The public may not want it, but Congressional leaders say that they are close to completeing work on a bailout of the banking industry:
Key Congressional negotiators met this afternoon with Treasury Secretary Henry M. Paulson Jr. to continue trying to hammer out a Wall Street bailout package that all the factions can agree on, and House Speaker Nancy Pelosi predicted a deal is near.
“It would be my hope that this could be resolved today, that we would have a day for the American people and Congress to review the legislation on the Internet and that we could bring something to the floor Sunday night or Monday morning,” Pelosi (D-Calif.) said as senators and representatives from both parties headed into her office for the meeting with Paulson.
Lawmakers canceled plans to adjourn Friday for the November election and instead prepared to work through the weekend on the proposal, which would authorize the Treasury Department to spend up to $700 billion to take bad assets off the books of faltering financial institutions.
As for the details, here they are:
Under a tentative agreement among lawmakers and administration officials, the measure would grant Treasury sweeping power to buy up bad mortgage-related assets through Dec. 31, 2009, but it also would create an independent inspector general to oversee that program. As the new owner of billions of dollars worth of mortgage-backed assets, Treasury would be required to reduce the number of foreclosures by modifying the terms of the loans that underlie those assets.
Frank said Treasury also has agreed to accept other changes to its original plan, though aides were still haggling over details. Among the changes:
· A proposal to dole out the money in segments, with Paulson getting $250 billion immediately, another $100 billion later and the final $350 billion after giving Congress 30 days to object.
· A plan to help taxpayers recover their investment by granting them equity in companies that participate in the bailout and return to profitability.
· A provision that would require Treasury to ban “excessive and inappropriate” compensation for top executives at participating firms. Democrats are also seeking to eliminate a tax deduction companies take for executive compensation if a senior manager is paid more than $400,000 a year.
The core concept, though, that the Federal Government would purchase essentially wortheless assets from banks and mortgage lenders remains in place. And you and I are going to pay for it.
September 27th, 2008 at 8:11 pm
Doug,
You really have to keep pushing this false notion that the assets we’ll be purchasing are worthless. They’re not.
80% of them are perfectly good mortgages, 10% are questionable and the other 10% are probably bad. But because the market won’t touch any of them for fear their value will drop, nobody’s buying them.
I’m not a huge fan of what we’re doing either, but from my perspective a lot of money needs to be injected into the market quickly or banks will continue to fail and less credit will be available and our economic engine could stall.
September 27th, 2008 at 10:07 pm
Justin,
If the assets aren’t worthless, then the government doesn’t need to purchase them, it’s that simple.
The problem with the bailout is the fact that it will completely shield everyone who made bad decisions — from bankers, to mortgage brokers, to homeowners — from the consequences of those decisions and force the American taxpayer to bear the burden of the cost of their mistakes.
The notion that this bailout will be costless, or that taxpayers will actually make a profit out of it is absurd. We’re going to be diverting up to $ 1 trillion of wealth into bailing out a failed credit market. That IS going to have economic consequences that we will have to deal with.
The question is whether we deal with them now, or ten years down the road when the cost is likely to be greater.
September 28th, 2008 at 8:03 am
[...] I noted late yesterday, it appears that some kind of deal has been reached between Republicans and Democrats over a [...]