Markets Weigh U.S. Plan To Expand Bailout

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MELISSA BLOCK, host:

From NPR News, this is All Things Considered. I'm Melissa Block.

ROBERT SIEGEL, host:

And I'm Robert Siegel. World leaders are meeting this weekend to address the financial crisis. At the same time, the markets today are digesting a major shift in the U.S. government's $700 billion bailout plan. Until now, the plan has been focused on propping up the nation's banks, but Treasury Secretary Henry Paulson now says he wants to expand, that he's exploring ways to include other companies that offer credit to everyday people through car loans, student loans, and credit cards. NPR's Chris Arnold reports.

CHRIS ARNOLD: The refocusing of the bailout plan shows just how many important parts of the financial system are currently in trouble. It's not just banks and home loans anymore, it's a squeeze on all kinds of credit that lots of people need to go to college or buy appliances or buy cars.

Mr. ANDY BELLIZIA (Proprietor, Cambridge Chevrolet Honda): I had to lay people off, and I'm damn worried. I'm doing - you know, it's my responsibility to keep people in a job, to keep the company open.

ARNOLD: Andy Bellizia runs Cambridge Chevrolet Honda, an auto dealership outside Boston.

Mr. BELLIZIA: In my 38 years in the business, starting as a lot boy and ending up as a dealer principal, this is by far the worst I've ever seen this business.

ARNOLD: One of the big problems is the consumer credit issue that Treasury Secretary Paulson is shifting gears to focus on. Bellizia says that the giant auto loan company GMAC isn't touching anybody who doesn't have really good credit. He says they need a credit score of at least 700. Other lenders are being much tougher about debt-to-income ratios and requiring a lot more money down in case they have to repossess the car.

Mr. BELLIZIA: It's Middle America. It's your neighbor. There are people about six months ago who were creditworthy people who you would send in an application and you would get an immediate approval. Those people are being denied loans now simply because the money is not there.

ARNOLD: The money is not there. That statement is at the heart of the problem. Secretary Paulson zeroes in on what's called securitization. That is when a company takes a bunch of loans on homes or cars or credit cards, and then bundles them up into a security which is then sold off to investors. Over the years, that's become a giant pipeline for pumping cash into people's pockets. It's really important to the economy, and that pipe has frozen. Henry Paulson.

Secretary HENRY PAULSON (Treasury Department): This market which is vital for lending and growth has for all practical purposes ground to a halt.

ARNOLD: Tom Deutsch is deputy executive director with the industry group the American Securitization Forum. He says there's been a 99 percent drop in the money flowing through this pipe from last October to this October.

Mr. TOM DEUTSCH (Deputy Executive Director, American Securitization Forum): It absolutely is mindboggling that we have had such significant drying up of credit over the last year.

ARNOLD: The government's been working to thaw out other parts of the credit markets, and some of that's been working, but a lot of damage has been done.

Mr. DEUTSCH: By and large you've taken 30, you know, say 30 to 40 percent of the total lending out of the market, which ultimately leaves a lot of the consumers, especially those with even the slightest impairment on their credit, effectively out in the cold.

ARNOLD: The U.S. carmakers are under particular stress right now. Art Spinella heads up CNW Research and focuses on the auto industry. He says he's seeing something he's never seen before. He says some lenders seem to be more willing to lend to people who are buying Hondas, Toyotas, or other foreign cars.

Mr. ART SPINELLA (President, CNW Marketing Research): Someone might want to buy a General Motors or a Chevrolet product, and the bank might say, no, I'm not sure. Even with your credit score, I'm not really sure that that's feasible because we're not really certain - and they don't necessarily say this out loud - but they're not really certain that Chevrolet isn't somewhere along the line going to be damaged dramatically by General Motors' bankruptcy filing.

ARNOLD: Henry Paulson says he doesn't want to use the remaining bailout funds to directly loan money to the car companies. But he now wants to use the money to entice a broader range of companies to make more loans of all kinds, including auto loans, which would help Detroit and consumers around the country. Chris Arnold, NPR News.

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