President Bush just made another appeal for Congress to pass the Paulson rescue package. This time, he emphasized that the eventual cost to the government will more than likely be far less than $700 billion or whatever Treasury ends up spending. Yet Bush did not go as far as former hedge fund manager Andy Kessler, who speculates that Treasury could make $1 trillion to 2 trillion off the portfolio of securities it buys. Here are a few options of what might happen next:
1) The Democrats could push through the bailout with more Democratic votes by adding in a stimulus package or a provision that would allow bankruptcy judges to unilaterally change mortgage contracts. With the markets in chaos, Bush would have almost no choice but to sign it. (Conspiracy theorists speculate this was Nancy Pelosi's plan all along.)
2) Continuing market chaos could push dissenting Republicans to vote for the plan as long as there is some modification that would serve to justify their change of hearts, such a change in the oversight provision that would make it harder for Treasury to spend the dough. Some sort of tax sweetener, either for buyers of the bad assets or for homeowners, would be better.