Bailout digest: Wall Street’s sweetheart deal and its discontents

Poring over news accounts of the deal struck Sunday night by congressional leaders, the only thing that seems clear is that the widely touted protections against taxpayers getting stuck with the ultimate tab are scant and vague. [Ed. note: the deal was voted down by the House of Representatives on Monday.] The pitch on behalf of the deal still emphasizes the potential resale of all the bad paper after the market recovers, but as you’ll see in the analysis pieces highlighted below, it’s unlikely that the sorts of assets the Treasury Department will be buying are ever going to be worth anything. The terms of this deal punt the question of recovering bailout funds from the financial sector five years down the road: “[I]f the Treasury program to purchase and resell troubled mortgage-backed securities has lost money after five years, the president must submit a plan to Congress to recover those losses from the financial industry. Presumably that plan would involve new fees or taxes, perhaps on securities transactions” (NYT).

Likewise, the broad call to provide help to foreclosure-stricken homeowners as part of the package has fallen by the wayside. In place of programs or provisions to rework the terms of onerous mortgages, “[the bailout legislation] calls on the Treasury, as an owner of mortgage securities, to ‘encourage the servicers of the underlying mortgages’ to minimize foreclosures” (WSJ). As guarantees go, that’s roughly the equivalent of promising to pray for a good outcome.

Similarly, any legislated limits on future executive compensation appear pretty much restricted to the banning of new golden parachute deals for execs departing firms that have taken bailout money.

Here are the must-reads from the past few days.

THE DEAL

Wall Street Journal, “US seals bailout deal”

Financial Times, “Bernanke confident on restoring credit flows”

New York Times, “Bailout plan in hand, House braces for tough vote”

BACKSTORY: LEHMAN, AIG, AND THE TUMBLING DOMINOES

WSJ, “Lehman’s demise triggered cash crunch around the globe”

NYT, “Behind insurer’s crisis, blind eye to a web of risk”

ANALYSIS OF THE CRISIS:

Michael Hudson, “The insanity of the $700 billion giveaway”

Joseph E. Stiglitz, “A better bailout”

Walden Bello, “Wall Street meltdown primer”