“The Uncertainty Act of 2008”

| NY Torch

The stock market is in the process of recovering roughly half of yesterday’s losses based on investor hope that the financial bailout bill will be revived in Congress.  But Nicole’s op-ed in today’s Post argues that the bailout, whenever it’s passed, “could just add to the confusion and lack of confidence that’s the real root of the financial world’s problems.” Her wrap-up:

The bill has one potentially huge benefit: It would mandate that the Treasury department quickly report to the public the types of assets it buys from financial institutions as well as the prices it pays for those assets. If executed well, this provision would shine some badly needed light on what remains a dark, opaque market.

But the rest of the bill is such a muddle that there’s there’s no compelling reason to believe that it’s better than the immediate alternative. Namely, for the government to continue 1) lending aggressively to surviving financial institutions, 2) approving good mortgages (via Fannie and Freddie) for people who can pay them, 3) offering to guarantee money-market funds and 4) quickly working on future, rational market regulations – in hopes that the credit markets open slowly and soon to good-quality borrowers.

And any new bill should offer a way for debtholders to bad companies to take a severe haircut in return for government money.