Lefter-wing Democrats Agree With Right-wing Dissenters; Cat and Dog Marriages Now Legal in California

In contrast with some other Democrats, some of the most “progressive” Demoracts have announced the “No BAILOUTS Act” (overwrought tasteless acronym included, no charge), which on first blush at least deserves serious discussion and a rebuttal by Paulson/Bernanke if they have a reason it can’t work.

It addresses the over-regulation of Sarbanes-Oxley that has made this crisis more acute by eliminating Mark-to-Market accounting rules when there is no meaningful market. So when there is great uncertainty about how many mortgages in a portfolio will default and the prices offered are a fraction of the likely income from simply holding onto the mortgages, you can value them at the likely value of holding the mortgage to maturity. They’re getting in bed with some Republicans and libertarians here. Whoah, Nellie. Bet this is the part other Democrats have the most problems with.

It eliminates “naked” short selling, which doesn’t arouse my ire much but probably is only a fraction of the current issue. Basically this is short selling where you don’t even borrow the stock in the first place to sell it. You can theoretically leave someone else holding the bag, and it’s a dumb idea to begin with.

It has another provision ensuring the “uptick” rule returns, with again a myopic focus on shorts, even though shorts are generally just part of the reaction to an overvalued stock. But it can potentially reduce panic by making people not “pile on” to a declining stock. (Though as an owner of AAPL, I can tell you the broader market does this just fine.)

It also ressurects the “Net Worth Certificate” program, the dodgiest part of the proposal, given that it rather suspiciously ended right after the S&L bailout and 25% of recipients needed further help. But a few variations on this theme (essentially giving government loans based on the worth of the bank, not on the worth of mortgage-backed securities) have been proposed and economists should bash on it for a while to see if it holds water.

Finally, it increases the FDIC insurance rate to $250,000, although the original $100,000 guarantee may have encouraged some of the riskiness that led to the S&L crisis. But that $100,000 insurance limit was made a long time and much inflation ago, so it’s arguably worth far less now than it was then. It might protect banks from runs (*cough* Wachovia/Citibank *cough*), but so many people with that kind of money also have mutual funds that aren’t insured, so I don’t know how it will really react.

This is not to say that I wholeheartedly endorse this plan or even know it’s a superior alternative; but it’s an alternative that doesn’t seem any more laughable on its face than the Paulson Plan, and it deserves to be compared and contrasted for, say, the remainder of this week? If the credit market seizes up before then, then Paulson was probably too late…again.

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