Rushing to Pass a Plan

A plan that costs $6,000/ taxpayer, gives Paulson more power than g__, provides little oversight on how the $700 billion would be managed and allocated should be thought about more carefully.

"The big news this weekend is Hank Paulson put a $700 billion price tag on a bailout package designed to prevent a financial market crisis from becoming an economic calamity. Paulson's plan would require Congress to raise the U.S. debt limit to $11.3 trillion. Don't forget it was just in July when the debt limit was raised by $800 billion to $10.6 billion as a result of the Housing Bill. On that basis, the cost of the bailouts thus far is $1.5 trillion - and counting.

But the newly proposed $700 billion Troubled Assets Relief Program (TARP) "ultimately may not cost us anything - that's certainly the goal," Liz Ann Sonders, chief investment strategist at Charles Schwab says in the accompanying video, echoing Paulson's comments this weekend.

Sonders, and others, cite the Resolution Trust Corp. experience in the late 1980s-early 1990s as evidence that the government can possibly turn a profit on this bailout. While that's theoretically possible, "the devil is in the details," she admits.

Among the key details (or devils, if you prefer) yet to be determined:
- How the government will value banks' bad debt? "Too much of a discount could hurt the banks. Not enough eliminates the ability of the government to [ultimately] make money" on the bailout, Sonders says.
- What banks/institutions will be eligible for the plan? If international banks are eligible for the bailout, as Paulson wants, will foreign central banks (and taxpayers) pony up?
- What conditions will Congress require before approving the plan in terms of new regulation, limits on executive compensation and/or direct relief for homeowners facing foreclosure?

I think it's highly unlikely the government is going to turn a profit on this, because there's no way to build in "guaranteed" returns as they did with the AIG bailout and the Fannie/Freddie nationalization. Just breaking even also seem doubtful given how quickly this plan is being thrown together and especially if they open the bailout to all kinds of debt – not just mortgage-related – as is currently being contemplated."

http://finance.yahoo.com/tech-ticker/article/67605/Bailout-Cost-6K-Per-Taxpayer...Or-Nothing-at-All?tickers=XLF,AIG,FNM,FRE,GS,MS,SCHW