Without much obvious help from either John McCain or Barack Obama but a whole lot of politicking, congressional leaders appear to have crafted a bailout deal.
A substantive analysis will have to wait until an actual bill appears, but for now, what we know is that the bill seems to include a little bit of everything: a little bit of help for Americans facing foreclosures, a little bit of restrictions on executive compensation, a little bit of oversight, and a little bit of an "insurance option" pushed by House Republicans.
From The New York Times:
Officials said they had also agreed to include a proposal by House Republicans that gives the Treasury secretary an additional option of issuing government insurance for troubled financial instruments as a way of reducing the amount of taxpayer money spent up front on the rescue effort.
The insurance option doesn't seem to be much more than a face-saving gesture for the House Republicans. Treasury Secretary Hank Paulson has already made it clear he thinks the insurance plan is too expensive and won't work quickly enough to get credit markets moving again. So what good is an "option" if Paulson doesn't want to use it?
Another problem that jumps out. The Wall Street Journal reports:
As for foreclosure prevention measures, Pelosi's office said the legislation would allow the Treasury to work with cash-strapped homeowners whose mortgages are purchased by the federal government to refinance into a more affordable mortgage.
However, as I noted on Friday, the federal government's ability to rework mortgages is going to face some serious challenges, given the nature of how mortgages have been repackaged into derivative structures.
We look forward to more details, and a feeding frenzy by economists as the week wears on. But in the meantime, one interesting note: The conventional wisdom is that a deal had to be done by Monday morning, before the markets opened in New York. Not really -- the real deadline is Sunday night, EST -- when markets in Tokyo and Shanghai and Hong Kong open.
This bailout deal isn't just for Wall Street -- it's for the global economy, and nothing makes it more clear how the center of gravity is beginning to shift than the fact that sunrise in the Far East is now the starting line for global capitalism.
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