"I'm curious why he's suddenly for these proposals when they could just have easily been proposed earlier"

They were--he brought the transfer tax to leadership and was rebuffed, because they were in panic mode.

This has nothing to do with his seat; he's safe. The whole point is that the plan has been rushed, alternatives be damned.

The people working with DeFazio are some of the brightest progressive lights in the House. These proposals deserve support; they make the most sense in addressing panic and stabilizing markets before throwing money at the situation.

Irishspacemonk,

DeFazio's ideas are not lame and should be included in any package that comes out of Congress. His seat is safe so his votes and position is one of principle not politics.

At the same time I don't believe that his proposal alone will solve the problem. We still need a cash infusion into the banks via Congress, but his proposal will also reduce the amount of tax payer dollars at risk.

"I'm curious why he's suddenly for these proposals when they could just have easily been proposed earlier"

They were--he brought the transfer tax to leadership and was rebuffed, because they were in panic mode.

This has nothing to do with his seat; he's safe. The whole point is that the plan has been rushed, alternatives be damned.

The people working with DeFazio are some of the brightest progressive lights in the House. These proposals deserve support; they make the most sense in addressing panic and stabilizing markets before throwing money at the situation.

...and tried to safeguard his seat...

Huh? He doesn't even have an opponent. He raised, at least, the tax idea late last week (loudly enough for Kos to have noticed.)

So he's not entirely a johnny-come-lately.

"need a cash infusion into the banks via Congress"

Didn't the FED drop in 350bil today?

Let's keep track of that, TorridJoe, by my reckoning that's $960 billion in taxpayer money that has already been spent to alleviate the credit crunch.

RichW is 100% correct. To me the most important thing now is to convince leadership to SLOW DOWN and start considering alternatives, as well as to own the next bill. Make it good, make them vote against it if they dare, and take their case to the nation.

I just got off the phone with Rep. DeFazio; here's some of what he had to say.

I do not see how this is a progressive proposal. There are only two aspects of it addressed to the problem at hand, the imploding money supply: suspending fair-value accounting and authorizing a net worth certificate program. When did it become a progressive for banks to lie about the value of their assets? And why would it be better for the Treasury to issue a blanket guarantee of the value of those assets rather than swap T-Bills for them via a reverse auction?

The transactions tax might well be a good idea and maybe even a progressive one, but writing sound legislation would take months, especially if we are going to build the exchanges needed to incorporate existing unregulated financial transactions into the proposed system. More importantly, it isn't an alternative to the Treasury plan; it's completed unrelated to the discussion as a matter of diagnosis or prescription.

The housing market is not what's imminently on the precipice of failure; it's the credit crunch. This isn't supposed to bail out the industry and cover all bad paper, which is partly the point--why do that? The intent is to regain control over the markets and prevent the crisis of things like businesses not making payroll because there is no short term capital available, primarily because banks are too scared to lend.

From the horse's mouth:

“The No BAILOUTS Act provides a narrow alternative to the Paulson Proposal to address the current credit crunch,” DeFazio said. “My alternative to the Wall Street bailout will correct the capital shortfalls experienced by many financial institutions and help protect the integrity and quality of the securities market. My plan could be implemented promptly meeting the demands of the Bush Administration to act immediately without putting the American taxpayer on the hook for billions of dollars. “ “Once Congress addresses the liquidity shortfalls in our financial markets, we can then work to address the broader economic crises we face today,” DeFazio continued. “Specifically, Congress must work to resolve the housing crisis across the country and pass a job stimulus bill by making much needed investments in the nation’s critical infrastructure to create jobs and improve our long-term economic viability. That’s the response Main Street America expects and deserves.”

OK. I just looked at DeFazio's comments at Loaded Oregon. They make much more sense there than as described here in BlueOregon. He proposes to continue what the Fed and the FDIC are doing now, but being more aggressive about it: taking over failing banks, evaluating their asset portfolios, and restoring stability, presumably by injecting cash into the ones worth saving and merging the ones that cannot be saved. This is what Paul Krugman has been proposing all along. The main advantage of this option is that it would minimize the risk to the public fisc. Its downside is that it would probably also deter private investors from lending to banks, so the banks would have to rely more heavily on depositors (hence the additional guarantees to depositors) and the US government. This approach also calls for a strict prohibition on short-selling, which would be hard, maybe impossible, to enforce.

