NEWS YOU WON'T FIND ON CNN

27/09/08 "MSN Money" -- - Put $700 billion in the bag and no one gets hurt.

That's pretty much what I'm hearing as the reason for pushing through a $700 billion bailout for the financial industry. We are told that the situation is so dire that we must accept Treasury Secretary Paulson's plan or face financial Armageddon.

Of course, when Ben Bernanke was asked what would happen if Paulson's plan was not approved, he said car loans and student loans would be more difficult to get, and businesses would find it harder to borrow money. Perhaps he was trying to downplay the consequences so as not to start a panic, but that doesn't sound like Armageddon to me.

In fact, it doesn't sound like it's worth spending $700 billion to avoid.

Using $700 billion of taxpayer money is a huge decision, or at least it ought to be. It's more than $2,000 for every man, woman and child in the U.S. It makes me angry to think that they want my 4-year-old daughter to contribute $2,000 to a plan which, at least originally, would have allowed bank executives to keep their compensation packages and their golden parachutes.

Earlier this week it looked like Congress would fairly quickly agree to use $700 billion of taxpayer's money to implement Henry Paulson's plan to resolve the credit crisis. But Democrats and Republicans in Congress both demanded concessions and, heading toward the weekend, no one seemed to know what would happen.

Such a deal for taxpayers?

As I've listened to Paulson and Fed chief Ben Bernanke explain their proposal, I am left with the impression that protecting taxpayers is a lower priority for them than protecting banks. This is the only way I can make sense of their proposal to use taxpayer money to buy mortgage securities from banks at a higher price than anyone else would pay, without even asking for an equity kicker -- part of the company -- to offset the risk.

Then there are the claims put forward by Wall Street insiders including Andy Kessler, a hedge fund manager, who writes in the Wall Street Journal that this is going to be a great deal for the Treasury -- akin to the purchase of Alaska for $7 million in 1867. Those billions of bad loans we're buying will be money makers soon enough.

If that's so, I want to know why Mr. Kessler's hedge fund, or any other hedge fund, is not willing to do the same deal? I've never know them to turn down easy money.

Why is it a good deal for my daughter's money, but not a good deal for his money?

Is there a better alternative?

Morgan Stanley (MS, news, msgs) was said to be looking at a good bank/bad bank structure when it was considering a merger with Wachovia (WB, news, msgs). As I understand it, Morgan Stanley would have bought the "good bank" from Wachovia's shareholders, leaving Wachovia's shareholders with cash and all the bad loans -- the "bad bank."

Why couldn't the Treasury use the $700 billion to do something similar -- splitting out the "good banks" from the banking system while paying cash and leaving the bad loans to existing shareholders? I suspect that using the money to set up a number of "good banks" will do more to restart the flow of credit than Paulson's plan to buy the bad loans at favorable prices. This plan would save the part of the banking system that is healthy and empower it to continue making good loans. In contrast, Paulson's plan rewards the part of the banking system that made the worst loans.

To my knowledge such a plan has not been considered, and that feeds my impression that the taxpayers' interests are a low priority. (For another idea, read "A credit-crisis fix for banks and homeowners."

Getting our goat

The situation reminds me of a portion of the Douglas Adams novel "The Hitchhiker’s Guide to the Galaxy," in which the leaders of the planet Golgafrincham decided to get rid of the least useful third of their population. This was accomplished by making up a story about a giant space goat coming to eat their planet and convincing all of the people they wanted to get rid of to board Ark-B, the first of three giant spaceships that would take them all to a new planet. The other two-thirds of the population, of course, did not follow.

The way that Paulson and Bernanke have described the problem, I cannot shake the feeling that my wife, daughter and I are being told to board Ark-B. Tell me again what the problem is that is so severe that it justifies taking $2,000 from every man, woman and child in the country?

Nevertheless, this train has left the station. No matter what we think, Paulson is going to have $700 billion to fix the credit crisis as he sees fit. It's a lot of power to give one man, especially one who was not elected and who has the gall to tell us he doesn't want there to be any oversight.

I am insulted that they think they can scare the money out of me without offering a good explanation. Maybe there are good reasons why each of us should give them $2,000, but I haven't heard them yet.

There is only one thing that politicians respond to more than money -- your votes. Whether you agree with me or not, I hope this makes you angry enough to vote. If the politicians who did this are returned to office, at least I'll feel that they really did represent their constituents instead of the interests of a very small group of people who think they can scare us out of $700 billion.

Thank goodness there is an election coming up.

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