The October Surprise

The big topic this morning at breakfast was Paulson and his 700 billion dollar bailout for his cronies on Wall Street. He, of course, wants a blank check and he wants it now. Once again the shock doctrine is employed by this administration.

Sept. 20 (Bloomberg) -- The Bush administration asked Congress for unchecked power to buy $700 billion in bad mortgage investments from U.S. financial companies in what would be an unprecedented government intrusion into the markets.

The plan, designed by Treasury Secretary Henry Paulson, is aimed at averting a credit freeze that would bring the financial system and economic growth to a standstill. The bill would bar courts from reviewing actions taken under its authority.

"It sounds like Paulson is asking to be a financial dictator, for a limited period of time,'' said historian John Steele Gordon, author of "Hamilton's Blessing,'' a chronicle of the national debt.

"This is a much-needed declaration of power for the Treasury secretary. We can't wait until the next administration in January.''

These guys are relentless

And the "D"s need to get out in front of their relentlessness, not just come up with conditions after the emergency plan is dropped in their laps. That said, here is a good start on those conditions from TPM:

Principles to Guide the Bailout

1) Financial institutions should be forced to endure the bulk of the losses with taxpayer funds only used where absolutely necessary to sustain the orderly operation of the financial system.

2) The bailout must be designed to minimize the opportunity for gaming.

3) The bailout should be designed to minimize moral hazard.

4) In the case of delinquent mortgages that come into the government's possession, there should be an effort to work out an arrangement that allows the homeowner to remain in her house as owner. If this proves impossible, then former homeowners should be allowed to remain in their homes as renters paying the market rent. This should be done even if it leads to losses to the government.

5) There should be serious efforts to severely restrict executive compensation at any companies that directly benefit from the bailout.

Principles for Restructuring the Financial System

1) Combating asset bubbles must be one of the Fed's key responsibilities.

2) The government should impose a modest financial transactions tax, comparable to the one in the United Kingdom. This can both restrain excessive trading and raise more than $100 billion a year in revenue.

3) Regulatory agencies should require that potentially tradable assets (e.g. credit default swaps) actually be traded on exchanges.

4) There should be strict limits on leverage for all regulated financial institutions.

5) Fannie and Freddie should remain fully public institutions, returning them to a status comparable to Fannie's prior to its privatization in 1968.

6) The Fed should be restructured so that all the key decision makers (e.g. the open market committee) are appointed by democratically elected officials. Its responsibility is to manage the economy in the interest of the general public, not the financial sector. more

As Obama said today, there is a big difference between allowing the market to run , and allowing it to run wild.

These "R"s are wild and relentless.

And if the "D"s don't go along,

they will be blamed for not taking decisive action.

Is this the October surprise?

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