Yes, The Government Is Just Throwing Money At Wall Street

Thanks to Jonathan Schwarz for linking to this New York Times article on the bailout, and to Whatever It Is I'm Against It for linking to this article fact-checking a McCain attack on Obama. (Like you didn't already know that McCain lies.) Schwarz' focus was on the government's intention to outsource the bailout to the very people who are responsible for the crisis to begin with:

The government will hire only a bare-bones internal staff of about two dozen people with expertise in asset management, accounting and legal issues, according to administration officials, and will outsource the bulk of the program to 5 to 10 asset management firms.

Administration officials said they had not yet selected the list of firms to run auctions or manage the assets. During the last few weeks, the Treasury has informally consulted major firms — including BlackRock, the Pacific Investment Management Company and Legg Mason — but none have been given a mandate, they said.

The selected asset management firms will receive a chunk of the $250 billion that Congress is allowing the Treasury to spend in the first phase of the bailout. Those firms will receive fees that are likely to be lower than the industry standard of 1 percent of assets, or $1 for every $100 under management.

Administration officials said they would try to drive down fees with a competitive bidding process. But with $700 billion to disburse, the plan could still generate tens of billions of dollars in fees if the firms negotiate anywhere close to their standard fees.

Sweet. But really, couldn't they just ship a bunch of these guys off to Guantanamo and make them do it there? If they refuse, the guards can just flush a few copies of the Wall Street Journal down a toilet until the urge to protect their holy writ makes them comply.

Anyway, what I noticed, aside from Bush's caveat that “This will be done as expeditiously as possible, but it cannot be accomplished overnight. We’ll take the time necessary to design an effective program that achieves its objectives — and does not waste taxpayer dollars” (hahahahah, wotta kidder), was the admission that the bailout plan, aside from such vital provisions as the Excise Tax Exemption for Wooden Practice Arrows Used by Children, apparently doesn't include certain basic details:

Of all the challenges that the Treasury faces, the trickiest might be determining a price for the largely unwanted wreckage it will be buying. Many of the junk loans and mortgage-backed securities have no market price at all because they have no potential buyers. The firms hired by the government will have enormous power to push the “market” price up or down as they choose.

If the government bargains to buy at the lowest possible price, it will protect taxpayers. But forcing the banks to book big losses could be self-defeating if they cannot resume lending until they raise fresh capital. If the government agrees to buy the assets at the value at which banks are keeping them on their balance sheets, taxpayers will almost certainly be overpaying.

... Which, of course, is exactly what the banks involved are hoping: that “the government will pay close to par — the value listed in their books.” Not that I blame them, but no, that's not what we were told would happen. Rather the government was going to buy up all that "wreckage" at bargain-basement prices, and the taxpayers would reap the profits when those bad loans rose up again to a proper level. Nah, I didn't believe one that either. So, this is precisely what Obama claimed it wasn't: a plan to hand over $700 billion of the taxpayers' money to a few Wall Street banks. But hey, y'know, it may not be a perfect plan -- we had to do something.