Five Alternative Bailout Plans

Let our journalists help you make sense of the noise: Subscribe to the Mother Jones Daily newsletter and get a recap of news that matters.

The Bush administration is pushing its bailout plan by claiming the only way to save the economy is by having the federal government buy $700 billion worth of bad paper from big financial firms that screwed up. Conservatives should hate this because it is a massive federal intervention in the market. Liberals should hate this because it’s a handout to the richest people and companies in America. But the Bush administration and Wall Street are insisting it’s the end of the world and this is the only choice. Well, is it this or nothing? Many on Capitol Hill—especially Democrats—are buying the general premise of the White House plan but insisting on lipstick-on-a-pig modifications involving CEO compensation, taxpayer protection, and oversight and transparency. But are there other approaches to the problem besides putting the Treasury in charge of a $700 billion fire sale? Yup. Here’s a quick roundup.

(1) The Planners: The Republican Study Committee, a group of some of the most conservative Republicans in Congress. The Plan: Two-year suspension of the capital gains and dividend taxes to “encourag[e] corporations to sell unwanted assets.” The Problem: It won’t work. Over at Time, Justin Fox says the RSC plan “seems to be a joke,” and explains that it would just make matters worse by actually discouraging banks from unloading bad mortgage-backed securities.

(2) The Planners: Eric Cantor (R-Va.) and some House Republicans. The Plan: Instead of having the Treasury buy mortgage-backed securities outright, insure them and charge premiums, paid to the government. The Problem: It almost certainly won’t work. Marc Ambinder has a great explanation of why, but a commenter at Time sums most of it up in a sentence: “Writing insurance requires either a long history of past events or, at a minimum, knowledge of present market prices.” There is neither a long history of past events nor a knowledge of present market prices in this case. In fact, as Ambinder points out, there’s not even a market for the products that would be insured. That’s the fundamental problem, and insuring them wouldn’t fix it.

(3) The Planner: Our own James K. Galbraith, an economist. The Plan: Prop up the FDIC. Eliminate the “pointless” $100,000 cap on deposit insurance, put a half-trillion dollars in the FDIC fund, give it extra funding for more employees, and keep another $200 billion in reserve. (There’s more in Jamie’s article, but the FDIC part is the heart of the plan.) The Problem: It may good policy, but so far, there are few takers in Washington. And there’s no major political constituency advocating for it in the way that Wall Street is calling for a buy-me-out bailout.

(4) The Planner: Senator Bernie Sanders (I-Ver.). The Plan: Make the rich pay for the bailout. Impose a temporary surtax on incomes over $1 million. Pass an economic recovery package that puts people back to work. Then re-regulate and break up any companies that are “too big to fail.” The Problem: See #3.

(5) The Planner: Hedge Fund Gazillionaire John Paulson. The Plan: Buy Wall Street. No, seriously: Paulson thinks taxpayers (or, more specifically, the Treasury) should buy huge amounts of senior preferred stock in banks. Kevin has more on this, which he points out essentially means nationalizing troubled banks. The Problem: This plan essentially means nationalizing troubled banks. Conservatives will be queasy about it; even Kevin Drum, a liberal, is queasy about it.

Have you come across any other alternative plans? Do you have any suggestions of your own? Leave them in the comments.


Headshot of Editor in Chief of Mother Jones, Clara Jeffery

It sure feels that way to me, and here at Mother Jones, we’ve been thinking a lot about what journalism needs to do differently, and how we can have the biggest impact.

We kept coming back to one word: corruption. Democracy and the rule of law being undermined by those with wealth and power for their own gain. So we're launching an ambitious Mother Jones Corruption Project to do deep, time-intensive reporting on systemic corruption, and asking the MoJo community to help crowdfund it.

We aim to hire, build a team, and give them the time and space needed to understand how we got here and how we might get out. We want to dig into the forces and decisions that have allowed massive conflicts of interest, influence peddling, and win-at-all-costs politics to flourish.

It's unlike anything we've done, and we have seed funding to get started, but we're looking to raise $500,000 from readers by July when we'll be making key budgeting decisions—and the more resources we have by then, the deeper we can dig. If our plan sounds good to you, please help kickstart it with a tax-deductible donation today.

Thanks for reading—whether or not you can pitch in today, or ever, I'm glad you're with us.

Signed by Clara Jeffery

Clara Jeffery, Editor-in-Chief

payment methods

We Recommend