TBO.com - TBO is Tampa Bay Online

Bailout Proposal Ready For Vote

ADVERTISEMENT

By CARL HULSE and DAVID M. HERSZENHORN

The New York Times

Published: September 29, 2008

WASHINGTON - The House braced for a difficult vote today on a $700 billion rescue of the financial industry after a weekend of tense negotiations produced a plan that congressional leaders portrayed as greatly strengthened by new taxpayer safeguards.

In the short run, congressional leaders have achieved their goal of producing an agreement Sunday on a federal bailout of banks and other financial institutions holding bad mortgage debts before the world's stock markets reopened.

But in the long run, the scope and still-unknown effects of the greatest government intervention in the financial markets since the Great Depression - and the remaining underlying instability of the nation's economy - will impose a new political challenge for the next president and Congress elected in November.

The 110-page bill, bollixed up for days by election-year politics and intended to ease a growing credit crisis, came after a frenzied week of political twists and turns. The measure still faced stiff resistance from lawmakers who portrayed it as a rush to economic judgment and an undeserved aid package for high-flying financiers who chased big profits through reckless investments.
Congressional leaders face another immediate and uncertain challenge this week, with the House expected to vote on the plan as soon as today and the Senate as soon as Wednesday, in getting enough votes to pass it and present the controversial two-stage bailout as a bipartisan response to a national crisis.

But leaders of both parties in the House and Senate intensified their efforts to sell reluctant members of Congress on the legislation. They said it had been significantly improved from the Bush administration's first proposal.
Congressional leaders are attempting to frame the measure as their own best compromise on a plan that the Bush administration proposed which they are now calling unacceptable.

This means, in part, dividing the bailout into two phases, starting with $350 billion but requiring congressional approval for a second pay-out. And it includes a demand that if the government does not recoup all the money that it invests in reselling mortgage debt that it purchases, it comes up with a plan to get the financial industry to cover any projected taxpayer losses.

"This is a major, major change," Speaker Nancy Pelosi said Sunday evening as she declared that negotiations were over.

The deal also would restrict gold-plated farewells for executives of companies that sell devalued assets to the Treasury Department.

President Bush called the measure "a very good bill" and praised congressional leaders. "This plan sends a strong signal to markets around the world that the United States is serious about restoring confidence and stability to our financial system," Bush said in a statement. "Without this rescue plan, the costs to the American economy could be disastrous."

House Republicans had threatened to scuttle the deal, and proposed a radical alternative that would have focused on insuring troubled debt rather than buying it. In the end, the insurance proposal was included on top of the purchasing power, but there is no requirement that the Treasury secretary use it, leaving them short of that goal.

Many Republicans are lining up against it. Rep. Mike Pence of Indiana, who spoke out early against the plan first proposed by Paulson, circulated a letter to colleagues on Sunday: "We now have a deal that promises to bring near-term stability to our financial turmoil, but at what price?"

Leaders say they have crafted the measure to ensure that banks will pay the price if the Treasury cannot recover all of the potentially $700 billion that it puts into the bailout.

"This bill, while not perfect, will help stabilize the economy," said Senate Majority Leader Harry Reid, D-Nev., "and I think it's going to help the taxpayers."

It is virtually impossible to know the ultimate cost of the rescue plan to taxpayers, but congressional leaders stressed that it would likely be far less than $700 billion. Because the Treasury will buy assets with the potential to resell them at a higher price, the government might even turn a profit.

The architects of the plan said they realized they were calling on Congress to cast a tough vote since lawmakers might not get credit for averting a financial crisis since some constituents will not believe one was looming.

IS IT WORKING?

SIGNS TO WATCH: If the plan works, interest rates on short-term Treasury securities backed by the full faith and credit of the U.S. government should rise. Loans - particularly those made from one bank to another - would be more available and less expensive in a matter of weeks, if not days. And as the government gobbles the banks' toxic assets, the industry would gain the confidence and strength needed to make it easier and cheaper for families to borrow for homes, cars and college - and for businesses to secure ample debt to pay for plants, equipment and workers.

KEEP AN EYE ON THESE REPORTS: In the short term, there are several economic reports to watch for clues about improving credit conditions:

•The Federal Reserve's weekly report on emergency loans provided to banks and investment firms is a barometer for how strapped they are for cash.

• Freddie Mac's weekly report on mortgage rates shows what home buyers are being charged to borrow.

•The Mortgage Bankers Association's quarterly survey of home foreclosures and delinquencies will indicate whether the struggling housing market is on the mend.

• The Fed's quarterly senior loan officers' survey tracks banks' appetite to lend.

NO QUICK FIX: Rising unemployment and falling real estate values are not expected to disappear overnight, and a recession is possible. Economists say it could be late 2009 before home prices stop falling.

The Associated Press

Information from McClatchy-Tribune and The Associated Press was used in this report.

Share this:

Loading Comments...

Email Print

ADVERTISEMENT