Bush team, Congress negotiate $700B bailout

NF Reporter · 09-21-2008, 12:14 AM

AP - The Bush administration asked Congress on Saturday for the power to buy $700 billion in toxic assets clogging the financial system and threatening the economy as negotiations began on the largest bailout since the Great Depression.

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waltky · 09-21-2008, 12:29 AM

Fearless W gonna fix the economy...

Big bailout: Where things stand
September 20, 2008: Federal officials and lawmakers will spend the weekend hammering out the details of what could be the biggest government bailout in history.

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The federal government is on the verge of instituting the most sweeping intervention in the financial markets since the Great Depression. Details remain scarce as the Bush administration and Congress work to hammer out the final plan, which is aimed at stemming the credit crisis that's roiling Wall Street and threatening the global markets. The Bush administration sent its proposal to members of Congress overnight, according to White House spokesman Tony Fratto. "Secretary Paulson and his team will continue their discussions with Congress and staff throughout the weekend, and we're hopeful that good progress will be made," Fratto said. Here's what we know so far:

The plan: The federal government would buy up "hundreds of billions of dollars" of illiquid mortgage assets at a deep discount from banks. The Treasury Department is likely to run the program directly, unlike the savings and loan crisis of the 1990s that led to the creation of the Resolution Trust Company. "The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy," said Paulson.

In the proposal sent overnight, President Bush has asked Congress for the authority to spend as much as $700 billion to purchase troubled mortgage assets and contain the financial crisis. President Bush said Saturday that the plan matches the scope of the problem. "It is a big package because it's a big problem," he told reporters at a joint news conference with Alvaro Uribe, the president of Colombia. What remains to be seen is how the Treasury Department will structure the purchases and what price they'll pay.

The cost:

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Economists see financial bailout as necessary
WASHINGTON - The economy could suffer a massive hangover from the government's efforts to rescue the financial system in the form of a soaring debt burden. But the alternatives look infinitely worse.

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The $700 billion the administration is seeking from Congress as the upper bounds of what it will need to take a mountain of bad loans off the books of financial firms is certainly an eye-popping figure. To get the funds to buy up the bad mortgage loans that have threatened to bring the financial system to its knees, the government will have to borrow. And that borrowing will come at a time when the federal budget deficit is already soaring. The deficit for this budget year, which ends on Sept. 30, is expected to rise to $407 billion, a figure that is more than double the $161.5 billion imbalance for 2007, reflecting what the economic slowdown and this year's $168 billion economic stimulus program are already doing to the government's books.

The Bush administration is estimating that the deficit for the budget year that begins Oct. 1, which will cover the new president's first year in office, will hit $482 billion, a record in dollar terms. And that forecast doesn't include the $200 billion the administration committed to spending two weeks ago when it took over the nation's two biggest mortgage companies, Fannie Mae and Freddie Mac. And it doesn't have any of the $700 billion the administration is seeking to soak up the bad mortgage-backed securities that have been at the heart of the severe credit crisis the country has been struggling with since August 2007.

The legislation Congress passed this summer that gave the authority to rescue Fannie and Freddie boosted the limit on the national debt by $800 billion to $10.6 trillion. The legislation the administration is now seeking to authorize the financial system bailout, according to a draft obtained by The Associated Press, would boost that debt limit to $11.3 trillion, up another $700 billion. It is the rapidly rising debt that is cause for concern. The government is already spending more than $400 billion a year just to pay interest on the national debt. The higher that debt goes, the higher the government's borrowing costs and the less it has to spend on other programs.

More My Way News - Economists see financial bailout as necessary

waltky · 09-23-2008, 03:01 AM

Wha' happened?...

Impact of Wall Street bailout becoming clearer
Mon., Sept. 22, 2008 - Q&A: What this means for your job, your mortgage and your taxes

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Though the devil's in the details of the emerging government response to the collapse on Wall Street, a clearer picture is beginning to emerge. Here are answers to some common questions about what it means for homeowners, consumers and taxpayers.

Why is this happening?

The system of financing homeownership has run off the rails after lenders — and the investors who put up the money — made what has turned out to be a trillion-dollar mistake. There were a number of actors: borrowers who reached too far, mortgage brokers who pocketed big commissions on loans they knew were bad and Wall Street banks that packaged those bad loans, applied a little alchemy and sold them to investors, who didn’t bother to check carefully what they were buying and relied on rating agencies who gave their unfounded blessing on the investments.

What got Fannie Mae, Freddie Mac and the big investment firms into so much trouble?

When they bought investments backed by shaky loans, these financial giants compounded the problem by relying on too much borrowed money themselves. Just like the “no money down” home buyers, these institutions didn’t have enough cash to withstand the drop in mortgage-related investments when the housing market started to slump.

What is the government doing about it?

Starting last summer, the Federal Reserve agreed to lend money to big banks and brokerages that were short on cash — just as a homeowner falling behind a mortgage might turn to a rich uncle. But the loans weren’t enough. In March, Bear Stearns became the first firm to run out of options, so the Fed stepped in with a $30 billion loan, which helped it find a buyer in JP Morgan.

But in just the past few weeks, Fannie Mae and Freddie Mac, Lehman Bros., Merrill Lynch and insurance giant AIG all faced a cash squeeze. Even though the Fed had $880 billion on hand when the calls started coming, it soon realized it didn’t have enough money for the bailout. So the Fed went to their richer uncle — Uncle Sam — to borrow more money from the Treasury. It then became clear that it would be more effective to have the Treasury act directly as Wall Street's rich uncle.

What happened to all the money these lenders lost? Where did it go?

waltky · 10-06-2008, 01:14 AM

FDIC gonna be under some strain...

Bank on it — bank failures will rise next year
Sun., Oct. 5, 2008 : Bailout will save some, but too many have gambled on bad mortgages

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Here's a safe bet for uncertain times: A lot of banks won't survive the next year of upheaval despite the U.S. government's $700 billion plan to restore order to the financial industry. The biggest question is how many will perish and how they will be put out of their misery — in outright closures by regulators scrambling to preserve the dwindling deposit insurance fund or in fire sales made under government pressure.

Enfeebled by huge losses on risky home loans, the banking industry is now on the shakiest ground since the early 1990s, when more than 800 federally insured institutions failed in a three-year period. That was during the clean-up phase of a decade-long savings-and-loan meltdown that wound up costing U.S. taxpayers $170 billion to $205 billion, after adjusting for inflation.

The government's commitment to spend up to $700 billion buying bad debts from ailing banks is likely to save some institutions that would have otherwise died, but analysts doubt it will be enough to avert a major shakeout. "It will help, but it's not going to be the saving grace" because a lot of banks are holding construction loans and other types of deteriorating assets that the government won't take off their books, predicted Stanford Financial analyst Jaret Seiberg. He expects more than 100 banks nationwide to fail next year.

The darkening clouds already have some depositors pondering a question that always seems to crop up in financial panics despite deposit insurance: Could it possibly make more sense to stash cash in a mattress than in a bank account? "It sounds like a joke," said business owner Mauricoa Quintero as he recently paused outside a Wachovia Bank branch in Miami. "But it sounds safer than the turmoil out there right now."

Not as many banks are likely to fail as in the S&L crisis, largely because there are about 8,000 fewer today than there were in 1988. But that doesn't necessarily mean the problems won't be as costly or as unnerving; banks are much larger than they were 20 years ago, thanks to laws passed in the 1990s.

More Bank on it â€” bank failures will rise next year - Economy in Turmoil - MSNBC.com