Back in September, Hank Paulson urged swift passage of the now $810 billion bank bailout bill by citing heavenly retribution if it did not pass. Paulson succeeded in getting his money. But after spending nearly $300 billion there's scant evidence that it's helping. Congress was clearly wrong to put its faith in Paulson and it should cancel the plan and replace it with one that clearly defines the problem and demonstrates how the plan will solve that problem.

One piece of good news is that the London Interbank Offered Rate (Libor) has declined from 4.82% to 2.15% -- but lending still remains extremely tight. And it's possible that other programs, such as the Fed's plan to purchase $50 billion in commercial paper (CP), contributed to that Libor decline rather than Paulson's. Even more outrageous than the failure of Paulson's plan to fix the problems is that there is nothing to stop our money from paying $26.6 billion worth of banker bonuses.

Given this colossally wrong-headed plan, how did Paulson get his way? Not surprisingly, Congress has a weak understanding of economics and global finance. According to a Washington reporter I spoke with last month, Congress approved the Paulson plan because it believed that the former CEO of Goldman Sachs Group (NYSE: GS) must have known what he is talking about. They believed that if he was advocating a reverse auction plan to buy toxic waste that it must be the right thing to do. Unfortunately, faith is not a strategy.

It is a bad idea because it will slow the process of getting money from the Treasury to needy firms. That negates one of the key aspects of the bailout program. It is supposed to move fast to stay ahead of the national liquidity crisis.

Paulson may be asking to change that. According to The Wall Street Journal, "The Treasury Department, signaling a new phase in its $700 billion financial-rescue plan, is considering requiring that firms seeking future government money raise private capital in order to qualify for public assistance."

While it may seem sensible to get smaller banks and insurance companies, the next group of firms likely to get Treasury help, to ask private investors to come in side-by-side with the government, the program would be flawed for two reasons.

The first is that, in a failing economy, nothing may bring private equity out of its shell even if buying into a financial firm getting a huge slug of government money might seem attractive in normal times. But, these are not normal times and panic keeps capital from making investments which should appear attractive.

The second reason that the plan is flawed is the private equity deals can take many weeks or even months to close, and private investors may want different terms than the federal government is getting. That turns what could be a quickly fashioned lifeline from Treasury into a prolonged process which could damage the companies it seeks to save.

It is probably a good thing that Paulson's tenure is over in two months. His new plan could could wreck what it is trying to fix.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Remember Hank Paulson's $810 billion program to save the world? It started off as a plan to buy toxic waste from banks. But as soon as it was passed, it changed into a scheme to buy stock in big banks -- some of which, like Citigroup (NYSE: C) -- are hugely unprofitable. This makes no sense to me -- I prefer cull and capitalize. With the election behind us, there's a chance to put some teeth into the plan by making sure that banks lend the money -- or refund our investment.

So far, the program has spent $159 billion for shares in 24 banks. But how are the banks using the money? Is it to make loans? No -- too risky. Is there anything stopping the banks from using it to pay bonuses? No. In fact, even if they don't use the cash from the Treasury's investment check to pay the bonuses -- our money will free up cash that would have been used for other purposes to pay those bonuses.

So how much of our money will bankers get this year? Well they received $33.2 billion in 2007 and forecasts are that they'll get 20% to 35% less -- or $26.6 billion -- for 2008. That's $147,556 for each of the 180,000 individuals who worked on Wall Street in 2007 (the number is lower now after layoffs).The banks created fake profits but they're getting huge bonuses. How so? Over the last couple of years, they reported $305 billion worth of profits but those have been wiped out by $323 billion in bad loans they charged off.

This post is part of a feature on companies and products that our bloggers think are in need of a makeover. See all 26.

You may have noticed, as I did, that Treasury Secretary Henry Paulson seemed colossally uncomfortable during his testimony before Congress in September. Obviously, no one would enjoy jumping into Paulson's shoes and defending the merits of the government's $700-billion bailout bill to skeptical senators. However, the good Secretary's level of discomfort went up to 11 when the legislators began grilling him about the obscenely fat pay packages received by Wall Street CEOs -- even those who, you know, bankrupted their companies and stuff?

I can't blame Hank for breaking a sweat. Before he assumed the role of Treasury Secretary, Paulson was better known as the handsomely compensated CEO of Goldman Sachs (NYSE: GS). To his credit, Goldman is one of the few titans of Wall Street still standing in the wake of the mortgage-backed securities mess. Although he managed not to drive his company into the ground, I'd argue that Paulson is not quite impartial enough to lead the charge for CEO pay reform.

