Bush Proposes $700 Billion Wall Street Bailout Plan

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LIANE HANSEN, host:

This is Weekend Edition from NPR News. I'm Liane Hansen. The Bush administration and Congress are hustling this weekend to design a sweeping rescue package for banks and other financial institutions. The plan is to triage the nation's hemorrhaging financial system by allowing the federal government to buy risky mortgages and mortgage-backed securities. The bailout comes with an enormous price tag, and backers hope to be able to work out the details in just a few days so lawmakers can vote this coming week. NPR's Scott Horsley joins us to help us understand the plans. Scott, some details of the proposal are trickling out. What do you know?

SCOTT HORSLEY: Liane, the biggest detail is that enormous price tag you mentioned, $700 billion over the next two years. That's about 35 percent more than the government spends for the defense budget every year. One of the questions had been whether hedge funds or pension funds could participate, and that's one of many details that lawmakers and the administration are negotiating this weekend.

HANSEN: So, how has Congress responded so far?

HORSLEY: There does seem to be a bipartisan sense of urgency that something has to happen here and that this is not a time for too much politics. There's also a concern, though, about protecting taxpayers, and for Democrats in particular, about protecting homeowners. You know, it doesn't look very good to be helping Wall Street that funded the housing bubble if you're not at the same time providing some relief for homeowners who've seen their home values drop and who are struggling to pay their mortgage. There's also an economic calculation there, because if you can help people to stay in their homes paying something on their mortgage, then these distressed securities will be worth more in the long run than if those homeowners just leave the keys on the table and walk away.

HANSEN: Scott, how did it get to the point where the government is debating this kind of expenditure, $700 billion in a single weekend?

HORSLEY: Well, you know, for months now, Liane, the government has basically been putting out financial fires: Bear Stearns six months ago, Fannie and Freddie more recently, just this past week AIG. And each time the Fed or the Treasury would douse one fire, another would pop up somewhere else. In effect, we've just got a lot of dead wood from all these bad mortgage securities just waiting to burn. And so the administration has finally decided that it's time to go in there and clear out all that dead brush. We know that President Bush likes to clear brush. He didn't want to make this move, though. He said in his weekly radio address yesterday that in a free market, government intervention should be a last resort. But given the precarious state of the markets, he said intervention is not only warranted, it's essential.

HANSEN: So what do the taxpayers get in return for their $700 billion?

HORSLEY: Well, if it works out right, a restored confidence in the financial markets, and that's good for the stock market. And if the credit crunch is eased, it should make it easier for people and businesses to borrow money and grow. It's also true that the $700 billion may not be down the drain. The idea is that the government would hold these securities for a time until the market stabilizes, and then sells them. So if the government pays, say, 50 cents on the dollar and ultimately they wind up being worth 75 cents, the taxpayers make a profit. If they wind up being 30 cents, the taxpayer's lost a lot of money.

HANSEN: NPR's Scott Horsley, thanks a lot.

HORSLEY: My pleasure, Liane.

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