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House Republicans Offer an Alternative Bailout Plan

October 1, 2008

After taking a deep breath, and slowing down the house Republicans are working on a new alternative bailout plan that is much more free market friendly and less government takeoverish. I’m not talking about the Senate version of the bailout bill that is now being debated with a vote coming tonight ( I will have more on that in an upcoming post). This is a plan being put forth in the house.

This plan may be far more reasonable.

Instead of mandating that the U.S. Treasury purchase up to $700 billion in teetering mortgages and mortgage-backed securities, as the plan backed by the Bush administration and congressional leadership mandated, the RSC alternative would try to restore confidence in the mortgage market by insuring all such investments at 100 percent of their value.

Under the plan, mortgages that Treasury officials deemed to be risky would be insured at a higher premium than mortgages considered stable. The mortgages would be insured by the federal government, i.e., tax dollars. Thus, the plan is not pure free market but is more reasonable than an outright federal purchase of the mortgages with tax dollars, suggested Hensarling.

“In order to fundamentally deal with the crisis, some part of the full faith and credit of the government will have to be behind it [the solution],” Hensarling told, and this would shore-up confidence in the mortgage and mortgage-backed securities markets.  “But Wall Street ought to be paying for that, and we ought to be limiting taxpayer exposure.”

Still this is more government meddling as far as I am concerned but at least there is talk under this plan that Wall Street would being paying for it instead of the taxpayers. Risky loans would require a higher premium to pay for insurance while non risky loans would have a lower premium. That sounds okay.

“We believe that we can help Wall Street work out of this crisis, not force the taxpayers into a bailout,” said the RSC. “We believe that voluntary private capital, not involuntary taxpayer capital, will help the system recover.”

“House conservatives believe that any model that essentially has taxpayers bailing out Wall Street is fundamentally flawed,” said Hensarling at the press conference.

I am not for a bailout of any kind but if we are going to have it forced upon us I would much rather have it be this plan. If my wife decide that we buy houses in Houston TX, this bailout would change the environment in unforeseeable ways, we will wait until the dust settles.

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