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The Latest ‘Bailout’ May Top $1.5 Trillion

From a delighted Washington Post:

US President Barack Obama (R) and US Treasury Secretary Timothy Geithner attend a press conference at the White House last week.

New Bailout May Top $1.5 Trillion

Plan Aims to Aid Banks, Spur Lending, Push Private Investors to Buy Toxic Assets

By David Cho and Lori Montgomery
Tuesday, February 10, 2009; A01

The gravity of the financial crisis confronting the Obama administration will come into stark focus today when officials unveil a three-pronged rescue program that may commit up to $1.5 trillion in public and private funds, and possibly more, lawmakers and other officials said…

A senior administration official warned last night that the ultimate cost to taxpayers has not been determined. Several of the programs have not been finalized, and most are designed to ultimately return money to taxpayers.

Geithner plans to announce a public-private partnership that would seek to finance the purchasing of toxic bank assets that are at the heart of the credit crisis, officials and congressional sources said. These sources briefed by Treasury officials said the program may initially raise $250 billion to $500 billion in public and private funds to offer low-cost financing to encourage investors to buy the toxic assets…

A second initiative will broaden the scope of a Federal Reserve program aimed at unclogging the markets for auto, student and other consumer loans. That initiative may expand to as much as $1 trillion, using $100 billion from the Treasury’s rescue funds, and include aid for commercial real estate markets.

A third program would offer direct help to the nation’s largest banks. The government plans to conduct a review of major financial firms to determine how much they may need. Any federal aid would come with conditions that would give the firms incentives to pay the money back as soon as possible. The review would determine the ultimate price tag of this program…

If these large banks receive federal aid, they would be subject to tougher conditions than the Bush administration imposed and be required to submit reports to prove they are using the aid to do more lending.

They would be banned from using government funds to pay dividends above a penny or buy healthy firms until the government investment is repaid. Their chief executives would face compensation restrictions that would limit their annual pay to $500,000. Any compensation above that could come only in the form of stock that could not be sold until the federal loans are returned

James B. Lockhart III, director of the Federal Housing Finance Agency, said in an interview that the Obama team has developed the broad outlines of a proposal to stem foreclosures by adding incentives for borrowers and lenders to modify home loans that have fallen behind, perhaps by as little as a single month.

The foreclosure relief effort has taken more time to design. Lockhart said it would be a "more aggressive version" of the one launched by mortgage financiers Fannie Mae and Freddie Mac last year…

The Fannie and Freddie program allowed borrowers who were 90 days delinquent on a loan to have their payments lowered to 38 percent of their income. The loan could also be extended from 30 years to 40 years, and if that was not enough, the interest rate could be reduced to as low as 3 percent to make the payments more affordable.

Consumer advocates say the program was a good start in tackling the foreclosure problem but did not go far enough to help homeowners. For example, the effort did not include measures to cut the principal owed by borrowers whose home values have fallen below their mortgage loan amount. Another requirement — that borrowers miss three payments before qualifying for help — has been a troublesome issue, according to some consumer groups.

The government’s new approach would make the terms more generous for both the borrowers and lenders. For instance, borrowers who missed only one payment might be able to qualify, Lockhart said. Lenders may be able to reduce payments to a lower percentage of a homeowner’s income…

By the most conservative estimates, the Treasury and Fed have already committed more than $1.4 trillion in loans, investments and guarantees to the financial system. Other estimates come to several times more.

Congressional sources added that if the programs developed by the Treasury were not successful, they expect the administration to return to Capitol Hill to ask for more rescue funds

Something tells us that the “bailout” will far exceed any $1.5 trillion.

A senior administration official warned last night that the ultimate cost to taxpayers has not been determined. Several of the programs have not been finalized, and most are designed to ultimately return money to taxpayers.

Does anyone really believe this?

Has it ever happened in the history of our Republic – or any government, for that matter?

This article was posted by Steve on Tuesday, February 10th, 2009. Comments are currently closed.

2 Responses to “The Latest ‘Bailout’ May Top $1.5 Trillion”

  1. BillK says:

    The big thing here and in the first TARP package is that firms in question are forbidden from paying dividends until the Feds are paid back.

    In case you didn’t recognize it, that means their stock price drops to near zero and the Feds will become their only source of funding, as no one aside from the Feds are going to be stupid enough to invest in a financial institution that cannot pay a dividend to shareholders. It’s literally just throwing your money into a sewer grate.

    It’s just a question of whether you have your broker do the throwing or have the Federal Government confiscate the money from you and they do the throwing.

    Yes, folks, bread lines will be back any day.

    Not because, like in the Great Depression, people don’t have money.

    But because, thanks to Obama’s policies, the dollar will be worth so little it will cost $100 for a loaf of bread.

  2. proreason says:

    I’m with SG.

    Does any rational person think that 1.5 Trillion is the end of this?

    15 trillion is more like it.

    Once these nutter programs get started, they take on lives of their own. And there will be thousands of beaurocrats defending each $1,000 budget item as if their lives depended on it.

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