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Finance Sector Bailout Looms As The Big Test

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By DAVID E. SANGER

The New York Times

Published: February 9, 2009

WASHINGTON - The easy part is coming to an end.

Ask just about anyone in Washington involved in the $800-billion-plus economic stimulus legislation churning its way through Congress, and they will tell you it is a milestone - but without question the less expensive and politically and technically less risky part of the Great National Bailout of 2009.

This week, President Barack Obama and his Treasury secretary, Timothy F. Geithner, will prepare the country for the next, and far more difficult, step: another attempt to fill the huge hole blown in the center of the nation's financial system.

No one has put a price on that effort, but the administration's diagnosis of what went wrong with the first attempt to right the financial system - that it was too small and that the problem has ballooned in recent months - suggests that the next effort almost certainly will entail a far bigger commitment of taxpayer dollars than the $350 billion left from 2008's $700 billion effort to right the system, and probably far more than the stimulus package.

At his first news conference, scheduled for tonight, Obama is expected to argue that the nation's recovery depends on simultaneously firing on three cylinders. The stimulus the House and Senate are hashing out is one, intended to help create or protect jobs by funneling money to individuals, firms and state and local governments.

Unplugging the stoppage in the credit system that has kept consumers and businesses from borrowing the money they need, by shoring up shaky or failing banks, is the second part, and a vital one: Offering a $15,000 tax credit to homebuyers, administration officials argue, will not do much good if the buyers cannot get mortgages.

The final part, which Obama is not expected to announce for several days, involves spending billions more to prevent home foreclosures, for fear that the displacement and anger created by throwing people out of their homes, and putting more properties in the glutted market, will create a psychological and financial death spiral.

Though Obama and his economic team had a playbook of sorts to follow when it came to the stimulus plan - since the Great Depression, Washington has been using big increases in spending and reductions in taxes to jolt the economy with varying degrees of effectiveness - the problems facing the financial system have no real parallels in scale or complexity.

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