Wall Street Bailout Faces Lawmakers, Lobbyists

[Joanne98]

Wall Street Bailout Faces Lawmakers, Lobbyists
With Congress asked to act by Sept. 26, lawmakers and lobbyists take aim at Treasury Secretary Paulson's $700 billion bailout—and questions abound

http://www.businessweek.com/bwdaily/dnflash/
content/sep2008/db20080921_530643.htm?chan=
rss_topStories_ssi_5


by Theo Francis and Jane Sasseen

After years of financial mismanagement, it took less than two weeks for the markets to come unglued. Now, Congress and the Bush Administration are trying to pass a fix within the week. But with the clock ticking and lobbyists circling, big questions remain.

A brief proposal sent to Congress by the Treasury Dept.—with a request for action before Congress adjourns on Sept. 26—would authorize the Treasury to buy up to $700 billion of toxic mortgage-related assets and gradually resell them, with few strings attached. That is roughly what the U.S. has spent to prosecute the war in Iraq to date, and nearly $2,300 for every man, woman, and child in the country. Added to the $200 billion that could go toward shoring up Fannie Mae (FNM) and Freddie Mac (FRE), and the $85 billion the government has pledged to acquire most of insurance giant American International Group (AIG), the potential price tag for taxpayers soars to near $1 trillion. That's just under half what the country spends annually on health care.

Already, some in Washington are seeking to downplay the numbers. Treasury Secretary Henry Paulson and Representative Barney Frank (D-Mass.) have both stressed that while the Treasury has asked for $700 billion to spend up front, the government ultimately will recoup some of its costs over time by selling the assets it acquires. But it's impossible to say just how much the government will be able to recover or how much in the way of impaired assets it will need to buy before the financial system stabilizes. "We can't determine the costs today," Paulson said on Sept. 21 on NBC's Meet the Press.

TAX HIKES NECESSARY?
Whatever the eventual price tag, there's little doubt that the rescue will swell an already ballooning budget deficit, which some predict could top $1 trillion next year. Even before any of the spending to stabilize the financial sector, the deficit was projected to reach around $500 billion. Paulson has proposed raising the ceiling on the federal government's accumulated debt to $11.3 trillion from $10.6 trillion, and while some congressional Democrats are considering demands that any increase be limited to the bailout, there is little doubt that the next President will inherit a bigger financial challenge than expected. That would mean even greater constraints on plans for spending and tax cuts, proposals already straining the bounds of the possible. The more funding the financial bailout demands, the tougher the trade-offs the winner will have to consider when it comes to his priorities. Spending on health-care reform or tax cut packages will likely take the first hit. "You are about to put a giant hole through the budget," says Daniel Clifton, policy analyst for Strategas Research Partners, who predicts tax hikes no matter who wins in November. "You just can't raise the deficit to $1 trillion."

Moreover, it's far from clear that the final plan will retain the stripped-down structure of the original. Despite promises by lawmakers not to turn the legislation into a virtual "Christmas tree," with everyone adding their own favorite goodies to the bill, pressure is already growing to add to it, whether as part of the same bill or in parallel. One likely addition: relief for homeowners struggling to pay their mortgages— arguably the heart of the crisis, since those mortgages underlie the securities weighing down financial companies' balance sheets. Prominent Democrats, including Presidential candidate Barack Obama, argue that the government's bailout shouldn't aid only big corporations and their investors. Frank, speaking Sunday on CBS News' Face the Nation, suggested help for homeowners could be funded in part by "a surtax on the wealthiest people in the country, who are among those who made these mistakes. It's almost as if we let them take the economy hostage by not having the appropriate financial regulation."

Already a few, including Senator Bernie Sanders (I-Vt.), have threatened to vote against a bill that lacks aid for homeowners. "If the economy is on the edge of collapse, we need to act," Sanders said in a Sept. 21 statement. "But rescuing the economy does not mean we have to just give away $700 billion of taxpayer money to the banks."

A LOBBYING EXTRAVAGANZA
Industry and the GOP have called for a "clean bill," setting the stage for a fight. "In adding extraneous provisions, you risk killing the whole thing," warns Scott Talbott, senior vice-president for government affairs at the Financial Services Roundtable. "No one wants to do that." On the talk show circuit on Sept. 21, Paulson tried to frame the package as one that helps both Wall Street and Main Street: "When companies can't borrow money…it's difficult to get jobs, it hurts people's budgets, it hurts people's retirement savings," he said. "It pains me to have the American taxpayer put in this situation, but it's better than the alternative."

At the same time every wing of the financial sector, among others, has turned its sights on Capitol Hill, anxious to protect their interests in the final measure. Talbott called the scrum shaping up inside the Beltway the "Super Bowl and New Year's Eve of lobbying," with the main event likely to start on Sept. 22. Among the measures likely to surface: calls to loosen requirements that companies report the "fair value"—typically the market value—of mortgage-related securities on their books. Advocates say such a move would make it less likely that companies spiral toward bankruptcy as they repeatedly mark down such assets. Critics say the move would merely obscure the true financial risks posed by the securities to both the companies and the economy.

Continued>>>
http://vaphblueblog.blogspot.com/2008/09/wall-street-bailout-faces-lawmakers.html

[barbtries]

1. the business week link is semi-bad

it got me to the magazine. i read the article. this plan by paulson sucks.

[Democat]

2. Sucks for America, probably great for Bush's friends

Someone will end up with the money at the end of the day, and it won't be the taxpayers.

Bush gave people a $200 tax refund - and took billions from future generations.

And McCain is owned by the same people.