Pieces Of Bailout Pie Could Get Smaller

There are reports that the Treasury Department is studying how it can help insurance companies under the $700 billion financial bailout package. Other sectors are said to want a piece of the bailout pie too — including hedge funds, security dealers, U.S. subsidiaries of foreign banks and U.S. automakers with big financing arms.

Copyright © 2008 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

STEVE INSKEEP, host:

A lot has changed since Congress first passed the $700 billion bailout for financial firms. The government is taking a direct ownership in banks now. And there's a lot of interest in using in some of the money to help struggling homeowners avoid foreclosure. And now there are reports that some big insurance companies are asking to be included, too. NPR's Jim Zarroli joins us now. Jim, good morning.

JIM ZARROLI: Good morning, Steve.

INSKEEP: Seems like every week this plan changes.

ZARROLI: Yes, indeed. You know, $700 billion seemed like a lot of money when the bailout was first talked about. It doesn't seem as big now that more and more people want a part of it. I think, in part, that says something about just the nature of the financial services industry today. You know, when banks and insurance companies and securities firms all do a lot of the same things, it just gets harder to say when one company deserves to get bailed out and another doesn't. It also says, I think, that when the government is giving out money, it can turn into a kind of a free-for-all.

INSKEEP: Although, of course, you only want to be giving money to companies whose collapse would cause a total economic disaster. What's the argument for including insurance companies in that?

ZARROLI: Well, this wouldn't be every insurance company. I mean, these aren't the companies that, you know, insure your car or your house. These are mainly life insurance companies. And the argument is that they operate somewhat like banks because they sell products like annuities. They need to borrow money. They're being hurt by the same liquidity problems that everyone else is facing. And the Treasury Department is supposed to - reportedly considering the idea.

INSKEEP: Well, let me ask about that consideration, Jim, because if we remember the congressional debate over this, we began with a three-page bill that was put out by the administration. And lawmakers said, wait a minute, you're giving the Treasury secretary carte blanche. He'll be more powerful than the president. He can do anything he wants with $700 billion. And they added all these qualifications and details to this. In the end, though, is this bill written in a way that the Treasury secretary can pretty much spend the money however he wants?

ZARROLI: Well, the original idea behind the bill was that the Treasury Department would buy out mortgage securities that were causing so much havoc in the market. But it also gave the Treasury Department a lot of leeway to go beyond that. And it has. You know, for instance it decided to use $250 billion from the fund to buy stock in banks as a way of shoring them up. We've also learned the Treasury Department now wants to use the money to encourage consolidation in the banking business. It's trying to encourage stronger banks to buy up weaker banks. So the fund, all along, has sort of been a work in progress, you might say.

INSKEEP: So banks want a piece of this. Insurance companies want a piece of this. People want to get it to mortgage holders, or rather homeowners. Anybody else?

ZARROLI: Well, yeah, a lot of people. Hedge funds, security dealers, US subsidiaries of foreign banks, they're all said to be lobbying the Treasury Department for some of the money. US automakers want to be included. They have big financing arms. There are a lot of people from the beginning who have argued that we never liked the idea of buying up troubled mortgage securities. They said the money should be used to prevent foreclosures.

INSKEEP: Jim, thanks very much.

ZARROLI: You're welcome, Steve.

INSKEEP: That's NPR's Jim Zarroli reporting on the evolving financial bailout.

Copyright © 2008 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.