Business | Markets
US Congress races to complete $800b mortgage rescue plan
US Treasury Secretary Henry Paulson has sent a financial-rescue plan worth about $800 billion (Dh2.939 trillion) to Congress as Democrats prepare to turn it into a vehicle to help people with high-cost mortgages stay in their homes.
- Bloomberg
- Published: 23:52 September 20, 2008
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SEC bans short-selling of 799 stocks
SEC bans short-selling of 799 stocks
New York: US Treasury Secretary Henry Paulson has sent a financial-rescue plan worth about $800 billion (Dh2.939 trillion) to Congress as Democrats prepare to turn it into a vehicle to help people with high-cost mortgages stay in their homes.
The Treasury will run the programme to take on illiquid mortgage-related debt, with the Federal Reserve consulting on its design, officials said. Treasury aides are spending the weekend with congressional staff to negotiate a compromise that the House and Senate can vote on this week.
Paulson, Fed Chairman Ben S. Bernanke and other regulators are eager to stop a contagion of credit risk that has toppled three fin-ancial giants and forced one into a merger as capital flight began to squeeze Wall Street. Democrats are indicating they want to target relief for households by restructuring loans of struggling borrowers.
"We're going to be buying up a lot of mortgage paper," said House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat. "Between Fannie Mae and Freddie now owned by the federal government and the mortgage paper we'll be acquiring here" and the Federal Deposit Insurance Corp. running failed bank IndyMac Bancorp Inc., "we should now be able substantially to reduce foreclosures," he said.
Frank said the Treasury was due to present the plan to lawmakers later yesterday. The programme may be worth about $800 billion, split into $50 billion tranches, said four people briefed on drafts of the Treasury's proposal who spoke on condition of anonymity because details haven't been finalised. The funds, which would last for at least two years, will likely accept mortgage-backed securities and collateralised debt obligations, they said.
Hiring managers
The Treasury plans to hire asset managers to purchase the assets through so-called reverse auctions, seeking the lowest prices, one of the people said. Congress will need to raise the limit for the federal debt to allow the government to borrow enough to fund the program, the person said.
Republicans warned against turning the bailout into an agenda.
"Congress and the administration must keep this plan as simple and straightforward as possible," said John Boehner, the leading Republican in the House. "Loading it up to score political points or fit a partisan agenda will only delay the economic stability that families, seniors, and small businesses deserve."
The Treasury is stepping up as the buyer of last resort for mortgage-linked assets that few other financial institutions in the world want to buy. To avoid giving a direct subsidy to Wall Street, officials must structure the fund so taxpayers either get fees, a high rate of interest, or some participation in the full recovery of the assets.
"Illiquid assets are choking off the flow of credit that is so vitally important to our economy," Paulson said on Saturday at a press conference in Washington.
Senator Richard Shelby, an Alabama Republican who has advocated that markets should be allowed to penalise bad bets, warned that bailout could saddle taxpayers with large debts.
"This could be the biggest bailout in the history of the country and could ultimately cost $500 billion to $1 trillion,'' Shelby, the ranking Republican on the Senate Banking Committee, said in a Bloomberg Television interview on Saturday.
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