- Obama not worried about Ebola at upcoming African summit in D.C.
- Obama: ‘We tortured some folks’ after 9/11
- Obama administration asked whole D.C. Circuit to take on major Obamacare case
- Mark Levin: Topple GOP leadership or country will ‘unravel’
- Massachusetts to let police chief deny gun buys to those deemed unfit
- John Kerry condemns attack on Israeli soldiers, kidnapping
- U.S. starts to evacuate American Ebola patients from West Africa: Report
- Geraldo slammed as ‘dummy’ for backing Clinton’s bin Laden claim
- Israeli spokesman: No need to debate who broke the cease-fire
- 35 Palestinians killed; Israeli officer missing
Student, car debt quietly added to bailout plan
Question of the Day
In the dark of night over the weekend when most people were snoozing, the Treasury dramatically expanded its bailout plan to include buying student loans, car loans, credit card debt and any other “troubled” assets held by banks.
The changes, which were included in draft language that also opened the bailout program to foreign banks with extensive loan operations in the United States, potentially added tens of billions of dollars to the cost of the program.
Although it was a major addition to what was already the nation’s largest-ever bailout, it did not become part of the debate between Democrats and the Treasury over details of the program. A Monday counterproposal by Senate Banking Committee Chairman Christopher J. Dodd included such consumer loans as well as mortgages, just as the Treasury’s draft did Saturday night.
“The costs of the bailout will be significantly higher than originally considered or acknowledged,” said Joshua Rosner, managing director of Graham Fisher & Co., who charged that the Treasury and Federal Reserve have not been “forthright” about the ultimate cost to the public. The plan gives Treasury the discretion to buy the non-mortgage loans and securities in consultation with the Fed.
Conservatives cited the move as a sign that the massive plan to take over bad mortgage debt already is opening the door to further government bailouts.
“Such a large takeover by the government will surely be accompanied by adverse, unintended consequences,” said Pat Toomey, president of the Club for Growth, a conservative advocacy group. “Already, other companies and industries are lining up at government’s door asking for their own bailout.”
Treasury Secretary Henry M. Paulson Jr. stressed that the additions were needed to ensure that student loans and credit cards - which have become indispensable to the spending habits and career plans of many Americans - do not become victims of the widening credit crunch.
Student loans, which Wall Street firms packaged and sold to investors just like mortgages, already were hit hard in the widening credit crisis earlier this year, with much of the private loan market disappearing. That forced the government to step in and beef up its direct loan programs for college students.
Many financial analysts feared that the credit card market would be the next domino to fall. Credit card debt also is packaged and sold to investors in complicated “derivative” securities that have become difficult or impossible to sell in recent months.
Investors are spurning the complex securities because they are worried about rising defaults in nearly every category of consumer loans, which reduce the value of individual loans and have made it hard to determine the value of pools of loans that back the securities.
Many of the unsellable loans have been sitting on the balance sheets of banks, forcing them to take losses and preventing them from making further loans.
Richard Berner, chief economist at Morgan Stanley, one of the investment banks that stands to benefit from the loan buyback plan, said the program will help ease frozen loan markets and ensure consumers continue to have access to credit.
“The Treasury proposal is crucial to the credit and risk-taking repair process,” he said, predicting that plan will have “dramatic consequences” in helping to “renormalize” loan markets.
But some financial analysts were not sure whether the massive bailout plan will accomplish its goal of calming markets.
“The credit squeeze gripping the financial market won’t disappear soon as a result of this program. Financial institutions will continue to hoard cash, raise credit standards and increase risk premiums” on loans, said Sung Won Sohn, economics professor at California State University.
About the Author
- Unemployment rose to 6.2 percent in July; 209K jobs added
- Economy springs back in nearly every sector
- Energy Department eyes regional gas reserves for emergency use
- Economists see signs of another market bubble
- Crude oil will head north of the border to Canada
Latest Blog Entries
By Isaac Orr
New carbon-dioxide rules would put America in the dark
- House GOP resurrects border bill, predicts successful Friday vote
- U.N. condemns Israel, U.S. for not sharing Iron Dome with Hamas
- Border agents cleared of civil rights complaints from illegal immigrant children
- Obama military strategy too weak for future security, panel reports
- Porn-surfing feds blame boredom, lack of work for misbehavior
- Ben Carson takes major step toward presidential campaign
- Feds raid S.C. home to seize Land Rover in EPA emission-control crackdown
- CRUZ: A tale of two hospitals: One in Israel, one in Gaza
- Ted Nugent slams 'lying freaks' at liberal media: I'm 'doing God's work'
- Pentagon wants extra $19M to equip, train Ukrainian troops
Top 10 U.S. military helicopters
Obama's biggest White House 'fails'
Celebrities turned politicians
Athletes turned actors