Bailout Bill Will Fail, Won’t Stop Recession

MSNBC has a nice summary of the Bailout Bill and I’ve read through all of it and I don’t see how it’s going to solve any major problems. The best this bill is going to do is prolong the pain and it won’t stop the US economy from slipping into a major recession.

I’m still surprised that there isn’t a single dime to shore up FDIC. I wrote over a year ago that FDIC needed to raise coverage limits to at least $224,000 for ALL accounts to keep up with the rate of inflation but that still hasn’t happened.

The bailout bill breaks down into a simple theory, “if banks are freed from bad home mortgages, everything will get better” but there are so many questions that remain unanswered.

What good are the credit rating agencies now?   Why would you use them to base your lending or investing on if they provided nothing but garbage information?

What good is FICO scoring in lending right now?   No doubt that all these bank mergers, shrinking HELOC lines, and defaults have trashed many peoples scores -even the innocent ones.

Is the goal here to get consumers to borrow to buy fuel inefficient cars they don’t want, homes with questionable titles or depreciating values?

If we were to assume that all banks magically have their balance sheets wiped clean and all have a fresh $700 billion to lend out, who’s going to borrow and for what purpose?    How easy is it going to be to lend money with more regulatory oversight and bureaucracy?

Assistance to home owners?   Wasn’t that included in the last bailout bill and it didn’t seem to help anyone did it?

The most troubling thing in this bill, at least for me, is the following:

Section 132. Authority to Suspend Mark-to-Market Accounting.
Restates the Securities and Exchange Commission’s authority to suspend the application of Statement Number 157 of the Financial Accounting Standards Board if the SEC determines that it is in the public interest and protects investors.

Section 133. Study on Mark-to-Market Accounting.
Requires the SEC, in consultation with the Federal Reserve and the Treasury, to conduct a study on mark-to-market accounting standards as provided in FAS 157, including its effects on balance sheets, impact on the quality of financial information, and other matters, and to report to Congress within 90 days on its findings.

These regulations were created after the Enron and Worldcomm debacle where assets were being booked that had no or questionable value and now they’re going to be suspended?   How many new Enrons will spring up after repealing these regulations?  I love that last part, “..if the SEC determines that is in the public interest and protects investors.”

Yeah, having another Enron will “protect investors.”