Even a relatively savvy investor might have a tough time keeping things straight regarding Treasury bailout proposals that have come out in the past few days. Director of Zacks Equity Research Dirk van Dijk, CFA was on hand recently to help boil this issue down for us.

What?s the main difference in the Treasury bailout plan from Senator Chris Dodd from that of Treasury Secretary Henry Paulson?s the previous day?

The Dodd plan has far stronger oversight provisions than the Paulson plan, which has virtually none, and explicitly disallowed any review by the courts or any other agency. In the Dodd plan, there would be monthly reports to Congress as well as weekly press reports on the progress of the plan. There would be an oversight board, which would include the heads of the Federal Reserve, the SEC, the FDIC and one non-governmental employee picked by each party. That is, the Democrats might pick someone like Warren Buffet and the GOP might pick someone like Mitt Romney.

It also requires the Government get contingent shares in any institution participating in the bailout. If the taxpayer is able to sell the acquired assets at a profit, as some have suggested -- but which I see as extremely unlikely -- then the Government would not get any stake in the companies. However if the taxpayer takes a hit, the government would end up with a big stake in the institutions.

This would significantly dilute the existing shareholders, and would provide some solution to the huge moral hazard issues raised by the bailout. The proposal would also allow judges to modify the terms of mortgages if a homeowner declares bankruptcy (as they can with car loans or even second home loans).

So at a glance, which do you feel would be the better of the two plans?

While the Dodd proposal is not perfect, it represents a substantial improvement over the original Paulson plan. It is important to do something quickly, but it is just as important to do the right thing. "Quickly" means within a few weeks, not within a few hours. Congress should seriously reconsider its plans to adjourn at the end of the week to hit the campaign trail, and instead work on getting this right. It should also not load up this plan like a Xmas tree with every favored little project -- however worthy -- attached to it.

Regardless of which plan is enacted (and I suspect the final result will be a combination of these two plans, perhaps with additional modifications) there has been enough economic damage inflicted that we are going to have a pretty severe economic slowdown.

What do you see as the two sides of the coin here?

If we get it right, it will be just a pretty bad recession. We have lived through many of those in the past. If we get it wrong, we face some extremely rough economic times ahead. Those warning about the potential of a second Great Depression are not kidding, but such an awful outcome is far from the only possibility.

How would you advise investors to proceed at this time?

Invest under the assumption that we will have a significant economic slowdown. That means buy companies where there is demand for the products through good times and bad, and which have very strong balance sheets. Some of the Consumer Staples names seem to fit the bill, like Kraft (KFT), Procter & Gamble (PG) and PepsiCo (PEP). The Integrated Oil companies like Exxon (XOM), Chevron (CVX) and Conoco (COP) also look like safe harbors in this storm.

Dirk van Dijk, CFA is the Director of Zacks Equity Research.