(Washington, D.C.,  Right Commentary): Yesterday, the President signed into law HR 1424, the Emergency Economic Stabilization and Recovery Act, also known as “the bailout bill.” With the stroke of the President’s pen, Uncle Sam entered the financial market with 700 billion dollars in cash and a mandate to buy the crappiest investments that Wall Street can muster. The hope of the politicians who passed the measure is that the massive injection of money by the Treasury will stabilize the mortgage market, stop the free fall in the value of equities, and most importantly, keep the entire fabric of western capitalism from unravelling. We should all be cheering, right?

Congress is still breaking its arm to pat itself on the back for getting something passed. After the first bail out bill was thrown out by the House of Representatives, more than $1 trillion in wealth was wiped off the value of US stocks as the market was gripped by panic. Americans who had initially opposed the bill as a “bail out of wall street,” started calling up their Congressman screaming “my 401K just got wiped out! VOTE FOR IT!”

The NYSE collapse of almost 780 points sent shock waves through the world’s financial markets and the pressure increased on the Congress to pass a new measure. The Senate amended HR 1424 to include, in addition to the bail out provisions, up to 350 billion dollars in subsidies and tax breaks. The trillion dollar bill passed 74-25. House Republicans that had opposed the initial bill, on grounds that it was an unconscionable use of the taxpayer’s funds, apparently saw the light after 350 billion in pork was added, and Republicans in droves flipped sides and passed HR 1424. The bill then passed the House last Friday, and President Bush signed it into law yesterday.

Crisis Averted - thanks to the swift resolute action of Washington… right?

In terms of inter-bank lending, the heart of the crisis and the reason why I justified the bailout for so long, essentially resolved itself with a huge infusion of liquidity by the Fed with very few strings attached and long-term repayment periods. 

Now the Treasury stands ready with 700 billion dollars and a mandate to buy crappy investments. The TARP or the Troubled Asset Relief Program - is charged with buying “toxic paper” from the Wall Street Banks and replacing that non-performing asset with cool hard cash. The Government will hold the crappy paper until such time as the market recovers. Then - according to proponents of the bill - Uncle Sam will sell the assets making a killing. But the first step is figuring out how to quickly pump the first $350 billion into the system - especially when the Treasury has no administrative arm to even run the TARP program yet (although Secretary Paulson is rapidly expanding the Treasury to put such a program into high gear).

Perhaps Hank should hold back on getting ready to get the taxpayer into the snake oil business - apparently - Wall Street no longer wants a bailout.

Sources close to Goldman Sachs and Merrill Lynch indicated the banks might choose not to participate in the bail-out as there is a growing view on Wall Street that the market may be bottoming out. Wall Street may decide to buck the axiom of “irrationality can survive longer than liquidity” and hold on to their assets so long as they’re not immediately getting clobbered for liquidity. If tha that happens - the good news is that the Treasury’s expenditures will be quite low, and few firms will sell their assets. The bad news is - the crisis continues - as banks struggle to find enough cash (and there is more cash than before but probably still not enough) to function.

I think if the Congress had passed Paulson’s original plan - this might have worked. Given the measures that the Democrats in Congress demanded, Wall Street bankers face two options. Option one, borrow from the Fed, no questioned asked, try to hold out on the market, and then if it really fails, go bankrupt and get taken over. Option two, call up Uncle Sam, get frog-marched down main street, and then sell your paper. Given bankers live in the world of interest rates and risk, and demand large salaries in compensation, I don’t see too many hands going up for being frog-marched down main street.

And the reality is - you might wind up being frog-marched in any event - so you might as well take a shot at trying to avoid having Uncle Sam as a partner if you can avoid it.

And finally, of course, the question is - when the TARP does buy these assets, what are they really worth? Remember - the taxpayer was supposed to be protected in all of this. Some people have even argued that the deal could wind up being a windfall for the taxpayer.

An asset’s price is determined by what an investor is willing to pay for it. Since no one wants to buy mortgage-related securities right now, they have no price. This is why I supported the initial call to have the Government come in and buy the paper - it would create a market. In creating a market, the Government could be stability back to the financial system. Before the Fed acted last Monday, no money existed to do that - now there is 700B in money available (not months form now when the Treasury get’s rolling) to make it happen.

Ignoring all of that - Pelosi, Schumer, and Frank, along with others who champion the poor and the downtrodden to get their mortgage, demand that the TARP buy up all this crappy paper (I imagine because they’d like to do this Ponzi scheme again… once the paper is off the books).

In order for the bailout to work - Government is going to have to be really astute about the price it pays for the asset (which of course is government’s strength… being astute.)

If the price is too low, then the bailout won’t work, because it will not provide banks with enough money to save them. But if the price is too high, then taxpayers will get ripped off. I call it the Goldilocks pricing model - this porridge is too worthless… this one is not worthless enough… this one screws the taxpayers just right.

Whether or not all of this is going to work we’ll know about mid January. If by then, the LIBOR rates are locked - if banks still are not lending - then we will know the intervention has failed. If by January we see credit flowing again, and some banks have sold their assets to the market, and some have sold to Uncle Sam, and the credit market is working again - then we’ll know the grand experiment has succeeded.

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• Franken: I’m stupid enough… I’m vain enough… I’m litigious enough… and doggoneit… I’m still behind.