To be honest I don’t think much of the idea that the country will get its money back from the bailout or, as the President has suggested, that the country can *make* money from the plan (we’re all well aware of W.‘s extensive business acumen, aren’t we). Sure it will get *some* money back, but if things were that simple as the bullish imply there would be no need for a bailout in the first place, would there. The situation would resolve itself with only a slight downturn. Looking at the bailout as an investment, it’s reminescent of some guy coming out of the blue and telling you that he can triple your money overnight, while constantly emphasizing that he needs to get the ball rolling NOW. The only thing you can be sure of when faced with such a situation is that you’re being scammed.

I’m a little ambivalent on this whole deal. On the one hand I think it’s a terrible idea in the long run. On the other hand I hope it passes this week so I can sell already-held US stock at a profit. The market is in for a serious correction whether there’s a bailout or not. The bailout will only move that big correction into Obama’s Presidency (or, God forbid, McCain’s). The whole point is that Bush and Paulson are desperately trying to avoid the crash being imputed directly to them. As for Congress, well, they’re happy when they spend money, and spend they probably will, what with all the pork that’s been added to the bill in the past week. The Bill, which started as a 3-page draft last week, was about 120 pages on Monday and has grown to some 450 pages by now so there’s something in there for everyone to like — except the taxpayer maybe…

The thing is that I don’t quite know what exactly will be achieved by spending all this money. People who are upside-down in their mortgages, for instance, will continue owing more than the property is worth. A man who makes $50k/yr will still not be able to afford to repay a $500,000 loan. You can give all sorts of extensions but that doesn’t change the fundamentals. Additionally the credit market will never get back to the insane highs of the early 2000s, just as a matter of common sense and lessons-learned. So, that $700B, what’s it going to buy?

As you pointed out, the $700 billion would come from running the printing press on currency. This can have a couple of unexpected effects, though:

1. By putting more currency into play, wouldn’t we assume that this could create some extra pressure on the dollar. Granted, as a fiat currency, that pressure would only be based on perception, which brings me to the second point.

2. By dropping an extra $700 billion into the deficit, we’re going to approach a trillion dollar deficit. Will current holders of government debt and/or dollar currency consider that OK or will they start applying pressure on the dollar and other government related financial instruments.

Last but not least, if we assume that this release of $700 billion in extra dollars is happening, and we assume that this will put pressure on the dollar, we could find ourselves in a situation where the cost of import into the US would increase. Since a lot of US products are now manufactured overseas, this probably would result in increased inflation, which could put some extra pressure on the economy.

But again, I agree with Tristan that we really need to talk about how to pay for this and taxes is obviously the right place to start as you don’t want to cut spending too much during a slowdown in the economy.

My view is that we need to reassess our approach when it comes to credit and maybe start acting a little more responsibly by balancing budgets, or at least trying to…

Initially, I was thinking about things like entitlement cuts but unfortunately, something like that would not only be unpopular, it could also have the impact of pushing more people into possible default on their mortgages… So the question then was where do we go: short-chaing infrastructure didn’t seem like a good idea, and touching the military budget, while possibly a smart move, probably wouldn’t sell in a time of war.

And then, there was the tax cuts. With the opening of “these are tough economic times,” I started thinking about what might happen if you cut it at several levels. If we truly have an emergency on our hands, a tax cut sacrifice might help…

This is likely to create a whole new slate of problems. For a start, in a market where credit is already nigh-impossible to obtain, could anyone actually sell $700B of new securities, no matter how “safe” these securities are? and what about the issue’s dilutory effects on the value of the USD?

Maybe I’m being naive here but I’m fairly sure that money doesn’t just appear because either the administration or Congress affirms that it will.

In the 90s, when Democrats entered the White House, all of a sudden, budgets HAD to be balanced. So assuming that that’s the case (and it’s really not a bad idea to think of balancing budgets) and going beyond the details of whether a bill is good or not (once again making an assumption as to something being needed), how do we pay for it. So the point I was trying to make in this post is that, if such bill is required, a parallel should be to repeal the previous large tax cuts to cover some of those costs. After all, that money is needed to deal with the crisis and repealing those cuts would be the quickest way to raise it without increase the national debt as much.

$700 billion (or $250 billion right now, if you believe the latest deals) is a lot of money and few people seem to be talking about how to pay for it…

Here are some things that need to get cleaned up before we start talking bailout:

- Large markets without disclosure and central clearing. So when there are big moves, nobody knows who might go belly-up and the market stops functioning.

- Rating agencies — you accept high fees to rate garbage bonds AAA so banks can buy them, you lose your nationally recognized reporting agency

- Toxic lending structures, like option ARMs. If a broker puts a client in an unsuitable investment, they go to jail. If a mortgage broker puts someone in a borderline predatory loan, nothing happens.

- Fraud sentences for people who originated mortgages that had no chance of getting repaid, and those who securitized them

- Revisiting the ‘lender of last resort’ compact — the deal is, if you’re too big to fail and therefore deserving of a backstop, whether GS or AIG, you have to pay for that backstop, disclose your risks, and take prudent risks

Much as I would like to give Paulson and Bernanke the benefit of the doubt, the $700b blank check is simply the world’s biggest earmark, the bridge loan to nowhere. Wall Street is trying to railroad through one last feeding frenzy at the trough, and après moi le déluge.

Soros is on the right track (Google ft soros paulson blank cheque). Just offer the Buffett deal to any bank that wants it — all the money they need at 10%, in a preferred stock that gets paid off before stockholders, and convertible into equity at Friday’s price if the bank recovers and the stock goes up.

This will prevent widespread bank collapses. It won’t make everyone start lending again or prevent the natural course of the business cycle and the housing bust — what goes up must come down.

But the $700b ‘splurge’ won’t do that either — attempts to repeal the business cycle are futile, and we’ll just pay for it through higher taxes, higher inflation, less growth for much longer.