Tuesday, November 25, 2008

Did Paulson Just Raid the Cookie Jar for Another $800 Billion?

Or, when is a "loan" not a "bailout"?

Seriously confused here. Someone explain this one to me, please.

The government introduced a pair of new programs Tuesday that will provide $800 billion to help unfreeze the market for consumer debt and to make mortgage loans cheaper and more available.

"Will provide"? Go on.

The Fed program for consumer debt will lend up to $200 billion to the holders of securities backed by various types of consumer loans such as credit cards, auto and student loans. The goal is to provide greater demand for these securities as a way of lowering interest rates consumers are paying and to make these loans more available.

Treasury Secretary Henry Paulson had signaled that the government was working on this new program. It will be supported by $20 billion of credit protection provided by the $700 billion government rescue fund.

The Fed also said Tuesday it will buy up to $600 billion in mortgage-backed assets in a separate attempt to deal with the financial crisis.

The Fed said it will purchase up to $100 billion in direct obligations from mortgage giants Fannie Mae and Freddie Mac as well as the Federal Home Loan Banks. It also will purchase another $500 billion in mortgage-backed securities, pools of mortgages that are bundled together and sold to investors.

$700 billion here, $800 billion there, pretty soon it all adds up to real money.

No reaction out of the market about this, so perhaps I am missing something here, but it sure sounds like they once again just opened the cash drawer to the banking industry and said "have at it". While I understand the importance of getting consumer lending flowing again, I thought that is what the original $700 billion was for.

They can do this without Congressional approval?