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Comments on the bailout bill

Treasury Secretary Paulson's $700 billion bailout bill heads to the House on Monday. Details from Marketwatch:

"Democratic congressional leaders announced their agreement Sunday on details of a massive financial rescue plan proposed by the Bush administration, releasing a draft text trumpeting taxpayer guarantees and caps on executive compensation.

The draft bill, titled the "Emergency Economic Stabilization Act of 2008," follows days of legislative wrangling over a $700 billion plan proposed by Treasury Secretary Henry Paulson as U.S. financial markets teetered on the edge of a collapse triggered by the U.S. mortgage crisis.

The bill will be introduced in the House of Representatives Monday morning and then head to the Senate, said Senate Majority Leader Harry Reid, D-Nev."

Despite overwhelming disapproval from the American public, this bill may be voted on by the Senate as early as Wednesday.

Commentary on the bailout proposal has been pouring forth from all corners in recent days. It seems that John Mauldin, whose weekly E-letter I receive (and sometimes read), is once again writing in favor of these latest and greatest in government bailout proposals.

Here's what Mauldin had to say in his latest piece, "Who's Afraid of a Big, Bad Bailout?":

"Why do we need this Stabilization Plan? Why can't the regular capital markets handle it? The reason is that the problem is simply too big for the market to deal with. It requires massive amounts of patient, long-term money to solve the problem. And the only source for that would be the US government.

There is no reason for the taxpayer to lose money. Warren Buffett, Bill Gross of PIMCO, and my friend Andy Kessler have all said this could be done without the taxpayer losing money, and perhaps could even make a profit. As noted above, these bonds could be bought at market prices that would actually make a long-term buyer a profit. Put someone like Bill Gross in charge and let him make sure the taxpayers are buying value. This would re-liquefy the banks and help get their capital ratios back in line."

So put John in the, "we really need this, and we might make money off it", camp. Interesting to note that he was also in favor of the Bear Stearns backstop/bailout, a move that he saw as "not a bailout" and indicative of the notion that "the Fed gets it".

Now on the other side of this debate, Nouriel Roubini finds the proposed Treasury bailout to be "a disgrace":

"Specifically, the Treasury plan does not formally provide senior preferred shares for the government in exchange for the government purchase of the toxic/illiquid assets of the financial institutions; so this rescue plan is a huge and massive bailout of the shareholders and the unsecured creditors of the firms; with $700 billion of taxpayer money the pockets of reckless bankers and investors have been made fatter under the fake argument that bailing out Wall Street was necessary to rescue Main Street from a severe recession.

The Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown."

We'll just put Roubini in the "against" camp.

And that's not all we've got lined up for you on this issue. Some of the best commentary I've seen on the bailout is just ahead in our related posts and articles section.

Where will the country get the money to fund this bailout, and will the plan actually make money for the US government and its taxpayers? Read on to find out.

Related posts and articles:

1. "Latest bailout spin: It's a money maker!" - Big Picture.

2. "What a fine mess you have gotten us into" - Aleph Blog.

3. "Where is Paulson going to get $700 billion?" - CIJ.

4. "Making a deal with the devil" - Peter Schiff via FSO.

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