On the other hand, I have never received a salary that could be described as "scandalous." Plus, I have a healthy amount of indignant rage regarding the pay packages scored by such Wall Street ne'er-do-wells as Richard Fuld of Lehman Brothers and Martin Sullivan of AIG (NYSE: AIG). With this arbitrary sense of entitlement, I feel more than qualified to suggest some new guidelines for executive pay.

Global markets are crashing down today. Asia (Hang Seng down 12.7%, Nikkei 225 fell 6.4%) and Europe (Dow Jones Euro Stoxx 50 crumbled by 5.9% and the FTSE 100 index tumbled 5.4%) are collapsing in unison. And in the last year, they have lost 51% of their value -- destroying $29.6 trillion in stock market value. You may have noticed that stockholders are the silent majority of the financial crisis. This is the group of citizens that Richard Nixon tried to mobilize to win elections. And it's the same group that John McCain's advisor, Phil Gramm, talks about when he says Americans are Whiners.

There are plenty of corporations and financial institutions that can afford lobbyists. The clients of lobbyists don't whine -- they get bailouts. As vice chairman of UBS AG (NYSE: UBS), Gramm is one of the lobbyists that the average taxpayer can't afford, so we end up paying to bail out those who can. How much? Commercial Paper (CP) gets $540 billion; Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE), and American International Group (NYSE: AIG) get $322.8 billion; and the top nine banks get $125 billion to pay bonuses (since Hank Paulson did not require them to lend it out).

Even if stockholders could hire lobbyists, it is unlikely that governments would be able to come up with enough cash to reimburse us for the $29.6 trillion we've lost so far -- or for the additional $20 trillion we could lose if things keep going the way they have been. With confidence lost that governments will solve the problem, people are now trying to cut their losses before they get even worse.

That lack of confidence is what will drive global stock markets for the foreseeable future.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns AIG shares and has no financial interest in the other securities mentioned.

What is wrong with us? We gladly fork over $125 billion to capitalize a handful of banks that got us into this mess that's cost $37 trillion since 2007. But we can't muster up any help for people whose houses go into foreclosure. Why are we using our taxpayer money to give bankers the extra capital they need to pay bonuses while not requiring them to lend it out to keep the economy moving?

And why don't we do something to get to the root of this problem? That is the enormous borrowing of money to finance the purchase of houses many of which are worth less than the unaffordable mortgages taken on to buy them. When people have a mortgage that's bigger than the value of their house, they walk away. When others see their mortgage payments skyrocket while their incomes stay flat, they stop writing checks. And their houses go into foreclosure -- in the third quarter the number of foreclosures rose 71% to 765,558 -- the highest on record.

Hank Paulson said, "The government may buy home loans and related securities to help property owners struggling with monthly payments." It's nice of him to dangle that carrot in front of the three million people who have lost their homes to foreclosure. Obviously, it was much more urgent for him to secure the bonuses of his banker buddies with our tax dollars.

It might be that the Treasury is lurching slowly in the direction of doing the right thing to fix our financial system. My cull and capitalize plan would pick the surviving few banks and close or merge the others with the winners -- it would then pump a combination of private and public capital into the winners. I think this is a good idea because the surviving banks would be healthy enough to borrow and lend to each other without undue fear of losing their money. This would go a long way to unfreezing the financial pipelines of our economy.

So far, the Treasury has invested $125 billion in nine banks which I am guessing it thinks are among the winners. Now, the Treasury is suggesting that it will dole out more capital to so-called super-regional banks -- such as KeyCorp (NYSE: KEY), Fifth Third (NYSE: FITB), BB&T (NYSE: BBT), and SunTrust Banks (NYSE: STI) -- if they use the money to acquire weaker players. These super-regional banks might be a good investment opportunity now.

Unfortunately, the Treasury is approaching the problem in a haphazard manner. For example, it already gave capital to banks that are losing enormous sums -- Citigroup (NYSE: C) which got $25 billion comes to mind. And of these four super-regionals -- two (KeyCorp and Fifth Third) are losing big bucks and two -- BB&T which posted third quarter profit of $358 million and SunTrust which earned $540 million in the second quarter -- are earning money. Why would Treasury invest in money-losing banks?

Earlier this week, Hank Paulson forced the nine top banks to take $125 billion in taxpayer money in exchange for perpetual preferred stock that pays a 5% yield, which rises to 9% after five years plus warrants to buy 15% of the banks' stock. Does this mean that the banks will now start lending out that money to get the economy off its back? Absolutely not. It could go to paying banker's bonuses instead.

