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Who wins, who loses under government bailout plan?
By Tom Raum
Associated Press
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WASHINGTON, D.C. -- The proposal to bail out U.S. financial markets to the tune of up to $700 billion creates a lot of potential short-term winners, as well as some losers.

Wall Street and the banking industry are perhaps the biggest winners. Scores of banks and other financial institutions faced with going under stand to gain a lifeline that should allow them to start making loans again.

Under the plan that congressional aide sought to put into final form Sunday, the Treasury Department can start buying up troubled mortgage-related securities now held by these institutions.

These securities are clogging balance sheets, leaving banks without the required capital to make new loans and putting the banks dangerously close to insolvency.

Banks not only have slowed lending to individuals and businesses, they have stopped making loans to each other. The rescue plan should help restore confidence to financial markets.

There are other winners, too, if the bailout works as intended: anyone soon trying to borrow money - for cars, student loans, even to open new credit card accounts.

Top executives at troubled financial institutions, on the other hand, are in the losing column because the proposal would limit their compensation and rules out "golden parachutes."

Of course, these executives may take solace in knowing their jobs still exist.

Investors, including the millions of people who hold stock in their 401(k) and pension plans, should benefit. Failure to reach a deal over the weekend could have sent stock markets around the world tumbling on Monday.

Homeowners faced with foreclosure or those who have lost their homes get little help from the agreement. Nor will it help people whose houses are worth less than what they owe get refinancing or take out equity loans.

It would do little to halt the slide in home values that are one of the root causes of the current economic slowdown.

"It doesn't deal with the fundamental problems that gave rise to the problem - or alleviate the credit crisis," said Peter Morici, an economist and business professor at the University of Maryland

Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke are potential winners.

In just a few months, they have remade Wall Street. If the plan helps to get the economy moving again, they may be remembered for having kept the financial crisis from spreading throughout the economy.

"When I see Hank Paulson and Ben Bernanke on TV, I see fear in their eyes. Like on a battlefield when people are shooting at you. I think they are afraid to say how serious the problem is for fear of making it worse," said Bruce Bartlett, an economist who was a Treasury official under the first President Bush.

Bartlett said the plan is flawed, yet the alternative of doing nothing could be catastrophic.

After the heavy dose of new regulation in the agreement, New York will have a hard time claiming it is the center of the financial universe. That title may have shifted to Washington.

If the plan stays together, Congress - with approval ratings even lower than those of President Bush - may be seen as having acted decisively at a time of national emergency.

Congressional leaders added new protections to the administration's original proposal. That was only three pages long and bestowed on the treasury secretary almost unfettered powers.

Instead, the agreement would divide the $700 billion up into as many as three installments, creates an oversight board to monitor the treasury secretary's actions and set up several major protections for taxpayers, including a provision putting taxpayers first in line to recover assets if a participating company fails.

The president, on the other hand, probably would get little credit for the deal. He allowed Paulson and Bernanke to do the heavy lifting. The only time he called all the players to the White House - late Thursday afternoon - the wheels almost came off the process entirely.

It's hard to tell which presidential candidate benefits the most from an agreement they tentatively endorsed Sunday, a little more than five weeks before the Nov. 4 election. Democrat Barack Obama and Republican John McCain each sought to claim some credit for the deal, even though they played active roles only over the past few days.

Hard economic times traditionally work against the party that holds the White House, and in recent polls Obama has inched ahead of McCain. Furthermore, there is widespread consumer resentment over being asked to bail out Wall Street and lawmakers have learned the proposal has not been popular with their constituents.

That may help Democrats in general. The strongest opposition to the original bailout plan came from House Republicans.

Lawmakers and presidential candidates alike are "trying to orchestrate everybody jumping off the cliff together," said Robert Shapiro, a consultant who was an economic adviser to President Clinton. "I think we'd have a different plan if we weren't five weeks out from the election."

And ordinary taxpayers?

Nothing that potentially adds $700 billion to the national debt - already surging toward the $10 trillion mark - can be considered a winner for those who foot the bills.

But lawmakers did put in taxpayer protections, including one to require that taxpayers be repaid in full for loans that go bad.

The package could even end up making money for taxpayers, supporters claimed.

But only if the loans and interest on them are repaid in full. Few expect that provision to be a winning proposition, however.

Take a look
Protesters march outside of the U.S Treasury building in protest of the proposed Wall Street bailouts, Friday Sept. 26, 2008, in Washington. (AP Photo/Jacquelyn Martin)
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Reader comments on this story - 17 total

Note: All views and opinions expressed in reader comments are solely those of the individual submitting the comment, and not those of the Pantagraph or its staff.

workingclasshero wrote on Sep 29, 2008 4:49 PM:

" the terrorists win, again. "

Sweetcheeks wrote on Sep 29, 2008 2:18 PM:

" FTC:
I can honestly side with you on this as I am also agaisnt this bail out. How is this going to help the little man? The way I see it is it won't and I am not talking handouts here at all. "

Sweetcheeks wrote on Sep 29, 2008 1:35 PM:

" FTC:
I can honestly side with you on this as I am also agaisnt this bail out. How is this going to help the little man? The way I see it is it won't and I am not talking handouts here at all. "

