prices, the way some already have on the private market, and taxpayers may end up making money in the end." The proposal does not include some of the more radical ideas put forward by the Republican Study Committee -- and backed by former Speaker of the House Newt Gingrich -- like removing the capital gains tax, which favors wealthy investors while doing nothing to correct the financial crisis.

PROBLEMS REMAIN: However, the bill does have serious flaws. One facet of the bill by House Minority Leader John Boehner (R-OH) and Rep. Eric Cantor (R-VA) that remains in the final product requires the Treasury "to establish a new federal insurance program, funded by the banks, that would protect firms against loss from troubled assets." As Time reported, the only way for this plan to work is "for every last one of those $6 trillion in mortgage securities to be insured. Otherwise you'd just get the financial institutions with the [worst] loans on their books choosing to participate--which would amount to a giant bailout of the bad guys by taxpayers." Furthermore, the bill gives the chairman of the Securities and Exchange Commission ability to suspend mark-to-market accounting, which could remove market transparency and allow financial institutions to continue "pretending bad assets are good and in the process dra[g] down our economy." Also, the legislation gives the Treasury the ability to buy assets beyond mortgages -- like student loan debt or credit card debt -- which is "a very bad idea," according to Center for American Progress Vice President Ed Paisley. "The current financial crisis did not arise because of souring commercial real estate debt, or credit card debt, or auto loan debt, or student debt. ... That kind of debt has traded in the markets for many years now, and continues to trade today even as the value of these securities falls amid the current economic downturn." The origin of the crisis lies with home mortgages, but the legislation merely says that the Treasury Secretary "must implement a plan to mitigate foreclosures and to encourage servicers of mortgages to modify loans through Hope for Homeowners and other programs." There is no explicit directive to the Treasury to actively restructure mortgages, and it is far from certain that servicers would feel they had the legal authority to make substantive loan modifications under their contracts, even at the Treasury's behest. The Center for American Progress's SAFE loan program would have made the necessary adjustments to tax and accounting regulations to obtain servicer participation. Finally, the bill does not allow bankruptcy judges to restructure troubled mortgages, as Sen. Chris Dodd's (D-CT) would have.

WHAT NEEDS TO BE DONE: For the bailout to be successful, it needs to be coupled with further support for taxpayers. First, a second stimulus package must be passed, to give help to those squeezed by the current crisis. Next, a serious investment must be made in infrastructure. An analysis by the Center for American Progress shows that a $100 billion investment over two years in a Green Recovery program will jumpstart the economy and create 2 million new jobs. Finally, something still needs to be done to help keep taxpayers in their homes. Without provisions "expressly aimed at helping these borrowers restructure their mortgages...this grand plan to buy 'toxic' assets from the financial institutions that engineered this market meltdown will not help the U.S. housing market recover." While the bill does say that the Treasury Secretary Paulson "shall implement a plan that seeks to maximize assistance for homeowners," there is still not a proper mechanism in place to prevent foreclosures actively. Also, if Paulson uses the bailout money to purchase mortgage securities, instead of mortgages, he'll be unable to affect restructuring without first gaining ownership of most of the securities from a single investment trust. So while the tools to protect homeowners do exist in the bill, progressives will have to hold Paulson's feet to the fire to ensure that these tools are used.

So, yes, we are still getting the shaft. The Wall Streeters got the gold mine