And why not? After all, the write-offs of sour investments have more than wiped out all the "profits" these banks reported over the last three years -- during those boom years they reported $305 billion in profits and have recently taken $323 billion in write-offs. And with more losses looming, the top nine banks need to raise $275 billion more.

How much of these reported bank profits were faked to boost banker's bonuses? Why are the bankers who booked these lousy deals keeping the multimillion bonuses they got during those years? And why did Paulson decide to inject taxpayer money into these banks if they're not going to use it to boost the economy?

Ever since this mortgage mess started I've been wondering what lit this catastrophic fire that has already destroyed so many major financial institutions, as well as the lives of millions of Americans who have lost their homes to foreclosures. While we've talked about the abuses of the mortgage mess, the true culprit is the easy money that was made available.

An asset bubble needs easy money in order to inflate the bubble and today's New York Times makes a good case that a 2004 rule change by the SEC gave the green light to major U.S. investment companies. This rule change lit the match that fueled this entire mess. So let's take a look at what the change is and how failures to use the tools available to the SEC led to our current disaster. And, by the way, our current Treasury secretary, Henry M. Paulson, Jr., headed Goldman Sachs (NYSE: GS) at the time of this disastrous rule change. Goldman was one of the five investment banks that pushed for this change.

In 2004, investment bankers wanted an exemption from an old tried-and-true regulation that limited the amount of debt they could take on. They thought they were grown ups who should be trusted to know how much risk they could take on and how they would control this risk to preserve their companies. Five commissioners of the SEC decided to believe them and quietly changed capital rules freeing up the companies to make their own debt level decisions. To make matters worse, they established a program that let these banks police themselves.

The Oracle of Omaha, Warren Buffett, of Berkshire Hathaway (NYSE: BRK.A) spent a few moments on CNN answering some key questions about the economy at a Fortune Magazine Forum. He was asked where he would place the blame for the current financial crises being played out on the world stage, and he said he is not one to point fingers. There is plenty of blame to go around.

Initially Buffett quipped that "every saint has a past, and every sinner has a future." He went on to say that the everyone participated in the creation of the housing bubble with the unrealistic expectation that prices would continue to rise.

He summarized that home ownership is worshiped in the United States, and once cheap funding became available and prices started to rise there became the feeling that if you did not buy a home now you would be facing higher prices next year and perhaps less favorable interest rates as well.

Let me get this straight: the Democrats are backing George Bush's $700 billion rescue plan that Republicans oppose. These are strange times.

House Republicans have many gripes with the plan. They are pushing to fund the recovery of financial services companies with private capital. Others are raising worries about the cost and the timing of the rescue. These are all valid questions.

Then there's the presidential campaign to consider. John McCain is threatening to skip tomorrow's presidential debates unless a deal on the bailout is reached. Maybe Republicans are throwing up roadblocks so McCain can swoop in and solve the impasse, looking presidential in the process. Barack Obama is also using this bailout for his political gain.

Meanwhile, Democrats are pushing for relief for cash-strapped homeowners. So far, they are not getting much sympathy from the Bush administration.

Treasury Secretary Henry Paulson recently said "the vast majority of foreclosures in this country ... are coming from people who either don't want to stay in their home, took out loans they couldn't afford as the result of irresponsible lending practices."

That's bologna, according to the Center for Responsible Lending, which says that the vast majority of people want to stay in their homes and could afford to if the courts were allowed to modify mortgages. Consumer advocates back the idea as do most Democrats. Bankruptcy judges think it's a good idea as well. The mortgage industry and some fiscal conservatives oppose this provision, arguing that it rewards people for making bad investment decisions.

At perhaps the most critical moment in his presidency, George W. Bush looked into the teleprompter tonight and warned the American people that very bad things would happen to the economy unless Congress passed the $700 billion bailout for Wall Street.

Kudos to Bush's speech writers. He explained the credit crisis fairly succinctly. Of course, he neglected to mention that his administration's opposition to sensible regulation laid the groundwork for the financial maelstrom. That's an issue, though, which will be debated by historians for decades to come.

Details of the bill are still being hammered out. The administration has agreed to caps on executive pay on firms who seek assistance. Some sort of plan to give taxpayers an equity stake in firms that the government helps also seems likely, according to a The New York Times.

The president had little choice but to reach across party lines because members of Congress were not buying the bill of goods being sold by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. Paulson, in particular, showed remarkably poor political instincts by insisting that the bailout be approved as written. Whoever told him that Congress would give him a $700 billion blank check was crazy.

