ALISON STEWART, host:
This is Weekend Edition from NPR News. I'm Alison Stewart. Coming up, how you can help us monitor the elections. But first, Congress is talking about another stimulus package. Republicans and Democrats reportedly are duking it out over whether to focus on tax cuts or increase spending. Also, the Treasury Department and the FDIC appear ready to include homeowners facing foreclosure in a $700 billion bailout plan. That's the one passed last month. And it's changed quite a bit from how it was originally described. NPR's Jeff Brady explains why.
JEFF BRADY: The rescue plan has a name, the Troubled Assets Relief Program, or TARP. And the list of those seeking shelter from the financial storm under the TARP is growing. Banks already are there. Insurance companies and auto manufacturers want to cozy up next to them. And now the government may try to squeeze in three million homeowners who are having difficulty paying their mortgages. Originally the plan was much simpler than all this. The federal government was going to buy bad loans from banks, hold onto them for a while, and then sell them, perhaps for a profit. Here's Treasury Secretary Henry Paulson on Capitol Hill back in September.
Secretary HENRY PAULSON (Treasury Department): This troubled asset purchase program on its own is the single most effective thing we can do to help homeowners, the American people, and to stimulate our economy.
BRADY: While Treasury is still working on the purchase program, it's been displaced as the top priority. The agency instead launched its bailout by spending up to $250 billion to buy equity stakes in banks hoping that will give them the money they need to start lending again.
Mr. SCOTT TALBOTT (Senior Vice President for Government Affairs, Financial Services Roundtable): This authority has always been in the bill. It just wasn't focused on.
BRADY: Scott Talbott is a lobbyist with the Financial Services Roundtable and says the plan changed because the circumstances became desperate.
Mr. TALBOTT: Following the passage of the bill, we saw the stock market continue to decline. We saw world markets continue to decline. And we saw other countries begin to inject capital. And Treasury used the authority it has under this bill that was created by Congress to do the same.
BRADY: Just a few days back, the Treasury pumped $125 billion into the nation's nine largest banks, and now it's spending up to another $125 billion on smaller ones. Talbott's group would like the Treasury to expand the program to include insurance companies and the lending arms of auto manufacturers. He argues they also have an important role to play in getting the economy moving.
Mr. TALBOTT: After you've picked out your car at the dealership, you walk over to the finance department. And if they are unwilling to lend or unable to lend to you, then you can't purchase that car.
BRADY: And insurance companies are a big source of capital for new construction projects. There are a few economists, mostly politically conservative ones, who still think the Treasury should have stuck to its original plan. But most appear to agree with Martin Baily at The Brookings Institution. He says just buying bad loans would have been a worse deal for taxpayers.
Dr. MARTIN BAILY (Senior Fellow, The Brookings Institution): Whereas if you use this money to recapitalize the bank, but at the same time kind of get a stake in the bank or at least something that says when the bank gets back on its feet again, taxpayers will be reimbursed for the risks and money that they've put in.
BRADY: Eventually, Baily thinks taxpayers will get most if not all of the 700 billion back. Changes in the TARP have prompted new concerns among lawmakers. Many want to restrict banks from using government money to pay dividends for executive bonuses or to take over other banks. Expect congressional hearings on that after the election. Jeff Brady, NPR News, Washington.
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