Crony Capitalism:

One of the many outrageous elements of the bailout is that as far as I can tell, all those Wall Street guys who paid themselves millions of dollars in bonuses for pushing this garbage paper back and forth are going to be able to keep all that money and their houses in the Hamptons. I have no problem with people making money, but only if they are going to have to eat the downside risk too. And I'm including the 30 year old millionaires in this too, not just the kingpins (many who sucked their money out before the bubble burst). Its been remarked by many others, but what is going on looks like the kind of thing you'd see in Russia or some other crony capitalist country.

I understand that this is about preventing a liquidity crisis like that one that helped to cause and deepend the Great Depression, when bank failures resulted in drying up the very investment capital needed to reverse the economic slide. If there is a logic to this, I assume it is something like that. But it'd be nice if they'd find some way to make the bankers eat some of this loss.

One question I've been trying to figure out is what exactly the government is going to do with this paper. As I understand it, this has all come to a head because of the changes in accounting rules over the past few years which forces a more frequent updating of the valuation of assets. So in the past, the investment banks would have just held this paper on their balance sheets for an extended period of time until some of it got back into the money or was offset by other assets. Now, however, as I understand it, the day of reckoning occurs with greater immediacy, creating the crisis.

Functionally then, as I understand it, the government is going to essentially perform this function of holding the paper until some of it gets back into the money or rotates off the balance sheet.

Here's what I'm wondering though that I haven't been able to figure out (pointers appreciated for cogent discussions of this). Is there anything in the bailout proposal to prevent the following scenario. Investment bank sells its mortgages to the government. Government holds the mortgages until the emergency abates. Original sellers form a syndicate to buy back the paper that has value at a cheap price and then turns a profit off that. In other words, is there anything in the bailout that stops the bankers from making money both coming and going here--by getting the government to buy all the garbage now and then buying-back anything with upside value later? Who other than these same guys are going to be in a position to buy this stuff later?

I'm genuinely asking here--I haven't seen any discussion about this. It would be pretty gross if there is some way that they can make more money off this on the back end, but now that we know the way these guys operate my guess is that they are already figuring out how to turn this to their eventual advantage. If not this loophole, are there other obvious loopholes?

There is an old saying about the need to "save capitalism from the capitalists" and the close relationships between these big money operations like Wall Street and Fannie Mae on one hand, and the government on the other, is really quite revolting. It is infuriating that the when things are going good they jet around in their private planes but when things turn south they can get the government to bail them out on our nickle. Seriously, how about trying to find some way of making them throw a few million or billion into the pot for saving their hides?