Congress looked close to reaching a deal to approve a $700 billion plan to bail out the U.S. financial system and President George W. Bush called an emergency meeting for Thursday to hammer out details.
The move toward a deal will likely calm U.S. markets, which remained on tenterhooks on Wednesday as negotiations dragged on. Investors sought cash and safe-haven assets, briefly sending short-term interest rates below zero. Experts said banks were hoarding cash, fearful that if they loaned money to other banks they might not get repaid.
Most Asian stock markets were weaker and the U.S. dollar dipped against major currencies on Thursday on lingering worries about the timing and scale of rescue plan and fears of the financial contagion deepening.
On Wednesday, Senate Banking Committee Chairman Christopher Dodd expressed optimism a deal was nearing.
I am assuming this “bailout” bill has to be repaid in the future by those who are recieiving the bailout??
Apparently a deal has now been reached as of 2 pm, EDT on Thurs., 9/25. But I would caution against the term “bailout,” as even the Washington Post has. The government is offering to buy these bundled loans that banks have foisted off on investers and Fannie and Freddie. The taxpayers are buying something, at a discount, to be sure, but we are buying something that is currently keeping lending institutions from continuing to lend (which is their purpose in our economy), due to clogging up the lenders balance sheets with defaulted loans and loans about which the lenders are insecure. The government (we, as taxpayers) is agreeing to take on the risk of these bundles of loans being no good, as well as the benefit of some of these loans being paid off – which they may be – with interest. Also, the plan does not require banks to participate, as I understand it, but allows them to do so, with contingencies if they do, such as their CEOs not being allowed to collect hugh severance packages, should they leave after the loan bundled assets are purchased by the government. This plan has the great potential of being a win-win, if too many strings are not attached to it by Congress. And as a purchase and hold arrangement, one can see the rationale and potential reasonableness of the Administration originally requesting no need for oversight and a ban against judicial interference. Of course, Congress is not going to allow either of those to happen, and has put contingencies that may or may not allow success. But we shall see.