Treasury Sends Congress Unprecedented $700 billion Bailout Plan

According to Saturday’s news reports, the federal government is asking Congress for $700 billion to buy up bad debt from U.S. financial institutions in efforts to deal with the ongoing financial crisis.

The plan, part of the government’s largest financial bailout since the 1930s, would give the government broad power to purchase distressed assets of any U.S. financial institutions for the next two years. The purchases are intended to be residential and commercial mortgage-related assets, which may include mortgage-backed securities and whole loans.

The proposal, sent by the Treasury Department last night to the Congress ; requesting broad authority to finance the purchase of troubled assets, would also raise the statutory limit on the public debt from $10.615 trillion dollars to $11.315 trillion dollars in order to make room for the massive rescue.

The Treasury Department on Saturday evening issued a “fact sheet” on the proposal, where the following brief description reflects of how this new entity would function. Once the Treasury will have authority to issue up to $700 billion of Treasury securities to finance the purchase of distressed assets, the Secretary, in consultation with the Chairman of the Federal Reserve, will have the discretion to purchase other assets, as deemed necessary to effectively stabilize financial markets. The price of assets purchases will be established through market mechanisms where possible, such as reverse auctions.

To qualify for the program, participating financial institutions must be headquartered in the U.S., unless the Secretary makes a determination, in consultation with the Chairman of the Federal Reserve, that broader eligibility is necessary. Any assets purchased through the program would have to be tied to mortgages issued on or before September 17, 2008. Borrowing in support of this program will be subject to the debt limit, which will be increased by $700 billion accordingly.

The plan offered to Congress also gives the Treasury legal immunity from any lawsuits. “Decisions by the secretary pursuant to the authority are non-reviewable ; and may not be reviewed by any court of law or any administrative agency,” the proposal says. The Treasury “fact sheet” also suggests very broad powers over the management of the assets for the Treasury secretary under the proposal.

Treasury Secretary Henry Paulson “is in effect becoming the dictator of the American financial system for a few months, subject to congressional oversight,” said Wall Street historian John Steele Gordon, author of ‘Hamilton’s Blessing’ a chronicle about the national debt. [Reuters]

The proposal would require the Treasury secretary to report back to Congress three months after Treasury first uses its new powers, and then semiannually after that.

The proposed bailout plan, which is an unprecedented government intrusion into the markets, follows a very distressing week for Wall Street where the Lehman Brothers’ (LEH) failure, the agreed sale of Merrill Lynch (MER) and a government takeover of the giant insurer AIG (AIG), prompted a significant market destabilization.

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6 Comments on Treasury Sends Congress Unprecedented $700 billion Bailout Plan

  1. This plan reaps of tax dollar rip offs! It’s deja vu of Bush Sr. bailout of the S&L. What about the people who have lost their homes and their credit is shot? Are we going to save the ones credit who have no defaulted but are on the edge. If Lehmans can afford to pay their CEO 45 million in salary for backrupting them then they can bail theirselves out! I say wait til after elections and let the new President decide and put forward a proposal. Bush is on his way out and like his father is trying to make all his pals rich just like the S&L bailout! How soon we forget this families actions and how they have destroyed the structure of this great country! No bailout until after the election!

  2. As we the people assume the “$700 Billion Bailout”, once again we are continuing with the plan, “by the people but not for the people”. If they want to exhaust that kind of money then help the people as opposed to charging the people the duty of repaying this loan. They could take that money and pay every foreclosure amount only due, adjust and lower their interest rates, then give them a fixed rate, which will be better suited for helping the people and the economy. It is sad that in order to bailout companies from poor mismanaged financial debt the people suffer with the cost of repaying a loan for someone else. We shouldn’t have the burden of repaying this money. it is their fault that they are in this situation. Greed set in and they devised a way to get more money from the mortgage industry, what did they do? They set the standards for credit worthiness and when they realized people couldn’t buy because of credit worthiness, they made available for them to buy utilizing their non-perfect credit worthiness and/or not enough income. Pretty much the same thing was done with the car industry. When people stopped buying new cars, holding onto older cars, and was turned down because of credit worthniess, they started this no matter what your credit looks like you can own a car. Greed will one day kill us all, because greed only thinks about the right now moment and not the overall long term effect.

  3. For all of you closed minded individuals. The people who have lost their homes to foreclosures and having to file bankruptcy are partly the government and private parties fault. Yet, whatever happened to self responsibility. Why is it that every action we as free citizens in the United States must the negative happenings be almost entirely blamed on someone else, or more likely the Government. Take responsibility and research and plan accordingly when purchasing your homes or making any financial decision. What do you expect to happen when you talk a variable interest rate mortgage? You individuals who are so ignorant to think that things will be fine and dandy all the time deserve to pay the price for making ill advised decisions. You remind me of those parents from Fahrenheit 9/11 who encouraged their children to join the armed services and then bitched about their deaths overseas. When you are sworn in you promise to follow the commander and chief and protect this country at all costs. What, did you think that joining the armed forces was going to be a cake walk sitting back in the States and never go to war. What the hell do you think the Armed Forces were created for? Lastly, for all you media junkies, Read several articles from both political parties if you want to make educate arguments. You cannot believe everything you here from whatever creditable source you think you are getting your information from because everything is a business and tailor news to sell and not to educate the public. Also, remember the most important thing, “it is easy to be a back seat driver, but if you really want to make a difference hop in and do something about it if you don’t like what is going”!!!!!!!!!!!!

  4. First the Democrats blindly follow Obama … now, they are willing to blindly follow Reid, Bush and Paulson … in a decision which could dramatically affect every American for decades. Well, thank God, Senator John McCain, Senator Shelby, and hundreds of economists don’t just want to take a few people’s word for it. Already, Reid has tried to tack additional pork, like Acorn, to this bailout. I didn’t think I could dislike inept Harry Reid, with his 15% approval rating, any more than I already did, but this isn’t about Reid being left alone to decide America’s future. It will be interesting to look back at this in retrospect, to see if we really did have to RUSH this 750 Billion dollar decision … and, who really benefitted from pushing it through so quickly. Also, what’s Alan Greenspan’s opinon ???

  5. “We the people” have failed again, by putting faith in an unfaithfull government. $750 billion to help those in need. Now that the funds are almost liquidated. Do we need to approve another $750 billion to start that process?????

    An American Fool

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