DANGER WILL ROBINSON
Barney Frank just gave a press conference at which he said that "insurance" was an acceptable "option".
I hope that is just a phrase or a savvy political posture.
It's not an add-on "option", really. It's a fundamentally different approach, even if it is implemented alongside other approaches (like the slush fund).
It's a huge direct benefit, right away, to lenders on Wall Street, potentially, and a huge direct cost to taxpayers, potentially.
If the insurance offer from the government is strong enough, lenders may not bother with CEO pay limits or any other aspects linked to the modified Paulson plan...
I hope the "final" plan has some notice of that, either in limits, clever ways to protect the taxpayer from "over-insuring", and some way to have lenders share in the costs of providing this new "insurance"... (like insuring only 85-90% of loan value, or some figure just 10% better than what they would get through a lengthy foreclosure process and home price decline... What's more, the government may want to insist that lenders try a simple, prescribed set of loan modifications, before they collect on government insurance, including a period of interest-only, for example, ....).They should bear in mind that the devil is in the details. If the insurance offer from the government is strong enough, lenders may not bother with CEO pay limits or any other aspects linked to the modified Paulson plan, including participating in reverse-auctions.
