Who's going to get in line for bailout?

Treasury Secretary Henry Paulson during the news conference announcing a federal takeover of Fannie Mae and Freddie Mac.


KAI RYSSDAL: Figuring out what to pay is just one piece of this puzzle. There's another important question in play right now in Washington. What, exactly, is Secretary Paulson going to buy with that $700 billion? Originally the plan was to buy bad mortgage debt from banks. But Marketplace's Steve Henn reports there's a push on to spread the wealth.

STEVE HENN: If you are a banker with a bunch of bad debt on your books, you might just be hoping this bailout morphs into a get-out-of-jail-free card.

Dennis Moroney follows consumer credit card debt at the Tower Group.

DENNIS MORONEY: As the economy has been struggling, delinquencies have, indeed, increased.

That, coupled with a proposed change forcing companies to reveal more debt on their books, could leave big banks with another fat problem.

Credit card debt's has been bundled and sold off to financial institutions just like mortgages. Student loans and auto loans were sliced, diced and sold, too. Which means banks could have billions more in toxic securities they'd love to unload.

Scott Talbott is the lead lobbyist for the Financial Services Roundtable. He says Paulson should be allowed to use the bailout to buy any or all of this stuff.

SCOTT TALBOTT: Take them off the books of the troubled financial institution. And allow that institution to then re-enter the markets with cash to make more loans to other consumers to help jump-start the economy.

But Talbot says the companies his group represents, like Bank of America and GMAC, know there are political limits. He thinks it's unlikely Congress will OK massive purchases of credit card debt and he says some unregulated financial players are likely to be cut out altogether.

TALBOT: I think hedge funds would be probably a bridge too far.

As one lobbyist said, when it comes to larding up this bill with goodies, you don't want to push it. Pigs in Washington get fat. Hogs get slaughtered.

In Washington, I'm Steve Henn for Marketplace.

About the author

Steve Henn was Marketplace’s technology and innovation reporter for the entire portfolio of Marketplace programs until December 2011.
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This is NOT truly a mortgage crisis (blame the Fed and White House for almost a decade of lax fiscal policy) or a CEO compensation issue per se (lax boards and SEC oversight); rather it is an unregulated international derivatives market that has got us into this mess. And by 'us' I mean the whiz kid propeller head Masters' of the Universes on Wall Street, in London, and Hong Kong who have promised us the end of the business cycle.

Just knowing a bailout is coming will stabilize the markets and already has brought markets to within normal, long-term growth ranges world wide (around 10% per annum since 2000 brings the DJA to 11,000 +/- 500 points.)

So let's reduce the amount on the backs of American taxpayers, share the costs of this bailout with the international markets (via threats to gain equity stakes in their banks) and have European & Asian country treasuries cough up a couple of hundred billion also.

Yes, aw shucks that would force us Americans to subject our banks doing international derivative trades to trade these exotic and currently unregulated instruments on some new exchange and regulatory system of international scope.

I have just one thing to say to those who want to whine about this, 'Suck it up buttercup, you've had your chance to prove Milton Freedman, the Chicago School of economic theory and laissez faire regulation helps all in society - AND YOU WERE PROVEN WRONG."


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