Understanding the Bailout Rescue Plan
- By:
- Tom Kerr | October 06, 2008
While lawmakers argued over the passage of a $700 billion package of economic protections for a beleaguered Wall Street, taxpayers on Main Street objected strenuously. Meanwhile, the nation lost trillions of dollars in assets, as the credit markets remained stagnant due to a lack of cash liquidity. Last week was one of the most expensive in recent history, but ended with the successful passage of a slightly amended version of the original bill first proposed by Treasury Secretary Paulson.
Highlights of the bailout
Here's a summary of some of the most important provisions in the rescue plan that passed:
- The Treasury will begin a massive purchase of troubled mortgage assets from financial institutions. This will immediately relieve lenders of their biggest burden by having the United States government shoulder their massive mortgage debt.
- Over time, the Treasury can sell the assets it buys in a much more orderly fashion. Today, as everyone tries to dump them at once, those assets don't sell, but weigh down the economy. By taking this problem off the books, a healthier and more stable economic environment is created.
- Once housing prices and mortgage markets stabilize and begin to recoup lost value, the Treasury can start selling the rescue plan assets. If things go well, the income from those sales will offset most of the taxpayer cost of this big bailout. Provisions also call for the financial industry to reimburse taxpayers for any net losses from the program after five years.
- The bill also place curbs on executive pay for companies selling assets or buying insurance from Uncle Sam. It creates two powerful watchdog and regulatory committees, a Financial Stability Board, and a Congressional oversight panel. Their mandate is to ensure that the funded rescue is executed carefully, wisely, and without abuses or favoritism.
- Tax breaks were added, including incentives for alternative energy investment, and a provision to raise from $100,000 to $250,000 the amount of coverage provided to bank depositors through FDIC insurance.
Stopping the financial bleeding
The Stabilization Act is primarily meant to stop the paralysis of our financial system. It won't prevent economic recession, or quickly turn around the housing market. But if it works-which it must if the U.S. is to avoid economic depression-it will stop banks from collapsing, and will free up fresh investment capital so that we can still borrow money to buy cars, pay tuition, and finance mortgages and business ventures. While doing so, it will also shorten the inevitable recession, and pave the way for a much stronger and more sustainable economy in the future-as soon as the current mess has time to play itself out in the markets and get resolved.
Bankruptcy Reform Back on the Table
- By:
- Bill Rice - MortgageLoan.com | November 21, 2008
One of the earliest ideas for helping homeowners facing mounting mortgage debt and potential foreclosure on their home was to reform bankruptcy laws. The concept is now officially back on the table, introduced into the Congressional lame-duck session by Senator Richard Durbin (D-IL).
TARP is Closed for Relief Until Further Notice
- By:
- Bill Rice - MortgageLoan.com | November 20, 2008
Remember what a crisis the $700 billion mortgage market bailout was--the very existence of the American financial order hung in the balance.
Fixing the Housing Market, Lots of Ideas...Any Answers?
- By:
- Bill Rice - MortgageLoan.com | November 19, 2008
Almost a year into the dawning of the housing crisis (many chronologist are setting that around the January 2008 crumbling of Countrywide) ideas continue to flow, but few seem to be the answer. In fact, this seems to be the growing consensus--there is no silver bullet.
G-20 Lots of Motion, Will There Be Action?
- By:
- Bill Rice - MortgageLoan.com | November 18, 2008
The 20 most powerful industrial nations, and now the caretakers of an unprecedented global financial crisis, assembled in Washington DC over the weekend. Their mandate was broad and daunting--stabilize world markets.
FDIC Challenges Treasury with New Loan Modification Proposal
- By:
- Bill Rice - MortgageLoan.com | November 17, 2008
On the heels of the Treasury and Federal Housing Finance Agency's (FHFA) loan modification plan for Fannie Mae and Freddie Mac, the FDIC releases their own proposal. In this unprecedented, unilateral, and aggressive move by a Federal agency the FDIC is essential fighting a very public political battle directly with the Treasury and the current Administration.
Mortgage Rates Drop for Second Straight Week
- By:
- Bill Rice - MortgageLoan.com | November 14, 2008
Another week of dismal economic data have again pushed down mortgage rates. Freddie Mac reported Thursday that 30-year fixed-rate mortgages averaged 6.14 percent, down from 6.20 percent last week. This demonstrates a steep decline from 6.46 percent two weeks prior.
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