Although details of the Bush administration’s proposed $700 billion plan to bail out the banking industry and its brethren are hazy, I think we know enough at this point to say it’s a bad deal for the tax payers and doesn't provide a long-term solution. One problem that I think has not yet received sufficient attention is the manpower mismatch between Wall Street and Washington. Seven-hundred billion dollars isn’t just a lot of dollars, it’s a lot of deals to negotiate between the banks and the government. And the government team is going to get mauled.

Under the current plan, the Treasury Department will have day-to-day responsibility for the purchases of securities from the private sector. According to the Treasury Department, the budget for salaries this year for all "Financial Policies and Programs" is just under $30 million. I haven't been able to find data on number of employees in this group yet, but let's make the conservative assumption that the lowest-paid federal employees who could do this sort of work are at the GS-13 level who make about $80,000/year. Let's further assume that everyone in this group can work on negotiating deals. That leaves us with about 370 folks from Treasury, each of whom handling $1.9 billion dollars. A single bank is going to have a team many times that large, and there are lots of banks.

Not only is Washington at a disadvantage in terms of the number of bankers, but also in their quality. Graduates of top business schools overwhelmingly choose careers in finance over those in government. At Harvard Business School, 44% of last year’s graduates accepted jobs in finance, 1% in government. At NYU’s Stern, 56% of last year’s graduates went in to finance and 1% went into government. Given that a freshly-minted MBA can easily earn more than the top salary at Treasury in their first year of work on Wall Street, it’s not surprising.

And then there is the issue of incentive. Negotiators for the banks likely have a direct financial interest in getting the best possible deal from the government in the form of bonuses (or, perhaps in this market, just keeping their jobs).  The folks at Treasury . . . not so much. Indeed to the extent that there are performance-based incentives for government workers they are more likely to be tied to getting lots of deals done quickly rather than getting the best value for the tax-payer’s dollar given the sense of urgency to offload unsellable securities on Uncle Sam.

There is no doubt in my mind that massive (and at $700 billion, I think we can call this massive) government intervention was necessary to kick-start a financial sector decimated by the twin poisons of overly cheap credit and opaque mortgage-backed securities. Even if that $700 billion was truly money spent as opposed to money invested with the hope of at least recouping the investment at some point in the future, it’s money well spent if it both digs us out of the current hole and decreases the likelihood that we’ll be back in that hole in the future.  This plan might achieve the first goal, but it makes future debacles of this sort even more likely by giving the banks a free pass on the behavior that got us here.