Signed and sealed, the $700billion bailout now must be delivered.
After 14 days, three votes and billions of dollars in stock market losses to get the massive financial rescue through Congress, the government is rushing to develop a plan for spending the money.
Still, it will likely be at least a month before funds are flowing to ailing financial institutions from the bill signed by President Bush shortly after passing the House on Friday.
Treasury Secretary Henry Paulson said he did not wait for final approval of the measure to begin preparation. He has been lining up outside advisers as his staff works out details on a multitude of complex issues.
For instance, the government must decide how it will determine which bad assets to buy from banks and how those purchases will be made.
One possibility being considered is a process known as a reverse auction in which the winners would be the financial firms willing to sell their assets for less money to the government, say 50 cents on the dollar instead of 60 cents.
“We have been doing a lot of work, a lot of thinking getting ready for this,” Paulson told reporters at Treasury. “We will be going out and lining up some advisers from the private sector.”
The bill, H.R. 1424 – all 451 pages of it – gives Treasury the power to spend up to $700 billion to buy bad debt from banks, credit unions, thrifts and insurance companies. The hope is that by shoring up their books, trust will be restored to the financial system, banks will begin lending again, and it will start the economy on the road to recovery.
Over the next few weeks, the government must determine what price to pay for complex mortgage-backed securities that have plunged in value because of the worst slump in housing in decades. The goal is to take enough of these toxic assets off the books of financial institutions to bring an end to the severe credit crisis, which has caused the biggest upheaval on Wall Street since the 1929 stock market crash.
To help them do that, Treasury expects to retain at least five and maybe as many as 10 asset management companies to operate the program, a department official said.
Besides contracting with these firms, Treasury will hire about two dozen new employees, including accountants, experts in asset management, financial advisers, bankers and attorneys, to help run the program, said the official, who spoke on condition of anonymity because details have not been publicly announced.
The House vote came four days after the House rejected the first bailout bill, sending the Dow Jones industrial average plunging by 778 points, its worst one-day point loss on record. Congressional leaders and the administration worked the rest of the week to get the proposal back on track.
The legislation Paulson sent Congress two weeks ago was only three pages long. It grew to 110 pages during negotiations with key lawmakers who objected to giving the administration sweeping authority with no congressional oversight.
Congress isn't through with the issue yet.
Leaders promised the biggest changes in government regulation of financial companies since the 1930s, and no fewer than five hearings already were scheduled in the House – Monday on the collapse of investment bank Lehman Brothers, Tuesday on the $85 billion bailout of insurance giant American International Group, Oct. 16 on hedge funds, Oct. 17 on the actions of credit rating agencies and Oct. 23 on the role of federal regulators.
“It will be our job to enact – and I think it will be comparable to what Franklin Roosevelt and the Congress did in the New Deal – a set of regulations for all of the financial industry,” said House Financial Services Chairman Barney Frank, D-Mass.