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Bailout Estimate Climbs To $700 Billion

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The Washington Post

Published: September 21, 2008

WASHINGTON - The Bush administration Saturday raised the price tag on its emergency plan to revive the U.S. financial system, asking Congress for authority to spend up to $700 billion to relieve crippled financial institutions of their mortgage-based assets, a sum that would exceed the current cost of the war in Iraq.

Meanwhile, senior administration officials pressed their counterparts in Japan, Germany, the United Kingdom and elsewhere to establish similar programs to rescue their own troubled firms in what would be an unprecedented bailout of the worldwide financial system. The move comes in recognition that complex interconnections among financial institutions have created a global crisis that the United States cannot fix on its own.

An official at the Bank of England who spoke on condition of anonymity said the bank has been in constant contact with its U.S. counterparts to try to win a "global response to a global problem." The European Central Bank declined to comment.
Congressional leaders responded positively to the administration's rescue plan, though the price tag was $200 billion higher than they had been told to expect just three days ago.

House Democrats, however, said they will push to include a number of contentious provisions that could make it difficult to pass the plan quickly, including limits on executive compensation for firms that unload their bad assets on the government and new powers for bankruptcy judges to modify mortgages on primary residences. Democrats also want President Bush to drop his opposition to a second round of federal spending aimed at stimulating the economy.

"Obviously, this is of direct benefit to some people in the financial industry," Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said of the rescue plan. "We need to be talking about direct benefits to people who are not in the private sector."

President Bush, speaking to reporters during a White House appearance with Colombian President Alvaro Uribe, urged Democrats to set aside those demands.

Bush also defended the size of the request, saying drastic action was needed because of the magnitude of the financial crisis, a cataclysm that started with bad mortgage loans to U.S. homeowners, spread to the banking and financial services industry, and now is enveloping markets around the world.

The proposal itself is just three pages long. But it lays out the most sweeping government intervention in the private sector since the Great Depression.

JUDGE OKS SALE OF LEHMAN UNITS

NEW YORK - A bankruptcy judge decided early Saturday that Lehman Brothers can sell its investment banking and trading businesses to Barclays, the first major step to wind down the nation's fourth-largest investment bank.

U.S. Bankruptcy Judge James Peck gave his decision in a courtroom packed with lawyers at the end of an eight-hour hearing, capping a week of financial turmoil.

The deal was said to be worth $1.75 billion earlier in the week but the value was in flux after lawyers announced changes to the terms Friday. It may now be worth closer to $1.35 billion, which includes the $960 million price tag on Lehman's Midtown Manhattan office tower.

Lehman Brothers Holdings Inc. filed the biggest bankruptcy in U.S. history Monday, after Barclays declined to buy the investment bank in its entirety.

The British bank will take control of Lehman units that employ about 9,000 in the United States.

The Associated Press

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