Drawing a Line in the Sand on Bailouts.(Emergency Economic Stabilization Act of 2008)

Byline: Paul Muolo

I'm one of those crazy people who have read all 451 pages of the Emergency Economic Stabilization Act, which President Bush signed into law on Oct. 3. For all you novices out there that would be the $700 billion bailout whose core was designed (more or less) by now departed Treasury secretary Henry Paulson and rubber-stamped - with little debate - by Congress.

I read the legislation not because I'm a masochist (after the first 120 pages it's all about extending tax breaks) but because a publisher asked me to write a book that explains "what the heck it all means" to Joe Sixpack and his wife Mary. The book is called "The $700 Billion Bailout, What It Means to You" courtesy of John Wiley & Sons.

The book will make you laugh (I crack a few jokes) and cry ($700 billion is a whole lot of lettuce) but here's my simple take on ESSA which most of you know as "TARP": Uncle Sam can bail out whatever industry or governing body (states, towns, cities) it likes as long as it has the money in hand. (TARP stands for Troubled Asset Relief Program.)

In this case, the entity spending the TARP money is the Treasury Department. As you all know, Mr. Paulson already spent the first $350 billion and before Treasury gets the rest it must mutter these words to Congress, "Mother may I?" Obama's new Treasury secretary is Timothy Franz Geither, president of the Federal Reserve Bank of New York and he and his new bosses in the White House have some ideas about what to do with the rest.

But the basic question policymakers should be asking (as well as we, the taxpayer) is this: Where do we draw the line in the sand on bailouts? Originally, the whole idea was to buy troubled mortgages (presumably subprime and alt-A) from lenders which would turn around and use that fresh cash to make new loans or unclog their balance sheets by taking the cash and dumping the assets to some bottom-feeder.

But Paulson and his TARP crew at Treasury quickly realized that creating a department to buy crap loans and MBS was both a monumental headache and nightmare. (Duh!) So instead, to get cash into the financial system quickly they decided to use the first $300 billion or so to buy stakes in banks, believing these standup citizens of commerce would take that money and lend it out to businesses and consumers.