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TEXT OF STORY
Stacey Vanek-Smith: Presidential hopefuls Barack Obama and John McCain will be joining Congressional leaders at the White House this morning. The group will be trying to reach a compromise on the $700 billion bailout plan for financial markets. Last night President Bush said the bailout was in everybody’s interest.
Tape of President Bush: This rescue package is not aimed at preserving any individual company or industry. It is aimed at preserving America’s overall economy. It will help American consumers and businesses get credit to meet their daily needs and create jobs.
Vanek-Smith: But, of course, politicians on both sides of the aisle are championing different issues. Bush did make a couple of concessions to Democrats in his speech last night, including emphasizing the need for regulation. Peter Coy is the economics editor for Businessweek. Peter, what do you think of the plan as Bush laid it out?
Peter Coy: This is $700 billion with few strings attached, and for that reason it could almost be called a free-market bailout, which is somewhat of a contradiction in terms.
Coy: Right. It’s a bailout in the sense that a lot of money is going to people who have these really toxic, mortgage-backed securities and other assets. But it’s a free market in the sense that the people who get the money are free to participate or not participate as they choose, and there’s no real government role in straightening out the market by figuring out where the money would best be spent.
Vanek-Smith: Peter, one thing that President Bush mentioned in his speech was that once the government buys up these mortgage-backed securities, their value would increase and their value would be worth something, and therefore the taxpayers wouldn’t actually end up paying anything for this plan in the long run.
Coy: Well, I think the taxpayers will end up paying something, but they will end up paying less than whatever the $700 billion figure is because there will be some recovery. Economists at Goldman Sachs are estimating the net cost would probably not be more than $200 billion. Of course, Goldman Sachs is one of the companies that’s at the heart of these mortgage-backed securities, so we take that with a grain of salt. But I think conceptually that’s right.
Vanek-Smith: One thing that we’ve been seeing in the last couple of days, especially right now, are the differences between sort of what the Democrats and the Republicans want from this bailout. Can you rough out what the two parties want?
Coy: Well, it’s really funny that this is not strictly a partisan division over this. There are people on both sides of the aisle who are very concerned about the amount of authority that the Treasury Department would get in this. The Republicans are in some cases even more resistant than the Democrats, because they see it as more of an expansion of government power and deficit spending.
Vanek-Smith: And what about the Democrats?
Coy: So the Democrats tend to be more keyed in on the issue of whether there’s enough support in the plan for ordinary homeowners. And they’re also probably more zeroed in on the issue of trying to provide punishments for some of the CEOs who caused the mess in the first place.
Vanek-Smith: What happens if Democrats and Republicans can’t put their differences aside and there is no deal by Friday?
Coy: The market’s going to be on tenterhooks, but it could be if there’s a sense that a deal will come than the market might have enough confidence at least to say, we don’t need to know the exact terms but if it does seem that they’re on track to do something, we’ll be able to stay out of a real crisis here.
Vanek-Smith: Peter Coy is the economics editor for Business Week. Peter, thank you for talking with us.
Coy: Thanks a lot.
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