The GOP Bailout Alternative

I've been scratching my head about this alternative GOP plan for the financial crisis. Apparently it was the appearance of this plan on Thursday that stopped a deal from getting done by Congress last week. I didn't have time to read about in detail yesterday, but something seemed off. Here's an article that seems to clear it up a bit. Apparently the plan is to provide insurance for the troubled assets. The problem is that this doesn't really address the problem of pricing the assets. There would still be no market value and hence the problem would continue....

"A number of economists may be questioning Treasury Secretary Henry Paulson’s plan to rescue the financial markets, but they really don’t like an emerging House Republican alternative. // "I frankly don’t understand how this is supposed to work,” said Douglas Elmendorf, an economist at the nonpartisan Brookings Institution and an outspoken critic of the Paulson rescue plan. People generally buy insurance for events that are unlikely to happen; a homeowner pays out a couple hundred dollars for fire insurance, and if their house burns down they get hundreds of thousands of dollars from their insurance company, provided by premiums collected from other policyholders, he explained. “But with mortgage-backed securities, the bad thing has already happened,” Elmendorf said. “They’ve lost their value.” The emerging GOP alternative does not resolve the problem of how the government prices the toxic assets at the heart of the crisis, experts said. In the Paulson plan, the government has to figure out how much to pay for the assets. But in the GOP alternative, the government would have to determine the premium prices to insure against the risk that the mortgages behind the assets don’t get paid off." Economists not keen on GOP bailout - Victoria McGrane - Politico.com