What Is Going On With Our Economy (Part 3)

Congress is at an impasse. That is a surprise.

The supposed deal to bail out financial institutions fell apart late yesterday afternoon and Congressional leaders worked late into the night to try and figure something out.

Democrats are blaming the Republicans on reneging on an agreed deal. Republicans counter that senior leaders were not part of the deal. Even as this deal came together we saw the politics enter in.

Here are some of my concerns with the deal:

• Make Wall Street (the company and their stockholders) take on more responsibility in the bailout. The current deal is a free gift for mistakes they made.
• Prevent tax payers from bearing all of the risk / failures without any positive benefits. If we do bail them out and the companies become profitable again, then the federal government should share in those profits for the risks put out.
• Keep the US Government out of the mortgage business. The idea of a new super Fannie Mae continues the trend of expanding the federal government.
• Keep the pork barrel spending and special interests out of any resolution. Its needs to be a deal about the financial crisis.
• Washington (Capital Hill and the White House) need to figure out how they let this happen. The US Treasury, Senate Finance Committee, and others should have seen this coming yet they did nothing to prevent it.
• The company leaders (not just the CEOs) who created this mess should be fired if they have not been already. Corporate boards should also be held accountable. Shareholders in these companies should strongly consider voting against their re-elections. (I will for Wachovia which I still own.)

Some people are calling for government to do nothing - let the companies fail. I agree in principle but I am afraid that this would have a worse impact on the economy than a bad bailout deal. The capital markets would be in gridlock. Individuals and companies would not be able to borrow money which would further suppress our fragile economy.

The bottom line is that Congress needs to lock themselves in a room (that includes Paulson and Bernacke) and not come out until something reasonable is determined. Aides can just slide the pizza boxes under the door until they are done.

The taxpayers deserve better than this. A $700B bailout is a tough number to swallow. People are speaking out about it and Congress is now nervous about how the public is perceiving them. People are afraid this is going to increase their tax burdens for years to come.

On a related note Washington Mutual is no longer. The FDIC shut them down and JP Morgan took them over yesterday. This may not be the last deal.