Well, news out of the U.S. that revisions to the Bush administration's proposed $700 billion bailout plan failed to pass a vote in the House of Representatives was bad news for U.S. and overseas stock markets. As reported in our G3 Flash Alert yesterday, the Dow went into a 600-plus point freefall as news of the bailout plan's failure broke and the MSCI World Index plunged 5.9%, Brazil's Bovespa tumbled 7.1%, Russia's leading index dropped 5.5%, India's Sensitive index fell 3.8% and the MSCI Asia-Pacific index slumped 2.1%.

Today's a different story, with a dramatic broad-market rally across much of the globe in anticipation of some version of the plan passing later this week.

Negotiating a bailout
As I've been reporting in G3 Global Options issues and in my special alerts to subscribers, we need Congress to take strong, decisive action quickly to shore up confidence in the financial system and perform some form of financial 'triage' that has the capacity to revive the frozen credit markets.

Many believe that "C-level" executives and government officials who managed their organizations into this mess should be held accountable, and be penalized for doing so. The first revision to the Bush administration's bailout plan to make it to the House floor yesterday did include what was deemed "a slap on the wrist" for the wrong-doers, by one news report.

If it had passed, the revised bailout plan would have placed "reasonable" limits on severance packages going forward, for executives at banks, securities brokerages and insurance companies that benefit from the bailout program, according to an AP news report.

It also called on the financial industry to make up some of the difference if the government was unable to recoup its bailout plan investments in five years. The government would receive stock warrants in return for the bailout relief, giving taxpayers a chance to share in financial companies' future profits, according to an unnamed AP source.

In addition, it would have required that government bailout program administrators at least attempt to gain some relief for mortgage defaulters by renegotiating lower rates and payments so that they could keep their homes.

Where's the hanging judge?
It should be clear that the largest, most complete breakdown of the U.S. financial system since the 1930s didn't just simply happen overnight. Its roots stretch back at least to the late 1990s when financial industry influence over politicians and regulators set the stage for the establishment of a new regulatory regime, along with lax policing, prosecution and enforcement.

Changes to banking, securities and futures industry regulations opened up wide new vistas for leading banks, brokerages and insurers to double and triple the leverage on their capital bases while creating an unending stream of new, ever more complex derivatives that could be traded in relatively opaque, illiquid over-the-counter markets and on exchanges.

The trick was not to hold on any real assets for any length of time, rather to keep transaction volumes flowing, move inventory and book profits as early and as often as possible. All the while, the firms on top of this game were booking handsome profits and their executives were being richly rewarded. This game of musical chairs, fueled by loose monetary policy and lax regulatory oversight, has finally reached its nadir--well let's hope so anyway.

Making off scott-free
Needless to say, financial industry executives are none too popular at the moment. In a Sept. 25 article, Bloomberg reported that top executives at Wall Street's five biggest firms were paid more than $3 billion in the last five years to their top executives while they oversaw and managed their way to collapsing the nation's financial system.

According to the report, Merrill Lynch CEO Stanley O'Neal "earned" $172 million from 2003 to 2007 while his colleague and current CEO John Thain, including his signing bonus, raked in a mere $86 million upon joining Merrill in December. Failed Bear Stearns' CEO James Cayne earned $161 million before the "Bear" went under.

Such astronomical earnings are nothing new or particularly impressive to Treasury Secretary Henry Paulson. The former Goldman Sachs CEO received some $111 million from his former firm between 2003 and 2006!

Jeff Manera, Editor
G3 Global Options
G3 Global Investor
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net