2tired wrote on Sep 29, 2008 11:34 AM:

" what's next giving the Big Oil companies hand out since their sales are down this year? "

Peace wrote on Sep 29, 2008 11:29 AM:

" Constitution: You may be correct that it may be 10 times worse later. My concern is with panic causing a mini or full blown depression. Maybe that's what we need to cleanse the current environment. The problem with that is the politicians who got us here are still in office.....and they want more control. "

Peace wrote on Sep 29, 2008 11:20 AM:

" Constitution: While I mostly agree with with your description of the Federal Reserve, their autonomy has probably kept us afloat this long. Imagine if our government had control. It would be used as a constant political tool. That's not to say that politics aren't involved, but if the monetary supply and interests rates moved as the government wished, this country would have failed long ago. Keep the government out. There is nothing the government runs that is bipartisan or efficient. "

Peace wrote on Sep 29, 2008 11:13 AM:

" Pseudo: I believe the government did get us to this point by doing something. Namely forcing lending institutions through legislation to lower loan requirements so those that could not qualify previously, can now get loans they can't afford. When it was seen as a problem in 2002ish, congress turned a blind eye. Now they want to be seen as heroes removing the sword they stabbed us with for a decade while trying to wipe their fingerprints from our mind and hearts. "

FollowTheConsitution wrote on Sep 29, 2008 11:09 AM:

" Peace

We suffer even worse as the end result of this.

It would have been better to just let it go and allow the market time to correct itself. Now we will have to go through this later and will be 10 times worse than had we just left it alone. "

Peace wrote on Sep 29, 2008 11:00 AM:

" I'm more with the no bail out side. However, we the people will suffer the most, through savings accounts, mutual funds, stocks and the decreasing value of the dollar, while the real culprits get off unscathed as usual. "

FollowTheConsitution wrote on Sep 29, 2008 10:36 AM:

" "This monopoly control of our currency by a private banking cartel is the root cause of the increasingly distorted, volatile and damaging economic conditions experienced in the U.S. and abroad. America’s fiat currency is produced from thin air and manipulated by the Federal Reserve for the benefit of its private owners, major Wall Street institutions and to enable the numerous unconstitutional activities of the Federal Government. Beyond this, the Fed's vast operations are substantively beyond accountability to the taxpayers or the Congress. These abuses of the Constitution have taken our financial system to edge of the abyss. The chickens have come home to roost." "

FollowTheConsitution wrote on Sep 29, 2008 10:36 AM:

" Bob Schulz:

"Beyond the moral hazard and dangerous precedent to be established by this legislation, it is of vital importance that the American people recognize that the present financial crisis is not the result of ineffective regulatory oversight or defective government policy but rather a direct and predictable result of decades of constitutional violations by the Federal Government. Through a long-standing program of disinformation and collusion with the Federal Reserve and Wall Street financial elite, the United States Federal Government has denied the public access to vital information about the secretive operations of the privately owned and operated Federal Reserve System and its monopoly control of America’s monetary system." "

FollowTheConsitution wrote on Sep 29, 2008 10:22 AM:

" WASHINGTON — The Federal Reserve and other countries' central banks announced new steps Monday that makes billions of dollars available to squeezed banks here and abroad to battle a worsening credit crisis that threatens to unhinge the U.S. economy.

The Fed said the action is intended to "expand significantly" the availability of cash available to financial institutions in an effort to provide relief to the worst credit crisis since the Great Depression. In taking the action, the Fed cited "continued strains" in the demand for short-term funding.

Central banks will continue to work closely and are prepared to take "appropriate steps as needed" to stem the fallout, the Fed said. "

FollowTheConsitution wrote on Sep 29, 2008 10:20 AM:

" America loses! The government wants to just take over everything! They are using this as a scam to fool the people.

The price we will pay? Our FREEDOM!

Welcome to socialism people! We were warned about this for years and just ignored it calling the people that tried warning us a bunch of nut cases! Do you believe them now? Or are you still in denial???

Go google Aaron Russo's film "America to Facism" and watch that movie!

You can watch it online. It's about 90 minutes long. After watching that movie take a real good look at what is happening now!

If the people don't wake up now and take a stand against the government to stop all this corruption you can kiss your freedoms goodbye! "

Jarhead71 wrote on Sep 29, 2008 10:18 AM:

" Everyone KNOWS that this trickle down is not going to happen! Bankers are going to take our money and run. Then, they will get the predatory mortgage loans refinanced at tax payer expense, and the home buyers will pay off the more reasonable loans and the bankers will NEVER give any of the $700 billion back to the tax payers. This is fraud at its finest. Let's put this up for a voter's referendum and see just how far it makes it. "

pseudo-intellectual wrote on Sep 29, 2008 10:14 AM:

" From where I sit WE ALL LOSE if the government does nothing. Remember, that's how we got here. "

Meh wrote on Sep 29, 2008 10:10 AM:

" Like with all forms of corporate socialism, the wealthy benefit greatly and everyone else gets to foot the bill. They wanted to leave it all to the market. Let's grant their wish. No bailout. "

nonya wrote on Sep 29, 2008 10:01 AM:

" Can I get a bailout for my student loans? "
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