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Thursday, September 25, 2008

Is the Bailout Dead?

Weird goings on in Washington today as far as negotiating some kind of bailout for failing banks and Wall St. firms.

Earlier today it looked like an agreement had been reached where about half of the Bush administration's 700 billion dollar request would be granted, with additional money available after Congressional approval. Evidently that's fallen apart. It was put together by a bipartisan group of congressmen (and women) but without much leadership input from either side.

Now the word tonight is that deal is dead, and the GOP is pushing an alternative package that would have the government guarantying insurance packages for firms that agree to buy the "bad" debt from banks and brokerages. This would be a better solution in the GOP eyes since it keeps the government out of the ownership business of the firms.

It may also be a better idea based on those pesky accounting rules I keep mentioning. Firms buying the mortgage debt will be more likely to pay close to what it's worth if they can get that purchase insured. The government would have just made offers "you couldn't refuse" that may not have reflected the true value of many of the investments. If that's the case, many other portfolios of mortgage backed securities will suddenly see their value increase.

I'm not sure what will finally get hammered out as the solution to the current crisis, but my guess is that it will have less government ownership of firms that Bush proposed, and probably less market control that the GOP delegation in Congress would like. We should know in the next 48 hours what they finally decide on though.

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