Economic Choices 2008 - The Presidential Hopefuls' Plans for the Treasury Rescue Plan
Friday, October 31, 2008SUSIE GHARIB: Federal Reserve Chairman Ben Bernanke wants to overhaul Fannie Mae and Freddie Mac. Addressing a mortgage symposium today, he laid out options for the firms, currently under the management of Uncle Sam. Bernanke says the lenders are now the only ones providing liquidity to the mortgage market. But he says they need to be re-designed.
BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: We must strive to design a housing financing system that ensures the successful funding and securitization of mortgages during times of financial stress, but that does not create institutions that pose systemic risks to our financial markets and the economy.
GHARIB: Specifically, Bernanke says Fannie and Freddie could eventually be privatized or become quasi-public corporations. But for now, he says they're in a kind of time out, while under government conservatorship.
KANGAS: While Fannie and Freddie take their time out, the Treasury and the FDIC are considering ways to help struggling homeowners. Addressing foreclosures is also a top priority for the presidential candidates and one they may use the Federal bailout money to help address. As Darren Gersh reports, there are many economic choices to be made about the Treasury's rescue program, choices that will be clarified on Election Day.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: With Congress complaining about taxpayer funds going to finance bank mergers, dividends and investment banker bonuses, smaller banks are increasingly nervous. At the American Bankers Association, Diane Casey-Landry says her members are worried regulators are pushing them to take a deal they'll later regret.
DIANE CASEY-LANDRY, CHIEF OPERATING OFFICER, AMERICAN BANKERS ASSOCIATION: Our concern and our members are very concerned that people are going to come in and layer on additional regulatory burdens, additional requirements, restrictions that were not disclosed in the first place. That's extraordinarily problematic.
GERSH: Much of the confusion has to do with the Treasury's so-called TARP plan rules for smaller, privately held banks, which the Treasury says it's clarifying. But the overall status of the entire program may be clarified a great deal by Tuesday's election. The Treasury has already set aside office space for the new administration's transition team. And Micah Green, a former top lobbyist for the bond market industry, says the next president will want to make his mark on this massive program.
MICAH GREEN, PARTNER, PATTON BOGGS: You'll see much more focus on mortgage foreclosure issues. You might see an accelerated review of what additional companies and assets should be included. You'll see more accountability. But I'm not sure you'll see major seismic shifts into the decisions that have already been made.
GERSH: Topping the list of accountability items is executive compensation for big Wall Street banks. McCain economic adviser Douglas Holtz-Eakin tells NIGHTLY BUSINESS REPORT the senator sees no reason for taxpayer money to in any way support the payment of bonuses to executives in these firms. Barack Obama has also attacked bonuses and his campaign continues to worry. The Treasury plan appears to extend a broader set of guarantees to banks without requiring any additional regulation, which represents more of the same failed philosophy that got us into this mess. But it's not clear how much the next president can do about it. Analyst Jaret Seiberg says the Treasury has already agreed to $163 billion in bank capital injections and once the Treasury writes a contract, it won't be easy to change the terms.
JARET SEIBERG, FINANCIAL SERVICES POLICY ANALYST, STANFORD GROUP: So I think there's actually much less ability to change how the TARP is being used than most people believe.
GERSH: There are certainly many industries hoping that will change on Tuesday. Detroit auto makers, student lenders and bond insurers are all making their case to seek shelter under the tarp. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
