Thursday, November 13, 2008

They DID stop the check to Trump! They might send it to YOU instead...

From the New York Times:

WASHINGTON — The Treasury Department on Wednesday officially abandoned the original strategy behind its $700 billion effort to rescue the financial system, as administration officials acknowledged that banks and financial institutions were as unwilling as ever to lend to consumers.

But with a little more than two months left before President Bush leaves office, Treasury Secretary Henry M. Paulson Jr. is hoping to put in place a major new lending program that would be run by the Federal Reserve and aimed at unlocking the frozen consumer credit market.

The program, still in the planning stages, would for the first time use bailout funds specifically to help consumers instead of banks, savings and loans and Wall Street firms.

Treasury officials said they hoped to invest about $50 billion from the bailout fund into the new loan facility, with the aim of helping companies that issue credit cards, make student loans and finance car purchases.

As envisioned, the Treasury would put up about 5 percent of the money that a company would use for lending and private investors would put up perhaps 20 times that much by buying bonds issued by the new program.

Despite the mind-boggling amount of money that Congress has authorized the Treasury to spend — $350 billion immediately, and another $350 billion that Congress would approve under a fast-track procedure — Mr. Paulson is running short of money and time.

The news that the government will not buy soured mortgage assets, along with a string of poor corporate earnings, disheartened investors on Wednesday, sending the markets down for a third straight day this week. The Dow Jones industrial average fell 411.30 points, or 4.7 percent, to close at 8,282.66.

The Treasury has already committed about $290 billion. It has allocated $125 billion to the nation’s nine biggest banks and investment banks; another $125 billion for publicly traded regional banks; and $40 billion to expand the existing bailout of American International Group, the insurance conglomerate that collapsed in September.

Mr. Paulson alluded to the consumer credit plan vaguely in a news conference on Wednesday, and some Fed officials cautioned that they had seen few details. But Treasury officials said such a plan would give them the biggest bang for the buck and might be enacted within several weeks.

Mr. Paulson conceded that he had scrapped the plan he originally sold to Congress in September, which was to have the Treasury Department buy hundreds of billions of dollars worth of illiquid mortgage-backed securities in order to free up banks to resume normal lending.

It's vague but it's a start! Who knows maybe you won't have a job but you'll still have a house?!...

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