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Paulson rescue plan is unprecedented
Treasury Secretary Henry Paulson during the news conference announcing a federal takeover of Fannie Mae and Freddie Mac.
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Scott Jagow: The government's action on the financial crisis has reached a whole new level. Shortly, the President will speak at the White House about a plan to prop up the entire financial industry. This plan is still being worked out, but the idea is to buy up bad mortgage debt all over the place. The government announced two other major steps this morning. But first, let's start with this plan:
The speculation is that Congress will create something like the Resolution Trust Corporation. That was set up after the Savings and Loan debacle 20 years ago. Or it could be like the Reconstruction Finance Corporation, established during the Depression. Either way, this would be an unprecedented government intervention. Jeremy Hobson takes a look.
Jeremy Hobson: Treasury Secretary Henry Paulson said only that the plan will be a comprehensive approach to deal with illiquid assets on the balance sheets of U.S. financial institutions. Many think that means Washington will buy up bad mortgages that have been dragging down the markets. MIT Economist William Wheaton sees it as an act of genius.
William Wheaton: I think it's exactly what the markets need. It's certainly what the housing market needs. And I'm quite optimistic and bullish.
Wheaton says he wouldn't be surprised if, in the end, the scheme doesn't cost tax payers a dime.
Wheaton: It's gonna buy mortgages at a time when people are desperate to sell them and then in so doing get rid of a lot of the market fear, and then turn around in two or three or four months and sell them.
Of course, if they don't sell, taxpayers would again be on the hook, possibly for hundreds of billions of dollars. Senior lawmakers say they expect legislation sometime next week.
In New York, I'm Jeremy Hobson for Marketplace.
How does Wheaton think these bonds are going to be worth more in just a few months? Many now are thinking 2010 or later for the housing bottom. People need jobs to buy homes and to pay mortgages. We are only at the beginning of our economic slow down.
Folks and commentators rant about selfesh wall street tycoons and silly individuals who agreed to payments way beyond their means. All of that is true but what kind of environment made it seem all ok and allowed it to florish, and may have even encouraged it - and who created that environment??
Republicans, Democrats, and Independents - by whatever strip they created a circumstance which was predictable and wretched. This is what is passed-off as governance. As a taxpayer I am disappointed and disgusted. As a voter I'm not going to take it anymore. They have deceived and exploited and have only to look in the mirror to see the cause.
The rationale is that these huge financial corporations must not fail because they would bring the whole of our financial system down and threaten our very ability to manage commerce. If it's that big, then the tail is wagging the dog - who is governing whom?