Meanwhile, the crisis is becoming the top issue of the presidential campaign. Republican John McCain today suspended his presidential campaign and called for Friday's presidential debate to be postponed. This is a stunt. McCain and Barack Obama do not sit on the relevant committees dealing with the crisis. Their presence in Washington will have little impact on the development of a deal.

Postponing the debates is an especially bad idea. The American people need to hear the plans McCain and Obama have for the economy. My colleague Peter Cohan points out that McCain has said many things about the economy such as "the fundamentals of the economy are strong" which he probably now regrets.

As I was looking over the Paulson plan for the fifteenth or sixteenth time (what the hell -- it's only three pages long), I was struck, yet again, by its incredible vagueness. Moreover, watching the good secretary battle Congress and hearing the statements of various Congressional lobbyists, I continue to be amazed by the degree to which Wall Street seems to be trying to defraud the American people. According to Paulson, placing caps on executive compensation (aka "golden parachutes"), subjecting the Secretary's decisions to judicial oversight, giving the government an equity stake in the companies that it helps, and setting a firm end date to the program are all "deal breakers." In other words, the Secretary is convinced that companies will refuse to accept a federal bailout if these conditions are attached.

Wow. Did I miss something? Weren't Paulson and Fed Chairman Ben Bernanke just saying that a bailout is the only thing that will save the economy from a catastrophic meltdown? Now, apparently, some financial companies have determined that a full-scale collapse of the U.S. economy is preferable to leaving a job without sufficient bonuses and separation packages. Rather than tell the heads of these companies to stick it in their ears, however, Secretary Paulson is suggesting that America's taxpayers need to cave in to their demands. This seems so amazingly shortsighted, so incredibly illogical that I began to wonder if there might not be another reason that the Secretary of the Treasury is demanding what seems to be tantamount to financial blackmail.

Howard Rodman suggested a bizarre scenario: he theorizes that Secretary Paulson left his job as CEO of Goldman Sachs in anticipation of this crisis. Hank then went to work for the Treasury in order to orchestrate a major rescue of Wall Street. Having coerced the Federal Government into buying billions of dollars of worthless securities with minimal oversight and provisions, he would subsequently return to Goldman Sachs where, presumably, he would be heavily rewarded for his good work in betraying the public trust.

It's official: Main Street does not believe that Wall Street deserves a $700 billion rescue from Congress.

By a margin of 55% to 31% in a Bloomberg/Los Angeles Times poll, American said that they don't believe the government should "bail out private companies with taxpayer dollars, even if their collapse could damage the economy," according to Bloomberg News. That's a stunning rebuke to the Bush administration.

Though Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke are thumping their chests demanding that Congress act immediately to head off the worst financial crisis since the Great Depression, members of Congress are not so sure. Senate Banking Committee Chairman Chris Dodd (D-CT) indicated to reporters yesterday that passage of the bill this year was not a sure thing. Maybe that's political posturing, but it should scare investors nonetheless.

Democrats and Republicans are getting hammered by outraged constituents questioning why the government should bail out sleazy Wall Street bankers and not lift a finger to help homeowners hurt by the credit crunch. The American people have nothing against people getting rich. They do resent those, however, those who they believe cut corners, which is exactly how Wall Street got into this mess. Anti-bailout sentiment is so thick you can cut it with a knife.

The administration is wasting Congress's time with all the testimony about "the crisis" and its need for $700 billion in our money. Free markets got us into the current situation -- the market adjusting after taking on too much debt. Let free markets get us out.

First, Paulson is new to politics -- though as Goldman Sachs Group (NYSE: GS) CEO he was very successful, such success does not always translate into Washington wins. He lacks the stagecraft needed to persuade Congress and the American people of his position. Simply repeating over and over again that Congress must pass his $700 billion plan now is not working. The world has not collapsed since he decided to launch his sales campaign. Every day that goes by with the world's financial markets still intact begs the question: "Exactly what is the financial crisis that Paulson is trying to stop?"

Granted, there is some fear priced into the credit markets, but less than there was last week. Fortune reports that Treasury bill yields are still low since investors piled into them for safety -- but those yields are higher than they were before -- rising from 0.03% last Wednesday to 0.83% yesterday. And the so-called TED spread -- the gap between 3-month Treasury and 3-month bank lending (LIBOR) rates -- remains wide -- 240 basis points (100 basis points = 1%). But that's down from 288 basis points last Wednesday. I look at this situation and do not see imminent collapse. Instead I see rational investors deciding that more debt will not solve a problem caused by too much debt.