In order to avert an all out CRISIS in the U.S. financial system, the Bush administration is seeking UNPRECEDENTED authority to step in as a 'Buyer of Last Resort' for up to $700 Billion worth of U.S. mortgage-related assets. Per the below Bloomberg link, DETAILS of the $700 Billion RTC-type rescue plan :* The plan seeks 'unchecked' power from Congress (the bill would prevent courts from reviewing actions taken under its authority) to buy $700 Billion in bad mortgage investments...for some perspective, this sum is roughly equivalent to the combined annual budgets of the Departments of Defense, Education and Health and Human Services
* The proposal would raise the United States' national debt to $11.315 TRILLION from $10.615 TRILLION and require the U.S. Treasury secretary Hank Paulson to report back to Congress three months after Treasury first uses its new powers, and then semiannually after that
* Types of 'Assets' covered under the plan include: home loans, mortgage-backed securities, commercial mortgage- related assets and, after consultation with the Federal Reserve Chairman, Ben Bernanke, "other assets, as deemed necessary to effectively stabilize financial markets''...Treasury may buy only assets issued or originated on or before September 17th, 2008
* Hank Paulson is also asking for the power to hire asset managers and award contracts to private companies...The Treasury may hire managers to purchase the assets through 'reverse auctions', seeking the lowest prices
* The Treasury would also have discretion, after discussions with the Fed, to make non-U.S. financial institutions eligible under the program
* Most provisions of the proposal will expire 2 years following the date of enactment
* The plan will include curbs on executive pay for the companies whose assets the government will be buying
* The proposal will also most likely include a plan to stem mortgage foreclosures, which may involve tapping the loan-modification abilities of the Federal Housing Administration (The FHA), the Federal Deposit Insurance Corp. (The FDIC), Freddie Mac (FRE) and Fannie Mae (FNM)
bloomberg.com/apps/news?pid=20601087&sid
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FYI, This is NOT the first time a MASSIVE 'bad asset purchase' plan similar to one above has been proposed + ultimately implemented by the U.S. Government to avert crisis in the financial system:
* According to Wiki, "The Resolution Trust Corporation (RTC) was a United States Government-owned asset management company charged with liquidating assets (primarily real estate-related assets, including mortgage loans) that had been assets of savings and loan associations (S&Ls) declared insolvent by the Office of Thrift Supervision, as a consequence of the 1980s-90's U.S. Savings and Loan Crisis... In 1995, its duties were transferred to the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation. Between 1989 and mid-1995, the Resolution Trust Corporation closed or otherwise resolved 747 thrifts with total assets of $394 Billion."
http://en.wikipedia.org/wiki/Resolution_Trust_Corporation
Data Courtesy: Bloomberg + Wikipedia
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