$500 billion tag for
By Tom Raum and Jeannine Aversa, Associated Press
Rocky Mountain News
Saturday, September 20, 2008
Struggling to stave off financial catastrophe, the Bush administration on Friday laid out a radical bailout plan with a jaw-dropping price tag - a takeover of a half-trillion dollars or more in worthless mortgages and other bad debt held by tottering institutions.
Relieved investors sent stocks soaring on Wall Street and around the globe. The Dow Jones industrial average rose 368 points after surging 410 points the day before on rumors the federal action was afoot.
A grim-faced President Bush acknowledged risks to taxpayers in what would be the most sweeping government intervention to rescue failing financial institutions since the Great Depression. But he declared, "The risk of not acting would be far higher."
The administration is asking Congress for far-reaching new powers to take over troubled mortgages from banks and other companies, including purchasing sour mortgage-backed securities. Administration officials and congressional leaders are to work out details over the weekend.
Congressional officials said they expected a request for legal authority to buy up the bad loans, at a cost in excess of $500 billion to the government.
In other major steps, the Treasury Department and Federal Reserve moved to give money-market mutual funds the same kind of federal protection, at least temporarily, that now applies to savings and checking accounts and certificates of deposit at banks. Money-market accounts sold through retail banks are already FDIC insured.
The spreading global selling panic had started to threaten some money-market funds, usually thought of as rock-solid investments. Administration officials feared a run on these funds, held by millions of Americans.
"Every American should know that the federal government continues to enforce laws and regulations protecting your money," Bush said at the White House. The 75-year-old Federal Deposit Insurance Corp. now insures savings and checking accounts and certificates of deposit up to $100,000.
Separately, the Securities and Exchange Commission acted to block short-selling in financial securities.
That is a trading method that bets the value of stocks will go down. It has been blamed for accelerating the plunge in stock prices of banks and other financial institutions.
"This is a pivotal moment for
Congressional leaders of both parties welcomed the administration's bold moves, after a series of ad hoc rescues. The talk on the presidential campaign trail, barely six weeks before the election, was bipartisan, too.
Democrat Barack Obama said it was critical that leaders in both parties work in concert. "Truly, we are all in this together," he said.
GOP presidential nominee John McCain said, "Any action should be designed to keep people in their homes and safeguard the life savings of all Americans."
The federal government already has pledged more than $600 billion in the past year to bail out, or help bail out, some of the biggest names in American finance.
That includes the rescue of investment bank Bear Stearns in March, the takeover of mortgage giants Fannie Mae and Freddie Mac earlier this month and the takeover of the world's largest insurance company, American International Group, just this week.
But the contagion continued to spread, bringing political consensus that drastic and comprehensive federal action was needed.
On Friday, Treasury Secretary Henry Paulson gave few details about the structure of the new program. Asked about an overall price tag, he said, "hundreds of billions" of dollars.
Congressional leaders said they were ready to move quickly but still needed details.
For instance, there was no indication of what the government would get in return from financial companies for the federal assistance.
Paulson and Federal Reserve Chairman Ben Bernanke briefed lawmakers in both parties on the idea by conference call Friday.
In a session with House Democrats, they described a plan in which the government would, in essence, set up reverse auctions, putting up money for a class of distressed assets - such as loans that are delinquent but not in default - and financial institutions would compete for how little they would accept for the investments, said Rep. Brad Sherman, D-Calif., who participated in the call.
Paulson rejected Democrats' calls to include tighter regulations, corporate reforms or limits on executive compensation as part of the measure,
"He's doing his best to paint a picture of the sky falling, and then he says, because the sky's falling, you have to do it my way."
Paulson said, "I am convinced that this bold approach will cost American families far less than the alternative - a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion."
The administration wants to see a package emerge over the weekend to lend calm to Monday morning's market openings, said Keith Hennessey, director of the president's economic council.
The goal is to have something passed by Congress by the end of next week, when lawmakers recess for the elections.
Profiles of the economy (One of nine, AUSWR Member, others deleted)
Nearing retirement - John Rommelfanger
Rommelfanger has seen his retirement nest egg erode in recent years because of stock market losses and health care cost increases.
Then came this week. He lost thousands on paper from his investments in mutual funds and beleaguered financial institutions such as the Bank of America and Wachovia.
"I may never retire now," said the 58-year-old Rommelfanger with no hint of hyperbole. "When you're 20 years old you can suffer some setbacks and you have your whole life in front of you."
The Rocky Mountain News first talked to Rommelfanger two years ago, learning that he and his wife's 60 years of combined service with U S West and Qwest weren't enough to secure a comfortable retirement.
Since then, Rommelfanger, who took a buyout from Qwest, has been trying to build a career as a Keller Williams broker in
"I thought I could make a living selling real estate and benefit from not having a 9-to-5 grind," Rommelfanger said.
But now he said he likely will have to work longer hours and drop some of his volunteer work.
Rommelfanger, who refinanced his home mortgage two years ago, already has been dipping into retirement savings for a few years to meet expenses.
He said he and his wife, who have two grown children and two grandchildren, try to live frugally. The small RV he bought when he "retired" from Qwest hasn't been used in six months.
In the past, he sometimes blamed former Qwest CEO Joe Nacchio for the impact on his finances. Today? "I blame corporations for greed. I do have issue with regulatory boards so maybe I blame the government for not doing the (due) diligence."
But Rommelfanger said he puts most of the responsibility on himself. "It has to rest with you and how you make your investments and the choices you make," he said.