I like this brilliant idea from Nancy Pelosi. Apparently, we are here today because the financial industry cannot pay its current obligations nor honor its counter-party commitments.
So, let me think, 6 months down the line, if the government loses money, it plans to initiate a huge-margin call on the financial industry.
The government intends to initiate a run of the banks – yes, this “protection” is going to work, indeed.
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“Helps save small businesses that need credit by aiding small community banks hurt by the mortgage crisis—allowing these banks to deduct losses from investments in Fannie Mae and Freddie Mac stocks”

This seems to be nonsensical as the provision already exists in the IRS tax code ?
If a bank does not have a profit for the financial year, it is not taxed. If it has a loss on its books from any stock purchases / assets, it is automatically deducted against the income – and only the net income is taxed.

I too would like to see the proposal. I’m not real big on the insurance idea, because I think that will cost more, but perhaps doing some of each would make it less inflationary.

In terms of equity stakes in the companies, a few of the banks that are going to go under anyways, we’ll call those first in line, sell their toxic waste to the government, marked down to say, 60 cents on the dollar instead of more like 20 cents on the dollar in the open market.

Now the other, somewhat stable banks can sell their loans at 60 cents on the dollar in the open market, now that a price point has been reached, and they don’t have to offer equity stakes or limit executive pay.

I’d like to see the entire text of the proposal released for all of us to see, instead of just the press release from Nancy Pelosi.

REINVEST, REIMBURSE, REFORM

IMPROVING THE FINANCIAL RESCUE LEGISLATION

Significant bipartisan work has built consensus around dramatic improvements to the original Bush-Paulson plan to stabilize American financial markets — including cutting in half the Administration’s initial request for $700 billion and requiring Congressional review for any future commitment of taxpayers’ funds. If the government loses money, the financial industry will pay back the taxpayers.

3 Phases of a Financial Rescue with Strong Taxpayer Protections

Reinvest in the troubled financial markets … to stabilize our economy and insulate Main Street from Wall Street

Reimburse the taxpayer … through ownership of shares and appreciation in the value of purchased assets

Reform business-as-usual on Wall Street … strong Congressional oversight and no golden parachutes

CRITICAL IMPROVEMENTS TO THE RESCUE PLAN

Democrats have insisted from day one on substantial changes to make the Bush-Paulson plan acceptable — protecting American taxpayers and Main Street — and these elements will be included in the legislation

Protection for taxpayers, ensuring THEY share IN ANY profits

Cuts the payment of $700 billion in half and conditions future payments on Congressional review

Gives taxpayers an ownership stake and profit-making opportunities with participating companies

Puts taxpayers first in line to recover assets if participating company fails

Guarantees taxpayers are repaid in full — if other protections have not actually produced a profit

Allows the government to purchase troubled assets from pension plans, local governments, and small banks that serve low- and middle-income families

Limits on excessive compensation for CEOs and executives

New restrictions on CEO and executive compensation for participating companies:

No multi-million dollar golden parachutes

Limits CEO compensation that encourages unnecessary risk-taking

Recovers bonuses paid based on promised gains that later turn out to be false or inaccurate

Strong independent oversight and transparency

Four separate independent oversight entities or processes to protect the taxpayer

A strong oversight board appointed by bipartisan leaders of Congress

A GAO presence at Treasury to oversee the program and conduct audits to ensure strong internal controls, and to prevent waste, fraud, and abuse

An independent Inspector General to monitor the Treasury Secretary’s decisions
Transparency — requiring posting of transactions online — to help jumpstart private sector demand

Meaningful judicial review of the Treasury Secretary’s actions

Help to prevent home foreclosures crippling the American economy

The government can use its power as the owner of mortgages and mortgage backed securities to facilitate loan modifications (such as, reduced principal or interest rate, lengthened time to pay back the mortgage) to help reduce the 2 million projected foreclosures in the next year

Extends provision (passed earlier in this Congress) to stop tax liability on mortgage foreclosures

Helps save small businesses that need credit by aiding small community banks hurt by the mortgage crisis—allowing these banks to deduct losses from investments in Fannie Mae and Freddie Mac stocks

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/28/AR2008092800900.html

Maybe someone else can chime in here (my grasp of microeconomics is better than macroeconomics), but I’ve always understood that banks and other companies work of leverage and are restrained by certain ratios. If an asset they’re holding go down in value (e.g. one of these assets declines in value) then that reduces the amount they can loan, even if they’re a very healthy entity.

Or stated differently, the concern is the value of these “toxic assets” is likely to decline further before it gets better, making the situation worse for all the companies that hold them.

That makes no sense.