Monday, September 29, 2008

A Note to My Congressmen and Senators on the $700B "Bailout"

I mailed this note to my Congressment and Senators; unfortunately for me, Sen. Obama has been on the campaign trail so I assume he is too busy to read my letter.

"I have listened to the experts and it is apparent there are many concerns about the $700 Billion financial rescue plan. This is my concern.

Any deal providing a Wall Street company with cash for debt where the debt is risky will always include significant warrant coverage (an equity-based interest in the company). That is because for a certain portion of these deals the debt will not be repaid. You have to get very good returns, from the warrants, on the ones which pay off to make up for the ones which do not. Secretary Paulson, a top Wall Street guy, knows this like the back of his hand.

If we, as taxpayers, do not get "warrant coverage" from the financial institutions for taking over poor quality debt of very uncertain value, the Bailout proposal is in my opinion a scam on the taxpayer.

This should not and needs not be a transfer of wealth from the American taxpayer to the stock and bondholders of troubled financial institutions, but something that creates a financial system "timeout" and has the potential to cost the taxpayer very little."

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