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Bailout Money Uses Just Keep On Shifting

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The Associated Press

Published: October 26, 2008

WASHINGTON - First, the $700 billion rescue for the economy was about buying devalued mortgage-backed securities from tottering banks to unclog frozen credit markets.

Then it was about using $250 billion of it to buy stakes in banks. The idea was that banks would use the money to start making loans again.

But reports surfaced that bankers might use the money to buy other banks, pay dividends, give employees a raise and executives a bonus, or just sit on it. Insurance companies now want a piece; maybe automakers, too, even though Congress has approved $25 billion in low-interest loans for them.

Three weeks after becoming law, and with the first dollar of the $700 billion yet to go out, officials are just beginning to talk about helping a few strapped homeowners keep the foreclosure wolf from the door.

As the crisis worsens, the government's reaction keeps changing. Lawmakers in both parties are starting to gripe that the bailout is turning out to be far different from what the Bush administration sold to Congress.

In buying equity stakes in banks, the Treasury has "deviated significantly from its original course," says Alabama Sen. Richard Shelby, top Republican on the Senate Banking, Housing and Urban Affairs Committee.

Other planned uses of the bailout money have lawmakers protesting, although it is only fair to note there is nothing in the law that they just wrote to prevent those uses.

Sen. Charles Schumer, D-N.Y., questioned allowing banks that accept bailout bucks to continue paying dividends on their common stock.

Schumer, whose constituents include Wall Street bankers, said he also fears they might stuff the money "under the proverbial mattress" rather than make loans.

Neel Kashkari, head of the Treasury's financial stability program, told Senate banking committee members last week that there are few strings attached to the capital-infusion effort because too many rules would discourage financial institutions from participating.

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