More details on the government bailout of the securities industry were released today, and it appears that the price tag is going to be high. The problem is that the plan, as I said yesterday, focuses only on the banks and not on the folks out there who are facing foreclosure.
Here is how The New York Times describes today’s announcement:
WASHINGTON — The Bush administration on Saturday formally proposed a vast bailout of financial institutions in the United States, requesting unfettered authority for the Treasury Department to buy up to $700 billion in distressed mortgage-related assets from the private firms.
The proposal, not quite three pages long, was stunning for its stark simplicity. It would raise the national debt ceiling to $11.3 trillion. And it would place no restrictions on the administration other than requiring semiannual reports to Congress, granting the Treasury secretary unprecedented power to buy and resell mortgage debt.
“This is a big package, because it was a big problem,” President Bush said Saturday at a White House news conference, after meeting with President Álvaro Uribe of Colombia. “I will tell our citizens and continue to remind them that the risk of doing nothing far outweighs the risk of the package, and that, over time, we’re going to get a lot of the money back.”
The story adds that the
$700 billion expenditure on distressed mortgage-related assets would roughly be what the country has spent so far in direct costs on the Iraq war and more than the Pentagon’s total yearly budget appropriation. Divided across the population, it would amount to more than $2,000 for every man, woman and child in the United States.
And would
add to a budget deficit already projected at more than $500 billion next year. And it comes on top of the $85 billion government rescue of the insurance giant American International Group and a plan to spend up to $200 billion to shore up the mortgage finance giants Fannie Mae and Freddie Mac.
The president is pitching the plan as “helping every American.”
“The government,” he said, “needed to send a clear signal that we understood the instability could ripple throughout and affect the working people and the average family, and we weren’t going to let that happen.”
But it is really about helping investors. And while an earlier bailout package included provisions “to help troubled borrowers refinance mortgages,” the “financing for it depended largely on fees paid by Fannie Mae and Freddie Mac, which have been placed into a government conservatorship.”
Not exactly reassuring given that it was government inaction, along with Wall Street greed that got us into this mess.
Hank Kalet 