No. And I have nine reasons why Paulson’s $700 billion bailout plan is a bad idea.

I’d like to see an AIG style takeover or a Warren Buffett style equity position replace it.

Treasury Secretary Hank “Contained” Paulson has asked Congress for at least $700 billion, but the amount of nearly oversight-free dollars he wants is actually virtually unlimited. Remember, this is the same guy who last year told us, “Housing’s problems are contained.”

He’s been wrong on just about every aspect of this crisis for as long as he’s been on the job. Plus, there’s been no urgency for the better part of a year. But now, right before the election, he wants to have limitless funds at his disposal. RIGHT NOW!

How can anyone assess in a few short days — with the prospect of market collapse at the door and the sharp prod of elections just around the corner — whether the most massive change to our financial system ever is a good idea? It’s impossible.

So here are the nine reasons I say no:

1. No light of day. We essentially have no idea what Paulson would do with the trillion dollars at his disposal. This is a “trust me” policy.

2. Paulson’s track record. He’s been wrong throughout this crisis. Some examples:

August 2007: “I don’t see (subprime mortgage market troubles) imposing a serious problem. I think it’s going to be largely contained.” (video link)

Sept 12, 2008: “under no circumstances” will there be further bailouts.

3. No taxpayer protections. With the AIG deal, at least we got something for our multibillion-dollar investment. We got the business. At the very least, any plan should include buying these firms outright. WaMu went for $2 billion and Wachovia for $4 billion. At those prices we can save the entire financial system for under $50 billion.

4. Forget bondholders. Obviously, equity players are being wiped out, and there’s no reason to save the bondholders. Let them get in line with the rest AFTER the taxpayers. (Read this great explanation by John Hussman - president of Hussman Investment Trust)

5. No real change. The current plan in essence says, “Nothing was wrong with the current system, regulations or players — we just need to throw more debt and more money into the machine.”

Wrong. We need fundamental changes.

6. Scant details. The original plan was three pages long.

We’re a year into the mess, and Paulson handed Congress a three-page memo. That’s it? He wants a trillion dollars, and hopefully he’ll sort out the details later? Bizarre. Note that the plan was at least 115 pages long as of this weekend.

7. Fear and Timing. The timing is extremely suspicious. Congress’s current session was set to end Friday. Waiting until this week to ask for the money forces Congress to choose between inaction (bad) and rushing through a plan nobody has had adequate time to really understand (worse). (Option 3 is not leaving Washington and not campaigning [unthinkable!])

I listened to the presentations. Dire and terrible things will happen right now if nothing is done this week. (See the Bernanke video.) Why wasn’t this the case for the past 60 weeks? By the way, a dire and terrible thing did happen. The market fell 777 points in a day. But guess what? It went up 400 points the next day. So much for the end-of-the-world rhetoric.

Think about the last time fear was used to rush legislation through Congress: the Patriot Act, the Iraq War authorization. Both came right before Congress was set to close. Both were pushed on fear. (See the remarkable comparison between Bush’s request on Iraq juxtaposed with his request for the bailout. The language and tone are nearly identical.)

8. The right fix is out there. Finding it will pay off eventually. Speed is not the priority.

9. Some say $700 billion is cheap. It isn’t.

David Kotok of Cumberland Advisors wrote a column that surprised me. He argues that $35 billion a year in interest payments (that’s what the $700 billion works out to cost) is worth it to stave off Armageddon.

I don’t believe the doom-and-gloom prognosis. We’ve had bankruptcy laws on the books for hundreds of years, and the courts are good at dissolving companies. But leaving the Armageddon forecast aside, I’d like to focus on the cost.

It’s not “just” $700 billion. We know it will be more (see article). And let’s not forget about the $1 trillion we’ve already spent this year. [$30B Bear, $80B Iraq, $85B AIG, $150B stimulus, $200B Fannie, plus others, see blog link ]

Approve this plan and the deficit will climb from $5 trillion when Bush took office, to at least $10 trillion — $12 trillion if you account for Iraq war veteran benefits promised but not budgeted. And that doesn’t include the hundreds of billions of interest-free loans going out this year and last.

The core of my argument is interest spending is soaring. When the deficit balloons to $10 trillion, it means we will be paying $250 billion per year more than we paid in interest in 2000. That’s $250 billion that can’t be spent elsewhere or will have to be made up by increasing taxes.

If this plan were so important, the tax increases needed to pay the “only” $35 billion per year would be on the table, too. Instead, we’re set to once again push it off on future generations — inflation be damned and ramification to the dollar be ignored.

(more on inter-generational transfer of wealth on blog)

In our weekly “Ask the Economist” feature, our resident Economist, Mike Donnelly, will be tackling your questions about the economy. If you’ve got a question — and no topic is too big or small — you’d like him to field, e-mail us at economist@pbp.com or leave your queries in the comments section.

Tags: Bailout, Congress, Economist, Economy, Hank Paulson, Treasury Secretary, Warren Buffett