What Pelosi Should Care About

CNBC has finally gotten some eyes on the bailout package, and have raised some salient points.

Regulatory form can and should be part of the bailout package. What needs to be regulated? Oh, assist to Nancy Pelosi, here's the real shit you need to be worried about. You know, instead of trying to please the crowd on CEO pay like a moronic shyster.

1.) Mortgage origination - particularly the documentation and credit evaluation process. But more importantly, originators need to be held accountable for originating bad loans. Their current compensation structure involves no punishment for creating a bad loan unless it's still on the original bank's books when it goes sour. I'm not sure if that's just a contractual requirement in the course of the mortgage sale or some broader regulatory penalty structure in the event that a producer is creating a raft of risky mortgages, but something must be done.

2.) Mortgage securitization - these things are too big, too complicated, and too interconnected. The leverage that can be collateralized with these securities needs control. Otherwise, you create scenarios in which banks and their counterparties are too big - and interconnected - to fail.

3.) Financial education - how do you prevent abuse in mortgage sales? Ultimately the only way to be truly fair is to create equal access to financial product education, and pass legislation to make disclosures of cost and risk more clear. Too many people "didn't understand" their adjustable-rate mortgages. Take away the excuse.

4.) Bad Paper - between auction-rate securities, CDO paper, and credit-default swaps, Wall Street has created an ocean of questionable derivative securities and sold them to investors all over the world. It's time to clamp down. Banks need to hold this risk, as they're in the best position to evaluate it - it's clear that synthesizing the risk and redistributing it has limited effect when the underlying securities go belly-up.

5.) Nationalizing ratings agencies - it's time. Referees need to be accountable to voting taxpayers, not Wall Street. After all, in the event of colossal collective failure to identify risk like with this crisis, we foot the bill.

That's just a start. There needs to be sweeping regulatory reform, and it needs to be part of this package. And it is far, far, far more important than CEO pay. Why isn't it being discussed? Because the important, meaningful details don't please the crowd the way that limiting the next Angelo Mozillo's pay package would. Fucking Pelosi.