The Rasmussen Poll reports that voters overwhelmingly reject the “Paulson Plan.” Amazingly, there may be intelligent life on the planet after all. This morning, Mr Bernanke confessed that the real goal of the plan was to re-capitalize the banks, which basically means overpaying for the assets so that the banks can show profits. If you want to re-capitalize the banks, why not just - put capital in? Just buy super-preferred convertibles, essentially as was done for AIG? The answer is, of course, that would hurt the shareholders. Ben and Hank’s buddies, in fact. If, as proposed, they pass the re-capitalization through the P&L, then of course it will yield profits. And profits yield - bonuses! And bonuses will yield - campaign contributions! speaking engagements! corporate jet junkets! interns! Voilà! Problem solved! Anyway, after the political theater in Washington is over doubtless it will be passed without substantial change.

Edit: Good piece by Martin Weiss (Weiss Research’s business is rating banks):

1. Disregard data based on the list of troubled banks maintained by the Federal Deposit Insurance Corporation (FDIC). The FDIC’s list currently has 117 institutions with $78 billion in assets. However, based on a broader analysis of recent FDIC call report data, we find that institutions at risk of failure include 1,479 FDIC member banks and 158 thrifts with total assets of $3.6 trillion, or 36 times the assets of banks on the FDIC’s list.

2. Think twice before providing a broad bailout for U.S. debts given the wide diversity of mortgage holders and the great magnitude of the total debts outstanding in the United States. Just-released Federal Reserve Flow of Funds data show that, beyond mortgages, there are another $20.4 trillion in private sector consumer and corporate debts, plus $2.7 trillion in municipal securities outstanding.

3. Recognize that, among banks and thrifts with $5 billion or more in assets, there are 61 banks and 25 thrifts that are heavily exposed to nonperforming mortgages.

I’ve been talking about a $700 billion bailout. That’s wrong. It is an UNLIMITED bailout. The $700 billion is just the maximum that the Treasury can hold at any one time. So Paulson and Bernanke can buy unlimited amounts of paper by simply reselling it (at a loss, of course), so long as they don’t have more than $700 billion in inventory at any one time. Outrageous. Some good questions for Paulson and Bernanke.

Quite apart from anything else, the ignorance of the Fed got us into this trouble. What makes anyone think that their ad-hoc antics are likely to get us out?

Mr Paulson, I’m losing it. According to the WSJ:

Mr. Paulson has argued that pay limits shouldn’t be part of this plan because they could discourage firms from participating.

Ah excuse me, I thought you were saying these firms were under stress. And I was willing to give you the benefit of the doubt that you were trying to do the right thing. But looking after your buddies is really the game here. We, as taxpayers, should hand over several thousand dollars apiece so that overpaid Wall Street executives can continue their pillaging? Welcome to the rogues and rascals list, Mr Paulson. Protecting their compensation? Most of them should be going to jail.

Sensing pork in the water, the financial services industry is lobbying and jockeying for the biggest possible bite. All the slime wants in. Disgusting.

Even as policy makers worked on details of a $700 billion bailout of the financial industry, Wall Street began looking for ways to profit from it.

Financial firms were lobbying to have all manner of troubled investments covered, not just those related to mortgages.

At the same time, investment firms were jockeying to oversee all the assets that Treasury plans to take off the books of financial institutions, a role that could earn them hundreds of millions of dollars a year in fees.

Nobody wants to be left out of Treasury’s proposal to buy up bad assets of financial institutions.

“The definition of Financial Institution should be as broad as possible,” the Financial Services Roundtable, which represents big financial services companies, wrote in an e-mail message to members on Sunday.

The group said a wide variety of institutions as varied as mortgage lenders and insurance companies should be able to take advantage of the bailout, and that these companies should be able to sell off any investments linked to mortgages.

The scope of the bailout grew over the weekend. As recently as Saturday morning, the Bush administration’s proposal called for Treasury to buy residential or commercial mortgages and related securities. By that evening, the proposal was broadened to give Treasury discretion to buy “any other financial instrument.”

The terms of the bailout, if it is needed at all, should be so draconian that it is a last resort. The rush to participate shows that it is seen as free money, so naturally everyone wants in. The taxpayer is the sucker at the table.

The reality of the Paulson/Bernanke bailout plan is that it will reward the shareholders, executives and bondholders of the firms involved for their imprudent behavior. Their gains will be preserved at the expense of the taxpayers. The reason for doing this is essentially blackmail, that if these firms fail, the financial system will “melt down,” whatever that means. Essentially, Paulson is negotiating with hostage-takers.

Even if this dubious proposition were true, the proper remedy is to put these companies into trusteeship, but allow them to continue to operate. The executives would be terminated, the shareholders and bondholders would suffer losses as their interests appear.

Rewarding excessive risk taking and ruining the free market forever is too high a price to pay for short-term convenience. There needs to be balance. Unfortunately, there is an election close at hand. Both parties will compete to deliver the maximum amount of pork. The loss of free and fair markets will cause great pain, as the cost of capital will be increased and economic growth will be sacrificed. Investors will go elsewhere and the US will lose its status as the financial hub of the world.

Edit: As the government seeks to replace the rules of the marketplace with the arbitrary decisions of bureaucrats like Bernanke, Paulson, and Cox, I’m reminded of Sir Thomas More’s speech from “A Man For All Seasons:”

MORE (Roused and excited) Oh? (Advances on ROPER) And when the last law was down, and the Devil turned round on you-where would you hide, Roper, the laws all being flat? (He leaves him) This country’s planted thick with laws from coast to coast-man’s laws, not God’s-and if you cut them down-and you’re just the man to do it-d’you really think you could stand upright in the winds that would blow then? (Quietly) Yes, I’d give the Devil benefit of law, for my own safety’s sake.