Will $700 Billion Bailout Be Enough?
ARI SHAPIRO, host:
As more Americans lose financial help from their employers, the number of companies looking for aid from the federal government continues to grow. Companies from American Express to General Motors want federal money to get them through the financial crisis. To talk more about this, we turn to David Wessel. He's the economics editor of The Wall Street Journal. Good morning, David.
Mr. DAVID WESSEL (Economics Editor, The Wall Street Journal): Good morning.
SHAPIRO: Well, originally this bailout was described as being for the banks, but now we're hearing other industries and companies asking for government money. Who is asking for this?
Mr. WESSEL: Right. It almost looks like the way to get a bailout is to change your name to bank, and then you can be eligible for some of this money, which is pretty much what American Express is doing. But the problem here is that there's one pool of money, this $700 billion. There are a lot of companies in trouble, and so they're all trying to squeeze through this hole in order to get their share of it, the most recent, of course, being General Motors. It's a sign of just how serious the problem is for corporate America and how much people are looking to the government to help them out.
SHAPIRO: Well, it looks like the $700 pie is quickly disappearing. Is there going to be enough there?
Mr. WESSEL: Well, they've only spent about a couple hundred billion of the 700 billion that Congress authorized. I think most experts are saying, given the size of the problem and the number of companies that are at risk of bankruptcy that the government seems unwilling to let go into bankruptcy, the new administration probably is going to have to come back for more money in one form or another.
SHAPIRO: Whatever happened to the original plan that the government would use the $700 billion to buy toxic investments off the books of troubled banks?
Mr. WESSEL: That's really interesting. As you know, Secretary Paulson, who's speaking later this morning, went to Congress and suggested he was going to use this money to run auctions to buy the assets off the banks. But this is kind of like a big military campaign where you have strategy and tactics. And as the circumstances change, you change tactics.
And they've basically all but abandoned that auction mechanism and the idea of taking assets from the banks, and instead have gone to this idea of injecting capital, buying shares right in the companies in order to shore up the foundations. And it may change again when the Obama administration comes in, but that seems very much like yesterday's plan for yesterday's problem. and now we're on to something else.
SHAPIRO: What about the takeover of the mortgage giants Fannie Mae and Freddie Mac? How well is that going?
Mr. WESSEL: Well, as you know, the government essentially took over Fannie Mae and Freddie Mac, and it took over insurance company AIG, and those do not seem to be going terribly well. The problems were bigger than anticipated, and there are so many different things going on that neither of them are able to - neither Fannie Mae or Freddie Mac seem to be able to do the magic that people had hoped they'd be able to do once they were in government control.
They are borrowing, but the markets don't really believe they're as safe as the government thinks they are. So that's raised their costs. And I think there is a bit of indirection from the Treasury and the rest of the administration because they have so many other fish to fry. But that said, yesterday we saw them come forward with a plan to try and ease the burden on homeowners who are facing foreclosures. So there are some signs of activity there.
SHAPIRO: Well, when you look at the national economic picture, do you see any signs that the bailout is having a positive effect?
Mr. WESSEL: Well, I think it would have been worse if they hadn't done this. I mean, imagine if we were losing a big financial institution every week or even every day. So we've avoided some things. There are some signs in the credit markets where financial institutions lend money to each other that there is some easing of the strains. They're charging a little less to lend to each other. But it's clear that it is not adequate.
And that's why you hear all this talk from Congress, from the International Monetary Fund, from the World Bank - we'll hear it at this summit coming up this weekend - that we needed something more, something bigger, something like the Chinese are doing where there's another huge dose of government spending to try and shore up demand to keep the economy going while they try and repair the financial system.
SHAPIRO: It sounds like you're suggesting that as hard as it was for some people to swallow the $700 billion bailout package, there may be another one coming.
Mr. WESSEL: Absolutely. I mean, it's pretty clear that the Obama administration, the Democrats in Congress, are not going to let General Motors go into bankruptcy. The TARP, this Treasury - Troubled Assets Recovery Program, was not designed to be the bailout for all of American industry. So they're either going to have to stretch that or they're going to have to come up with a new way to put money into these companies because they think it's necessary to protect the economy from a repeat of the Great Depression.
SHAPIRO: David Wessel, economics editor of The Wall Street Journal, thanks a lot.
Mr. WESSEL: You're welcome.
SHAPIRO: To learn more about who might be next in line for a government bailout, go to our Web site, npr.org.