Okay, and I mean defending it only with the Dem changes, including especially the requirement for oversight and an equity stake in exchange for buying the bad debt.

But here's the thing, buying assets, however toxic, looks to me a far better alternative than alternative suggestions I've seen that amount to various forms of insurance without buying any assets. The reality is that the United States is de facto acting as an insurer of failed institutions, which means the US government is taking on massive risk with almost zero upside possible and less ability to control what's happening. And institutions continue to fail, as WaMu showed.

So contra even some of my lefty comrades who have righteously and rightly condemned the possibility of a giveaway to the corporate pigs, I think the bailout is in the end the lesser evil. Here's why (below the fold):

The $700 billion figure is not the cost of the bailout. That's a figure for the value of the assets bought, which could amount to just transferred government money from cash into assets, with zero cost at all. Now, if the government pays too much -- and of course that's likely -- it will cost the taxpayers in the end, but it's a mistake to compare $700 billion to some of the other alternative discussed.

For example, any discussion of expanding financial insurance can make the costs look cheaper, since offering insurance upfront costs nothing until disaster hits. Of course, disaster is hitting now, and letting people take out any form of insurance for a hurricaine after the storm has it is a losing proposition. And the reality is that corporate types are just as likely or more likely to cut a deal for too-low premiums for any insurance as in any deal selling assets. In fact, I would argue that the government is more likely to drive a hard bargain when they are actually handing over cash for assets than when they are making an insurance guarantee-- hell, Fannie Mae and Fannie Mac came close to free implicit insurance over their years of operation.

And if the government demands an equity stake in exchange for buying assets, that means that if they underpay, the value of the companies they buy from will go up, meaning that the government will recoup some of the money lost in any bad deals. Warren Buffett may be too optimisitc (and maybe self-interested) in arguing that the US will actually make money through the bailout, but it is true that there are a lot of fire sales of assets out there and the U.S. is one of the only institutions with the money to purchase them. If the bailout works and the financial system recovers, financial assets worth little now could become a lot more valuable. The bailout will still probably cost a lot of money, tens maybe even hundreds of billions of dollars, but a lot less than the big number thrown around.

And then again, as Obama has proposed, if it turns out that the financial industry got too good a deal in those negotiations, the US government can slap a tax on them to recover the money. That's one advantage of being the government negotiating these deals-- if the financial corporations act too much like pigs, they will create a backlash that can rip the money right back.

Finally, I like the idea of the government taking ownership of all of the subprime and other screwed up mortgages. Some of them are speculative waste but others are owned by working families that just need a break. Adjusting bankruptcy laws to help out folks in foreclosure should be included in any bailout, but I'd rather see folks helped out before they are forced into bankruptcy. With the government controlling those mortgages, we would then have a more direct target for organizing demands for smarter solutions, including Dean Baker's smart proposal to allow people to release their mortgage and keep the right to rent their homes.

The private sector did screw up our financial system and I think a dose of government ownership could be just what is needed. Regulation is useful but equity and asset ownership by the government is one more alternative form of regulation. And in this case, it may be the more effective version until the financial system cleans itself up.

Despite all the worries that the government would own such large equity stakes in various financial firms, it's worth remembering that state governments through their pension funds already owe literally trillions of dollars in equities and other financial assets.

All that said, what will be needed is tough negotiations and smart auction systems to get reasonably good deals for the taxpayers when the assets are bought by the government. But what's true is that many financial institutions are afraid to buy these assets not because they are worthless, but because their value is uncertain, which means other firms will then be afraid to deal with them if they hold assets of uncertain value. The US government doesn't have the same problem, so it can potentially get a better deal for those assets than private sector players. That's the point that the defenders of the bailout are making and it's a reasonable one.

Of course, the big question mark is whether Paulson and Berneke will just act like typical Bush flunkies and sell out the American people. That's the most reasonable objection to the deal, but a tough oversight board and hawkish attention to each deal made could ameliorate that problem to some extent.

I'm not a pollyanna on this-- taxpayers will most likely lose money, but it still seems in the end better than almost any of the other proposals on the table near having a chance of being implemented. I don't think the Dems are acting in bad faith or selling us out in trying to make this work and I think the rightwing Republicans are resisting it because it actually doesn't serve long-term conservative interests. Bush isn't acting in the interest of the conservative movement, just for his own reputation to not go out as the next Herbert Hoover. Which is just about where progressives should want him to be at the negotiating table.

So I say cut the deal today, and mobilize tomorrow to tax the hell out of the financial companies tomorrow after they are back on their feet.