Henry Paulson on Face the Nation
The plan is for the United States government to purchase loans from institutions in trouble. With those burdens off the books of the institutions, they'll be free to continue loaning money for cars, homes, business inventory, etc. The wheels of the economy will be loosened. Apparently our economy runs on credit. Evenutally, the government will get the money back because most of the mortgage loans are being paid by the homeowner. Its a gamble though, because maybe we won't get it all back. According to Paulsen, that would be less costly than pulling back on credit, which is what institutions are doing, or would have had to do. "If business don't have access to money, it will cost taxpayers even more than what we're spending to buy these assets."
How will we know which loans the government should purchase?
That's a key question. It hasn't been determined yet.
What about foreign banks and institutions? Is the US government going to bail them out?
Paulsen says if the institutions have a US presence and US employees they could be included. The Treasury Secretary is urging other countries to take the same step the US government is doing, but he hasn't had any commitments yet.
This will send the deficit into uncharted territory. The deficit ceiling will increase from around 11 trillion to 13 trillion. Will the next president have to increase taxes?
Paulsen won't say one way or the other. Yes, the next president will have some challenges, but we have challenges today. There's no doubt, debit issueance of the US is going to go up.
Don't forget this is different than spending money you'll never get back. The government is buying assets and we'll sell them later. The ultimate cost of this proposal will be affected by how quickly the market will stabilize and what happens with the housing market.
How will you determine what mortgages are worth?
Its not easy, but its important. Right now the assets are on the books of the institutions and there is no market for them. The government, by buying the assets will create a market for them. And, in the best circumstances, the free market will start purchasing them as well.
Will this plan fix the situation, or is it a bandaid?
What we're doing now will not calm the tubulence overnight. It will take a while. But, its a strong step and the markets reacted favorably; it has restored confidence in the market.
Bob Schieffer asks Henry Paulsen what he thinks it will mean if Congress adds things on to the bill when they start debating it?
He hopes it will be as 'clean' as possible.
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My thoughts: Of course the plan restores confidence in the market, it helps the rich people who make their money on the stock market.
Given what I think I know about this situation right now, I guess this bailout is okay. Its kind of like the surge in Iraq, isn't it? We're already neck deep in the muck of this problem, so if you're going to finally do something, fine - do it. In both cases, there were warnings that something like this could happen - not just in the weeks or months before, but in the years before. So, the problem is two fold - one, that greed can't be legislated, and two - that the government officials are gaining from other people's greed so they don't take as much care to watch out for it. I'm talking to you, Republican people. You were stubborn about how you waged the war in Iraq, and you've been stubborn about keeping government interference out of the free market system. (Which isn't so free - it favors those who already have money). As a result, we had to have a surge and now a bailout. You make lousy decisions and the rest of us have to pay for it.
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Barney Frank (D) and Richard Shelby (R)
From what I can tell these congress people are in general agreement.
Barney Frank feels there will be some additions - including possible stimulus, and restrictions on executive compensation.
Richard Shelby would be willing to add things on as well. He's concerned that although its reported this could cost 700 billion, it could be 1 trillion dollars. We don't even know the end yet. he sees that the Fed Chairman and the Treasury secretary have been staggering from one crisis to the next trying to lubricate the market, but they're doing nothing for the homeowner.
What about raising taxes?
Barney Frank says he thinks this strengthens the argument for a surtax on wealthy people (making over 1 mill?) They're the ones who
Richard Shelby that as a Repbulican, he's not a taxer, but we're adding a trillion dollars to the debt, and sooner or later there's gonna be a reckoning. He's concerned about that.
What about executive compensation?
Richard Shelby says that normally the board of directors or private corporation should determine executive compensation, on the other hand, if the governmeent is guaranteeing these companies its possible.
Barney Frank says we should add that a contingent of buying the bad debt we should get something back and restrictions on executive compensation is reasonable.
On Friday some of the congress people had a meeting with Federal Reserve Chairman Bernanke and Treasurey Secretary Paulsen. After they were told the extent of the problems, there was silence in the room.
Can we expect some reform.?
Richard Shelby - What caused this? Greed and lack of Regulatory oversight. I fear this is not contained and we'll have this again if we don't take action now.
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