Bailout, round 2

Like a lot of people, I've been all over the place on this subject. I'm not crazy about the absence of moral hazard in any government bailout, but am/was concerned enough about the financial health of the system to see the Paulson bailout plan as a necessary evil.

Even absent a bill, the market and the dollar rallied yesterday and stabilized today after a dip in the morning. Always remembering that the street may be anticipating a bill to be passed and building that expectation into prices, this seems like unadulterated good news that may mitigate the provisions of any bailout.

New regulations from the SEC regarding accounting valuations for assets likely played a huge role in today's market action-nice to see the government effecting positive change for once. I think the next (small) step is to ban teaser rate mortgages, as it's hard to see them as anything other then financial traps for the unwary and uneducated.

However, none of this positive news should be seen as reason to avoid the bailout altogether. We can pay for this problem with a recession and associated high unemployment or we can pass a version of the Paulson bill, which may not even be big enough, terrifying as that prospect is. The time to effectively deal with the mess around Fannie and Freddie was in the 1990's or in the post-Enron time period.

What I'm most concerned about are the inevitable riders to the bailout plan. For every salutary idea like patching the AMT, there's Dodd and Frank attempting to lard up the bill with literally billions for nebulous housing justice trusts.

It's this kind of thinking that got us into a regulatory situation where the net effect of Sarbanes Oxley is an obsession with the minutiae of document retention, instruction manuals, training sessions and other non-helpful procedures. In the meantime, not one government regulatory agency seemed to notice that the whole idea of tiered capital was no longer valid and that leverage ratios were through the roof.

My (entirely merited) shot at Chris Dodd and Barney Frank aside, this crisis is one of the few non-partisan things to come out of Washington in some time. If you're railing about bandit CEOs, or banging the drum about how the CRA act is solely responsible for this crisis, then I will politely submit that you are over-indexed on partisanship and should instead concentrate on how we're going to get out this crisis instead. It's that bad