After hours: Bailouts and Buffett

Normally I'd be blogging about technology, but after watching the president's address tonight I'm about to blow a microchip. If ever there was evidence that America's politicians on both sides of the aisle are a bunch of idiots this bailout is it.

Faced with a financial collapse on Wall Street they appear to be coming up with a bailout that sticks the taxpayers with Wall Street's bad debt but gives the government none of the upside of making that investment.

And that's not the worst of it.

Fearing the backlash from voters over executive pay and bonuses, it appears all but certain that they will restrict compensation for executives that run those companies to what amounts to a dime on the dollar. That means the companies will be competing in the open market for skilled executives with a laughably noncompetitive pay package. That should ensure that these companies have the weakest possible leadership at a time when they are in need of the best talent money can buy.

These politicians are looking at things the wrong way. The American taxpayer is in the driver's seat. It is the investor of last resort for these companies. Uncle Sam the investor can and should name its price and it should be looking for value and guaranteed return on investment. It should demand what any other serious investor would for this kind of money - a major equity stake in participating companies. While that will dilute the value of stock for existing stockholders it's better for those shareholders than the alternative. It is not the government's job to make those shareholders whole again by reinflating those values using taxpayer money. If share prices are to be inflated, a substantial portion of those shares should belong to the taxpayer.

Taking an equity position would make every American a stakeholder in these companies. As such we should want the best possible leadership to run them. Let the businesses pay what they will for their executives and rebuild their businesses as quickly as possible. As they do, and as stock values rise, the government should gradually liquidate its positions in these companies until the full cost of the bailout has been recouped - plus a return on investment commensurate with the risk.

Will the politicians make sure taxpayers get a good return on investment? President Bush's content-free address to the nation tonight was not encouraging. His simplistic scenario comes down to this: America will buy the troubled assets and sell them later. Since most Americans will pay their mortgages all will be well. We will make all of our money back and them some. Skipped over: How the Treasury will accurately value these toxic securities when the best minds on Wall Street haven't been able to do so.

Why should the taxpayer make less from this mess than Warren Buffet? But in the end I fear that Americans will end up with a bailout that sticks them with a $1 trillion-plus bill for a pile of Wall Street's worst detritus, reward shareholders by reinflating share prices and provide free capital for these companies to rebuild and profit at taxpayers expense. We'll be on the hook for all of the downside with no upside.

If that happens there should be hell to pay.