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The Wall Street Bailout Plan

The Wall Street Bailout Plan

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Published by: Monaaa on Nov 05, 2008
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06/16/2009

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The Wall Street Bailout Plan, Explained

News reports about the turmoil/upheaval in the world of finance have been full of mysterious terms like “mortgage-backed securities” and “credit-default swaps,” but the crisis has vibrated for people who know little about Wall Street and who did not think they would ever have to know. Here are several questions and answers of concern to Main Street Americans: Q. The bailout program being negotiated by the Bush administration and Congressional leaders calls for the government to spend up to $700 billion to buy distressed mortgages. How did the politicians come up with that number, and could it go higher? A. The recovery package cannot go higher than $700 billion without additional legislation. As for that figure, it lies between the optimistic estimate of $500 billion and the pessimistic guess of $1 trillion about the cost of fixing the financial mess. But the $700 billion is in addition to an $85 billion agreement on a bailout of the insurance giant American International Group, plus $29 billion in support that the government pledged in the marriage of Bear Stearns and JPMorgan Chase. On top of all that, the Congressional Budget Office says the federal bailout of the mortgage finance companies Fannie Mae and Freddie Mac could cost $25 billion. Q. Who, really, is going to come up with the $700 billion? A. American taxpayers will come up with the money, although if you are bullish on America in the long run, there is reason to hope that the tab will be less than $700 billion. After the Treasury buys up those troubled mortgages, it will try to resell them to investors. The Treasury’s involvement in the crisis and the speed with which Congress is responding could generate long-range optimism and raise the value of those mortgages, although it is impossible to say by how much. So it would not be correct to think of the federal government as simply writing a check for $700 billion. It is just committing itself to spend that much, if necessary. But the bottom line is, yes, this bailout could cost American taxpayers a lot of money.

Q. So is it fair to say that Americans who are neither rich nor reckless are being asked to rescue people who are? What is in this package for responsible homeowners of modest means who might be forced out of their homes, perhaps for reasons beyond their control? A. Yes, you could argue that people who cannot tell soybean futures from puts, calls and options are being asked to clean up the costly mess left by Wall Street. To make the bailout pleasant to the public, it is being described as far better than in force, which administration officials and members of Congress say could endanger the retirement savings and other investments of Americans who are anything but rich. But it is a good bet that the negotiations between the administration and Capitol Hill will include ideas about ways to help middle-class homeowners avoid foreclosure and perhaps some limits on pay for executives. And it should be noted that neither party is solely responsible for whatever neglect led the country to the brink of disaster. Q. How is it that the administration and Congress, which have not tried to find huge amounts of money to, say, improve the nation’s health insurance system or repair bridges and tunnels, can now be ready to come up with $700 billion to rescue the financial system? And is it realistic to think that the parties can reach agreement and get legislation passed in a hurry? A. The first question will surely come up again, involving as it does not just issues of spending policy but also more profound questions about national aspirations. As for rescuing the financial system, elected officials in both parties became convinced that, while a couple of venerable investment banks could fade into oblivion or be absorbed by mergers, the entire financial system could not be allowed to collapse. And, yes, the parties are likely to reach an accord. Many members of Congress are eager to leave Washington to go home and campaign for the November elections, and no one wants to face the voters without having done something to protect modest savings portfolios as well as giant investors. Stephen Labaton and David M. Herszenhorn contributed reporting

Most Americans Still Say Home-Buying Is Best Investment
rasmussenreports.com Wed Sep 24, 9:58 AM ET Two-thirds of Americans (66%) think buying a home is the best investment most families can make, despite the recent meltdown of the U.S. housing market. Just 19% disagree. Forty-four percent (44%) also say it's a good idea for most Americans to invest in stocks, bonds and mutual funds, according to a new Rasmussen Reports national telephone survey. Thirty-one percent (31%) don't think it's a good idea, and 24% are undecided (see crosstabs). Just 18% expect the stock market to go up between now and Election Day in early November. Thirty-four percent (34%) think it will go down, and a similar number (32%) expect it to remain about the same. The findings ?????? from surveys Sunday and Monday nights ?????? come as Congress is wrestling with a proposed $700 billion taxpayer-financed plan to stabilize the increasingly troubled U.S. economy. Eighty percent (80%) say they are following news stories about Wall Street's troubles and the rescue plan at least somewhat closely, with 44% saying they are following Very Closely. In a separate survey released yesterday, Rasmussen Reports found that opposition to the plan is growing the more voters find out about it. Now 44% oppose it, while 25% support it. Sixty percent (60%) of Americans also now believe the U.S. economy is not fundamentally sound, and voters are evenly divided on whether any laws passed by Congress will make things better. Americans nationwide have said consistently all year that economic issues are their number one concern in this election.

Voters trust McCain slightly more than Obama on the economy , but they give Democrats as a group the edge over Republicans in the handling of economic issues. While Americans across gender, race, income and party lines agree by sizable majorities on the financial wisdom of buying a home, the response to buying into the stock market is far more varied. Men think investing in the market is a good idea by a 54% to 28% margin. Women are almost evenly divided on whether it's a good idea or a bad one. Over half of Republicans (56%) favor investing in the market compared to 46% of unaffiliated voters and just 33% of Democrats. Women and men under age 40 are more confident about investing than those older than 40. Fifty-five percent (55%) of those age 18-29, for example, think investing is a good idea versus 34% of those 65 and older. Forty-eight percent (48%) of married adults favor investing, but unmarried adults are evenly divided on the wisdom of investment. Similarly, 48% of whites believe investing in the market is a good idea, but only 29% of African-Americans agree. This telephone survey of 1,000 Adults was conducted by Rasmussen Reports September 21-22, 2008. The margin of sampling error for the survey is +/- 3 percentage points with a 95% level of confidence. Rasmussen Reports is an electronic publishing firm specializing in the collection, publication, and distribution of public opinion polling information.

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