Expanding the Bailout

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Registered: 03-25-2007
Expanding the Bailout
Sun, 09-21-2008 - 11:38pm

This bailout may not be just for banks exposed to mortgage defaults.  The Treasury is looking at including other types of debt also:


http://www.bloomberg.com/apps/news?pid=20601087&sid=aYXtwpG9mw9g&refer=home


U.S. Treasury Widens Scope of Plan to Buy Bad Debt (Update2)


By Dawn Kopecki


Sept. 21 (Bloomberg) -- The Bush administration widened the scope of its $700 billion plan to avert a financial meltdown by including assets other than mortgage-related securities.


The U.S. Treasury submitted revised guidance to Congress on its plan a day after first submitting it, as lawmakers and lobbyists push their own ideas. Officials now propose buying what they term troubled assets, without specifying the type, according to a document obtained by Bloomberg News and confirmed by a congressional aide.


The change suggests the inclusion of instruments such as car and student loans, credit-card debt and any other troubled asset. That may force an eventual increase in the size of the package as Democrats and Republicans in Congress negotiate the final legislation with the Bush administration, analysts said.


``The costs of the bailout will be significantly higher than originally considered or acknowledged,'' said Josh Rosner, an analyst with independent research firm Graham Fisher & Co. in New York. ``How, given these changes, can the administration and Federal Reserve believe they are being forthright in their unrevised expectation of future losses?''


In another change today, the Treasury said it would limit its $50 billion plan for insuring money-market funds to those held by investors as of Sept. 19, excluding any subsequent contributions.


Bankers React


The American Bankers' Association, which had expressed concern about the plan last week, praised the move, saying it would eliminate an incentive for savers to shift out of bank accounts into money-market funds. The Treasury put no limit on the money-market fund insurance, while the Federal Deposit Insurance Corp. protects bank deposits up to $100,000.


``If all money market mutual funds had been included with the government guarantee moving forward, this proposal would have threatened to take money out of local FDIC-insured banks,'' Edward Yingling, president of the ABA in Washington, said in a statement.


In its latest guidance on the bad-debt fund, the Treasury said firms that are headquartered outside the U.S. will now be eligible.


The changes come after two days of weekend talks between administration officials and congressional staff in Washington. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke told lawmakers Sept. 18 that a comprehensive attack on the worst financial crisis since the Great Depression was critical after a series of government interventions failed to normalize markets.


Hearings to Come


Paulson on Sept. 19 announced his intention of seeking legislation from Congress. Appearing on television talk shows today, he called for rapid passage of a bill. Congressional panels have scheduled two hearings this week on the crisis; Bernanke appears at a third hearing on the economic outlook.


Lawmakers are also seeking changes to Paulson's plan, which amounts to an unprecedented intervention in financial markets and would prevent courts from reviewing actions taken under its authority.


Democrats are pressing for oversight through the Government Accountability Office, and for the inclusion of efforts to refinance mortgages for struggling homeowners. House Financial Services Committee Chairman Barney Frank wants limits on compensation of corporate executives who benefit from the program.


Republicans are urging limits on how any profits from the program could be spent.


``Just about everyone in the markets agrees the Paulson plan needs to be simple -- unencumbered by complications and penalties,'' Christopher Low, chief economist at FTN Financial in New York, wrote in a note to clients. ``Of course, Washington doesn't know how to do that.'' >>>


This is looking worse and worse.

Sopal


Sopal

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