Blue Mass Group

Reality-based commentary on politics.

Details of the Bailout Bill

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Two provisions of the bailout bill jumped out at me:

1. Mark-to-market accounting. Sections 132 and 133 of the bill take aim at mark-to-market accounting, the rule requiring firms to carry, for example, mortgage-backed assets on their books at market value rather than at executive-bonus-inflation “mark-to-model” value. I think this is a terrible move! The whole point of marking to market is to provide better information to investors. Mark-to-market accounting didn’t cause the mortgage-backed securities crisis, it helped to reveal it. We can’t put our heads in the sand and relax accounting rules now–our next period of economic expansion needs to be built on solid foundations, not on fakery.

2. No doubt due to Bob’s ceaseless lobbying, the bill (Section 113(d)) requires the Secretary to receive warrants for common or preferred stock in exchange for assets. But the warrants are for non-voting stock. Why? Why shouldn’t the taxpayers, who are bailing these firms out, have a say in how they are managed in the future? I suspect this provision is the product of a supposed fear of “socialism,” but as I’ve said before, if you’re willing to socialize the debt, you’ve got to be willing to socialize the profit, otherwise you’re just doing the bidding of the owners of capital.

TedF

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  1. the bill (Section 113(d)) requires the Secretary to receive warrants for common or preferred stock in exchange for assets. But the warrants are for non-voting stock. Why? Why shouldn’t the taxpayers, who are bailing these firms out, have a say in how they are managed in the future? I suspect this provision is the product of a supposed fear of “socialism,” but as I’ve said before, if you’re willing to socialize the debt, you’ve got to be willing to socialize the profit, otherwise you’re just doing the bidding of the owners of capital.

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    p>Would you be as agreeable to government voting equity, if the government voted to install officers that would only extend loans to hospitals that refused to do abortion procedures.  

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    p>Just one example why government voting in business probably’s not so good an idea IMHO.  

  2. I’m pleased to see the common ground shared by the real conservatives and the real liberals.  Should they win, it would be as an Allen Drury novel.  (I always thought of the ACLU as a conservative organization, backing our Constitution.)

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    p>Their foe, backed by millions in cash obtained from the financial centers, seek to sell the taxpayers earnings to protect their clients.  Is there any difference between those in the administration, Barney Frank, John McCain, Nancy Pelosi, Judd Gregg, Harry Reid, Chris Dodd and the others that declare themselves a “bi-partisan group”?  They are hardly bi-partisan.  They are out to support their fiscal masters.  The American citizen is to be thrown under the bus to do this.  

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    p>I only hope the voters remember what these people did as they go to the polls in November.  This is a price we pay for professional politicians.  

  3. Gary, that’s a fair point, but ultimately I don’t agree that the government is likely to be able to misuse its voting power that way–unless things have changed since I last read about this, I think most shareholder social policy-type proposals fail anyway, and I don’t see why the government would fare any better.

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    p>Here is my suggestion. Any firm that thinks that the government would use its voting power to install managers who will not act in the best interest of shareholders should feel free to reject the government’s money.

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    p>TedF

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