The Treasury plan does not rule out this option, but neither does it require it. Rather, it relies primarily on open-market operations, something the Treasury knows how to do.

One further point. When the Swedes executed something like the DeFazio/Krugman plan, they had to pony up cash equal to 5 percent of GDP; that's approximately what the Treasury plan calls for.

Both plans entail risk. Under the best case scenario, say less than 20 percent of mortgages are under water, the Treasury plan would be less costly (profitable, even) to the taxpayer. Under the worst case scenario, more than 40 percent of mortgages are under water, the DeFazio/Krugman plan will be much better. It all depends on how many mortgages end up under water before this is all over. The only certain answer is that if we have no plan we all lose.

I just got off the phone with Rep. DeFazio; here's some of what he had to say.

Good man.

David Sirota does a tremendous job of describing the No BAILOUT Act, and what the political field looks like from here.

Dennis was just on Maddow a minute ago (satellite time) and he brought up some of the meta stuff that Tom put up on the other thread, but it looks like he'd be on board with DeFazio's plan even though it doesn't go as far as he'd like, and I'd bet that you could peel off a few Republicans with this one too......

torridjoe and Sal,

Banks need equity, not just cash. That's why it has to come from Congress now not just the fed pumping cash into the system. The fed cash is not spending it is a loan and they can take it out of the system at any time, which is why it doesn't solve the credit crisis, only liquidity.

DeFazio helps with the equity by raising the value of the bank's assets. The other alternatives are to buy assets above the book value (Paulson) or invest in the banks themselves (Buffet).

John: You are right, of course. But, If there really are large numbers of mortgages under water, the DeFazio/Krugman plan comes down to the Treasury/FDIC taking over the banks and injecting equity.

The reason DeFazio's proposal might look cheaper than Paulson's is that if the SEC lets the Banks value their assets at what they think they are worth (as opposed to what someone is willing to pay for them) and the Treasury guarantees that claim (presumably the threat of takeover would keep the banks strictly honest), that might be all that's needed to restore them to solvency without any money changing hands. I am a little unclear about how this guarantee would work or to whom it would be given. But it could work if the problem is really as small as some folks think it is. But Treasury is still liable for the difference between the actual value of the bank's assets and the declared value of those assets, which is exactly the same as its liability if it swaps those assets for T-Bills (more, if despite the threat of takeover, the banks should happen to exaggerate a bit).

Fred Thompson, there was an interview on PRI's "The World" radio show the other day with Bo Lundgren, a Swede and self-described "market liberal," who was part of the administration of Sweden's handling of a similar crisis in the early 1990s. According to him, a key aspect of their plan was that the government got equity in the banks in question, which eventually could be sold back into the market and cover a large part of the costs to the public fisc.

Also, he mentioned that it was modeled on U.S. government actions relating to failing banks in 1933. That shouldn't be relevant except for the anti-intellectual U.S. tendency to treat good European in terms of their geographical origin rather than whether they are good ideas or not.

Dan Meek sent me this analysis of the 110-page "bailout bill":

The press is conveying incorrect information about the Wall Street bailout bill that the U.S. House of Representatives rejected yesterday. I have read its 110 pages. The bill authorizes the Secretary of the Treasury to spend $350 billion and then another $350 billion to buy "troubled assets" (which includes any type of financial instrument) he wants to buy at any prices he wants to pay.

All of the other provisions are optional and need not be implemented. Those include the alleged limits on executive compensation and "golden parachutes," the alleged assistance to homeowners who cannot pay their mortgages, and the opportunity for the government to get partial ownership of the assisted corporations.

The bill does not require Secretary Paulson to take any of those actions, and he has repeatedly stated that he opposes such actions.

As for the "taxpayer protection" provision, it is truly absurd. It only states that, after 5 years, "the President shall submit a legislative proposal that recoups from the financial industry [undefined] an amount equal to the shortfall." The bill does not in any way get back from the "financial industry" the amounts paid by the taxpayers for the bailout.