If Only They Were Kidding…

Ladies and gentlemen, I give you the House Republican plan:

“* Rather than providing taxpayer funded purchases of frozen mortgage assets, we should adopt a mortgage insurance approach to solve the problem.

* Currently the federal government insures approximately half of all mortgage backed securities. (MBS) We can insure the rest of current outstanding MBS; however, rather than taxpayers funding insurance, the holders of these assets should pay for it. Treasury Department can design a system to charge premiums to the holders of MBS to fully finance this insurance.”

— Bear in mind: this still leaves taxpayers on the hook for all the MBS that default. It just sounds nicer without that $700 billion price tag attached to it. Moreover, how much would we insure the MBS for? Is it at all obvious that insuring them at face value would be cheaper than buying them at a serious mark-down? Doesn’t insuring really bad MBS at face value just increase moral hazard?

“* Have Private Capital Injection to the Financial Markets, Not Tax Dollars. Instead of injecting taxpayer capital into the market to produce liquidity, private capital can be drawn into the market by removing regulatory and tax barriers that are currently blocking private capital formation. Too much private capital is sitting on the sidelines during this crisis.”

— Sorry; that bit is just too funny. “Private capital”, I can hear the market saying to itself: “What a great idea! And so novel, too! Those Republicans sure are brilliant!” Aha, you might say: capital gains taxes have scared people off. But, as Justin Fox notes, the assets that people are having trouble selling have lost value; why anyone would be deterred from selling them by the prospect of being able to write off the loss is a mystery.

“* Temporary tax relief provisions can help companies free up capital to maintain operations, create jobs, and lend to one another. In addition, we should allow for a temporary suspension of dividend payments by financial institutions and other regulatory measures to address the problems surrounding private capital liquidity.

*Immediate Transparency, Oversight, and Market Reform. Require participating firms to disclose to Treasury the value of their mortgage assets on their books, the value of any private bids within the last year for such assets, and their last audit report.

* Wall Street Executives should not benefit from taxpayer funding. Call on the SEC to review the performance of the Credit Rating Agencies and their ability to accurately reflect the risks of these failed investment securities.”

— I thought no one was going to get any taxpayer money. Color me confused.

“*Create a blue ribbon panel with representatives of Treasury, SEC, and the Fed to make recommendations to Congress for reforms of the financial sector by January 1, 2009.”

A Blue Ribbon Panel: brilliant!

This is an idiotic set of proposals. Republican politicians have spent several decades convincing themselves that any economic problem on earth can be solved by cutting taxes and deregulation. We now face a problem which is caused by deregulation and to which taxes are largely irrelevant. Do they rethink their views — the views that got us into this mess to start with? Do they wonder whether the same old exhausted ideas can possibly be stretched to fit our current crisis?

Of course not.

It would be funny if it weren’t tragic.