As an investor, I would never take my money and invest it in a fund that wouldn't tell me what companies it holds, or even what *criteria* it follows in selecting companies to invest in.  I'd never invest in a fund that wouldn't tell me if the companies it buys are "penny stocks" or F500  companies.

Why would I, then, as a tax payer, give $700 billion to the Treasury to invest in random financial companies, without any guidance as to why they're being purchased, or whether they're even solvent?

And that's Dodd's plan!  Paulson's was just to give the money away without getting any equity in return!

These people make me sick.

One thing that I don't see described in Paulson's proposal, or even Dodd's far better plan, is any mention of how to choose the specific companies or other entities that should be bailed out.

I'd feel pretty unhappy if the Treasury was bailing out random investor groups that happened to lose money on what amounts to a bet -- I've lost money on stock picks and don't expect to go to the Treasury to get my money back.

When you start looking at companies providing real benefits to the economy, it gets harder to decide who to bail out.  If, for example, Citibank and Mellon are both in trouble, and one requires three times as big a bail out to stay solvent, the Treasury might choose to bail out only the one requiring the smaller bail out.  And if there are already "enough" surviving commercial banks, you might choose to let them both fold, or merge together.

I'm not sure how you make these calls, but I think that at the very least, they have to be done openly, with a clear rationale provided by the Treasury as to which companies' securities will be purchased, and why.  And if a bank or other financial institution wants to sell its bad securities to the Treasury, it should have to disclose all of the details of its financial state to the Treasury and the public, so the Treasury can tell whether it is a good investment or not, and citizens can tell whether a consistent investment policy is being followed.  Government investments of this magnitude are rife with opportunities for corruption and self-dealing, and it would be foolish to allow these choices to be made in the dark.

In other words, in the very hard area of choosing which companies to bail out, transparency is key. The bail out law should require the Treasury to provide both periodic declarations to Congress and the public of its  high level goals, such as keeping at least 5 large commercial banks operating, along with the accounting details of the investments made to achieve those goals.

And if these requirements scare off some of the less desperate companies from coming to the Tresasury at all, so much the better.

Treasury Secretary Paulson's bailout plan doesn't pass the sniff test in so many ways, it is hard for me to understand what he and Bernanke are trying to pull off.

The plan as described so far provides no criteria for selecting which companies are important enough to the economy to get bailed out; it makes no attempt to get anything back from the bailed out companies, such as a big equity stake, nor does it try to guarantee that the top execs own't walk off with the infused money as "salary" over the next few years; it provides no process to value the purchased assets fairly; it provides no process for vetting the bailed out companies to see if they will be solvent even after the toxic securities are sold; the plan provides no accountability to the courts or Congress, and accepts no guidance from them; it provides for no new regulatory structures to prevent a repeat of this situation; and it provides no estimates of how big the total bill will be once the remaining ARMs reset over the next few years.

Here are some common sense points that Congress should require in any bailout, assuming one turns out to really be necessary:

1) The plan should specify the type of securities Treasury will buy. Some securities are CDOs (bundles of mortgages), while others are very high stakes bets, basically highly leveraged investment vehicles that may be valueless at today's housing prices.  There are also credit default swaps -- essentially insurance policies against default, on these types of securities.  It sounds like Paulson wants the authority to buy *anything* that can be even peripherally connected to mortgages, even though some of these must be impossible to value with any precision.

2) Know who you'll bailout and *why*, and be prepared to explain it. It may be cheaper by far to fund a few new, regulated commercial banks (without an investment bank side), and let the current owners of the bad securities sink or swim on their own.  I certainly don't believe that every holder of junk s securities needs to be bailed out for the sake of the economy.

After all, the holders include pension funds, hedge funds, universities, investment banks, commercial banks, private investment funds.  Some of these play an important role in the economy, and others don't, and I see no reason to bail out hedge funds, for example, that made some very bad bets.  Paulson's plan is completely mum on this matter.

The smaller the number of companies that get bailed out, the better.  I still haven’t heard a convincing argument that any bailout is truly necessary.

3) Open the books!  If the American people are going to bail out *any* entities, the books of that company should be open, including the details of all of their off-book investment vehicles, so the government can see whether the company can even be saved.  I think of buying these securities the way I'd think of making an investment, and you just don't invest this type of money in a company in the absence of detailed financial disclosures.  And to repeat, this information
needs to be public, to keep the Treasury honest; if an entity doesn't want to submit that information, no one's forcing them to take the bailout.

4) If we bailout a company, we should get a significant equity interest in the company.  This guards against moral hazard, and helps reimburse the American tax payer for any risks they end up taking.  And the company should be required to limit executive compensation for a significant period, to avoid the top executives from simply taking the tax payer investment as salary.

5) We should realize that there are still piles of mortgages with ballooning interest rates that haven't reset yet, so this problem may get a lot bigger before it gets better.  We should insist on a getting an idea of how much the bailout will really cost before we start down this road -- it may turn out to be unaffordable in any case.

6) The current proposal provides no discussion whatsoever of what regulations should be put in place to prevent a repeat of this problem when the next bubble gets inflated.  The current plan provides no discussion or framework for a discussion of this topic.  It would be insane to take the bad debt off of the books of some of these investment banks, and free them to go and look for new risky investments to make with US tax payer money.

Most of all, we should not be rushed into structuring a bailout before we have a better idea of what the end goal is.  The more the Bush administration demands instant action, the more suspicious we should be that the Treasury department is trying to pull a fast one.