The Senate Bailout Plan: "That's Not All..."

The bailout bill the US Senate passed reminded me of one of those late night infomercials. You know the ones where the company isn't convinced that you are going to buy something so they throw in "that's not all, oh no, that's not all." You see a very similar approach to selling this bailout in the final legislation passed by the Senate.

The original proposal that came from Treasury Secretary Paulson and President Bush was a mere two pages long. The US House got its hands on it and it became a little more than 100 pages long. There is no reason to worry, however, because Harry Reid (D-NV) has announced that the Senate has made it better by bringing it up to 451 pages and by adding over $100 billion to the final bill. If more is better, we certainly got that from this bill that passed by a very wide margin.

Fiscally Conservative Republicans put the breaks on the bailout bill that came to the US House because they thought it was too wasteful and transferred to much power to the federal government. So adding more pork and power to the government will make it more likely to pass? We will have to see.

So what will you find in this multi-layered package:

- Tax Breaks for Wooden Arrows designed for use by children (Sec. 503)

- Tax Breaks for Film and Television Productions (Sec. 502)

- 6 page package of earmarks for litigants in the 1989 Exxon Valdez incident, Alaska (Sec. 504)
- Tax earmark “extenders” in the bailout bill.- Virgin Island and Puerto Rican Rum (Section 308)

- American Samoa (Sec. 309)

- Mine Rescue Teams (Sec. 310)

- Mine Safety Equipment (Sec. 311)

- Domestic Production Activities in Puerto Rico (Sec. 312)

- Indian Tribes (Sec. 314, 315)

- Railroads (Sec. 316)

- Auto Racing Tracks (317)

- District of Columbia (Sec. 322)

- Wool Research (Sec. 325)

Who knew that Indians were about to go bankrupt? Considering they have their growing gaming interests, I thought we might be able to borrow money from them. The above are just a few of the examples that were added. I encourage you to read the bill in its entirety, if you have a few days to spare. I think it would make sense also to find out how your Senator voted on this bill.

In the end, however, I see this bill passing in the US House. There are specific tax breaks for small to medium size businesses to help encourage their recovery, tax relief for those hit by the recent natural disasters (hurricanes in the South and tornadoes in the Midwest), and there is an increase in the requirements on the Federal Deposit Insurance Corporation (up to $250,000 from $100,000), putting more responsibilities on the banks.

In spite of such assurances, I have to question whether the trade offs of our freedoms and the potential socializing of our financial systems is worth the short term "stabilization."

Kevin Price articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media.

Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

Sizing Up the Vote Against the Wall Street Bailout

I was trying to have a business lunch while watching the US House of Representatives vote regarding the Wall Street bailout on TV. It wasn't easy. On the one hand, I wanted it to pass. I grew up with two parents who were raised during the Great Depression and the life they lived has had an impression on how I look at things. Generally speaking, I have denounced the philosophy of fear and scarcity that I grew up with, but when they spoke about the problems with banks and the fears of the Stock Market, I had to take notice. On the other hand, passage of this bill would be the abandonment of moral hazard on Wall Street and further promote a financial system growing out of control.

I was a little surprised that the bill didn't make it. I actually expected it to do more than squeak by, let alone crash and burn. It demonstrated how deep the angst of the American voters is and how great the fear is among members of Congress towards those voters. We have an election that is less than six weeks and the more vulnerable a member of Congress, the less likely he or she was going to vote for it. Clearly, many members rightly feel like they are in the cross hair of angry voters.

Most Republicans were making more than a "protest vote." Some felt that $700 billion being voted on in such a short time frame didn't make sense. What could be hidden in a bill that virtually no one had enough time to thoroughly understand it? Most feared there could be plenty and it gave Secretary of the Treasury Henry Paulson carte blanche authority for bailing out other financial institutions (including some outside of this country). Most Republicans wanted a proposal that didn't have taxpayers bearing the lion's share of the proposal. They wanted a system more like the Federal Deposit Insurance Corporation, where the banks have to pay a premium to protect their accounts. They offered a list of other reforms that would have dramatically reduce the final costs of the multibillion dollar bailout by hundreds of billions of dollars.

The Republican proposals didn't even receive serious consideration because they didn't offer quick or simple solutions, would require more pain on Wall Street (and also Main Street) in order to achieve long term reform, and simply didn't have the "panacea effect" that investors are looking for. The bottom line is that Wall Street and Washington wants average Americans to do the hard work that our politicians and financial institutions should be responsible for.

In the end, I'm glad that the House Republicans put the breaks on this proposal. Certainly, we need some type of bill to get us out of this situation, but it should be done with deliberation and not at the expense of future generations.

Kevin Price articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media.

Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

Typical Reaction to Financial "Crisis"

It wasn't a question of "if", but "when." I knew that the problems with the sub-prime would result in typical government reaction in the extreme. There is no doubt that there was some poor decision making in the home financing market place and the companies that are guilty of such are taking a pounding today. The market place is naturally punishing these companies. Some are going bankrupt, others are being acquired by other mortgage companies, others still are voluntarily making significant reforms.

This, of course, isn't enough for the government. The government is demanding more regulations, some of which will make it difficult (if not impossible) for many people to ever be able to get a dream home. They are demanding another agency to provide more oversight, leading to more bureaucracy and cost, but not necessarily to better systems. It is typical government over reaction that leads to punishing, but not effective government. The kind of "reforms" that hurt the victims more than help. The type of programs that only hinder economic growth and prosperity.

I wish the government took more of a medical profession view of problems. Often, when a person is sick, the last thing a doctor wants to do is intervene because the cure is some times worse than the illness. Instead, the advise is "let it run its course." Letting the current situation run its course would allow government to take action after things have settled and then it would have some idea what steps need to be taken. Doing it now, is typical reaction, the kind known for causing damage.

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Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.