A modest proposal

There is now talk of a bailout of bond insurers. And that gives me an idea.

For those just tuning in, during the housing bubble a lot of financial institutions issued arcane, risky securities -- especially mortgage-backed securities and the CDOs derived from them -- and then cleverly sold them to large investors who had no idea what they were buying.

To make these shitpiles even more alluring to investors, the issuers purchased insurance policies from specialized bond insurers, called monoliners – reputed to be the keenest analysts of credit risk in the business! -- who in turn guaranteed the securities against loss.

If anyone happened to ask, it was enough to reply: “Hey, it’s insured!” And much money was made by all, and assholes merrily bought luxury condos and brunched at Balthazar and ruined great cities like London and New York.

Now we find out that the keenest credit analysts in the business were either clueless or just out to make a quick buck, leaving someone else holding the bag. The result: Losses on these securities are now so massive that they threaten to do the monoliners in. If that happens, investors holding them will finally be obliged to acknowledge that the losses are real, leading to what most people assume to be an inevitable cascade of defaults and writedowns and perhaps the total collapse of the credit economy.

So people are talking bailout.

Here’s my proposal. I offer it at no charge to any member of Congress, presidential candidate or editorial writer willing to bear the calvary of getting the stink-eye next time at Harry Cipriani. If it becomes necessary to bail out the monoliners to prevent a depression, there will be terms. For once, the highly-paid beneficiaries of a taxpayer-financed bailout will not get off scot-free.

Congress shall specify that no bailout will take place unless and until (a) every bailed out monoliner and (b) every financial institution holding a bailed-out policy certifies that its employees have voluntarily agreed to accept a 25% federal income tax surcharge on every dollar earned above $200,000 for a period of 5 years. A young hotshot earning $300,000 would see $25,000 added to his tax bill. An elder pulling down $1 million would owe an extra $200,000. Since some of the biggest Wall Street multinationals are policyholders, and since this would apply to every one of their employees over $200,000, we could be talking about a lot of people and a lot of money. It could even go some way towards making the bailout pay for itself.

Politically, it’s a winner. Fiscally, it’s sound. It’s extraordinarily well-targeted to precisely the assholes who got us into this mess in the first place. John Edwards: Have your staff contact me through the comments box.