Paulson has walked in to Congress and dropped the Paulson proposal and demanded that they pass a bill that gives the Secretary of the Treasury $700 billion dollars to spend as he wishes with no oversight. But they don't trust him.
Supposedly Paulson is going to buy the bad mortgages from the banks so that they can recapitalize themselves and start lending again. This won't work unless the government overpays for the mortgages, of course, and if it is done, then the bankers go right back to getting richer than before. The taxpayers lose by paying higher taxes. A major problem is how much the government pays for the toxic loans that the bankers created and which are now preventing the banks from lending them more money.
Here's the problem with buying the loans The economists call it information asymmetry. Again, Congress quite rightly doesn't trust the Wall Street banks that have caused the current credit crisis.
Whether it is true or not that the banks themselves cannot tell right now which mortgages are the bad ones and which are the good ones, I will guarantee that by the time they start selling mortgages to the government they will be able to tell the difference. Data mining? Some other computer technique? The data is sitting there in their computers and the profit is all the incentive they need. The government buyers will not have access to the information, of course.
Once the banks can tell which mortgages are toxic and which profitable, guess which ones they will be selling to the government? Call it a "Gresham’s Law of mortgage sales." Bad mortgages will drive out good. Those will be the only ones the government buys.
The government is going to get screwed out of a lot of taxpayer money and a lot of Republican bankers will make millions, just as happened with the Resolution Trust Corporation.
We taxpayers don't trust Congress any more than we do the Bush administration. We taxpayers are going to be taxed so that the money can be handed to some of the wealthiest individuals in America. As David Kay Johnston stated in his very revealing book, Free Lunch, that's not new. What is new is the scale of the fraud and the way it is being perpetuated in the last months of the extremely crooked Bush administration.
In the meantime, Congress totally distrusts the Bush administration. Every time they tried to trust the administration they have gotten screwed. The Iraq war is only one of many such events. But there there is the way the Bush Secretary of the Treasury presented the skimpy Paulson Proposal. The phrase to remember is "This is a limited time offer. You have to buy it now!" The Paulson Proposal is a scam you have to decide on now or Paulson claims he will not be responsible for the disaster your delay will cause.
Anyone who has ever been scammed can see this one coming. The Bush administration is no better than the Wall Street banker, the Gypsy or the beggar when any of them tell a sad story and asks for money. It's a scam designed to tax our money out of our pockets and put it into the pockets of some of the wealthiest and most immoral men in the U.S. - Wall Street Bankers.
This lack of trust also effect Senator McCain. The story I have heard is that this lack of trust puts John McCain into the position of determining what Congress does. If Congress presents a bailout bill and he votes for it then the Democrats can also vote for it because he will not be able to use their vote against them in the November election. If McCain votes against a bailout bill, then so will the Democrats because of the election. No one trusts what McCain says. They will vote whichever way he does so he cannot use their vote against them in the upcoming election.
One thing that the Marcy Kaptur video that started this article made very clear - the Democrats are very aware of where the power of Congress comes from. It's not from the power of logical debate or from the vote of the sovereign people. It comes from Congress' ability to say no to the Executive when the Executive is in a hurt and asking them for help. That means Right Now, not next year.
Right now the Congress cannot trust the executive, so the Paulson Proposal is dead. No one can trust anyone to make a deal now that they will honer later. So Marcy Kapture has it right - it's either real reform now, or nothing now.
It all comes down to distrust.