I was tempted to write about the sad collapse of the Mets yesterday (two years in a row) but I figured there were more tragic things to focus on (serious Mets fans may disagree) like the newest version of the bailout deal that is going to pass–though it should not. I would be shocked if this deal doesn’t get through–mainly because the Democratic Congressional leadership has put its stamp on it and, while it may be ugly, I don’t see how it gets blocked.

   But, it should. I’m not expert at legislative language but I’ve been reading the bill this morning (I think I need to go back to drinking coffee to get through this) and it really doesn’t solve the problem it professes to address–and might make it worse. The biggest fallacy, in my opinion, is that a whole lot of politicians, in both parties, are trying to give the impression that if we don’t pass this bill, we will face another Depression.  There are lots of reasons to think this is rubbish. My friend Dean Baker has one:

The basic argument for the bailout is that the banks are filled with so much bad debt that the banks can’t trust each other to repay loans. This creates a situation in which the system of payments breaks down. That would mean that we cannot use our ATMs or credit cards or cash checks.

That is a very frightening scenario, but this is not where things end. The Federal Reserve Board would surely step in and take over the major money center banks so that the system of payments would begin functioning again. The Fed was prepared to take over the major banks back in the 80s when bad debt to developing countries threatened to make them insolvent. It is inconceivable that it has not made similar preparations in the current crisis.

In other words, the worst case scenario is that we have an extremely scary day in which the markets freeze for a few hours. Then the Fed steps in and takes over the major banks. The system of payments continues to operate exactly as before, but the bank executives are out of their jobs and the bank shareholders have likely lost most of their money. In other words, the banks have a gun pointed to their heads and are threatening to pull the trigger unless we hand them $700 billion.

   Dean is right. It may be not pretty if the bill goes down, but life will not end.

   And actually I am increasingly beginning to think that the bailout will make things worse.

   The reason why we are in trouble is  the bursting of the housing bubble. The most obvious thing the bursting bubble did was take away the last line of access to money that people had. No more lines of credit to help finance expenses that could not be paid for my shrinking paychecks and increased costs for gas, health care, food…you name it. This bill DOES NOTHING to solve that problem. People who are maxed out on their credit cards, with no where to go because paychecks are not increasing, will not all of a sudden be showered by new credit options from banks who have cleared up some–SOME–of their bad debts.

   I think that, come the end of the year, we will see a whole host of retailers go belly-up because people just won’t have money to spend. In turn, more companies connected to retailing will go bankrupt, unleashing another wave of workers pushed into the streets.

   Of course, at that point, you would think there would, then, be a move to help people via a stimulus bill. But, I will wager any amount that that will be immediately shot down by the insiders in Washington–across party lines–who will say, well, we don’t have any money left…because we just gave out $700 billion. Which will only further a recession and make it worse.

   Here are some more thoughts:

   Everyone got pretty upset, rightly so, by the first incarnation of the bill that Treasury Secretary Henry Paulson put forth because he was proposing that he be given an extraordinary amount of power–that could not be reviewed by anyone…not the Congress, not the courts. It was a financial coup d’etat.

   So, now, people say there are restrictions on the Treasury Secretary. But, I can’t really find them. Yes, the bill creates a "Financial Stability Oversight Board" with five members, all executive branch members plus the Federal Reserve chairman, and the Treasury Secretary (TS) has to report to Congress. But, nowhere does it say any of these entities can override or veto a decision by the TS…he can just spend the money as he sees fit. And let’s ask this question: do you really believe this Oversight Board, with the Treasury Secretary as one of the members, the Chairman of the Fed another member, and the other three members also from the Executive Branch who are in this game together–are they going to exercise any kind of really oversight? Hell, no.

   I’m also very skeptical about Nancy Pelosi’s pronouncement that the taxpayers will not be paying for this, over the long haul. The theory goes like this: the bailout money will be used to buy up depressed assets, which will, then, be resold in an auction. Pelosi promises that, if after five years, the whole process piles up losses for the government, the financial services industry will be forced to make up the losses.

   Says who? It iesn’t clear why any furture president or future Congress will be bound by that provision. I’m not a lawyer but what exactly would prevent future politicians from changing those rules?

   I’m also pretty unmoved by the much-trumpeted "cap" on executive compensation. All this bill does is say you can’t get a tax deduction for compensation over $500,000 for executives who are part of an institution being bailed out for at least $300 million. Doesn’t say you can’t pay execs a lot of money.

   This is kind of ironic, too:

Any Federal financial regulatory agency shall cooperate with the Federal Bureau of Investigation and other law enforcement agencies investigating fraud, misrepre sentation, and malfeasance with respect to development, advertising, and sale of financial products.

   You mean, the bill actually has to tell the federal government that it has to cooperate with the FBI. Am I missing something? Wouldn’t that be, like, obvious?