It has been a month since the "bank bailout package" was passed by Congress. The bill underwent a difficult road to passage, with the first draft rejected in the House of Representative for fear it would be a waste of money with little effect. To overcome these objections, inducements (money to fund projects key legislators wanted) and tax breaks were added to the bill. Unfortunately, it seems that these fears may have been well founded and the "economic rescue bill" will not have the desired results.
The original plan by Henry Paulson, the Secretary of the Treasury, was to buy up the delinquent mortgages and assets held by banks. The goal was to increase the banks stability and provide them with money they could lend to consumers and businesses. Even before the bill was passed, this plan was in doubt and now has been completely canceled. Instead Paulson has decided to buy stock in the banks and non-bank institutions that provide credit cards and auto loans so they have fresh capital, also so that they could regain stability and make loans.
Unfortunately, instead of making loans many banks are using the money to pay dividends, but other banks, give executive bonuses or save for emergencies. For example, PNC Financial Services received $7.7 billion from the bailout and immediately spent $5.6 billion of it to buy National City. In fact on the same day Paulson hired the Bank of New York Mellon to run the rescue program, it decided to take $3 billion of the money for itself. Added to the expensive spa retreats AIG paid for (including another one just this week) while receiving tax payer money it seems the bill might not help the economy as much as was hoped.
Lawmakers are protesting these actions, but it should have been expected since the bill gave Paulson unlimited authority and required little supervision. It also contained no restrictions on what the recipients did with the money, although Bush recently requested banks start making loans and using the money for its intended purpose. After the latest news of waste, the Treasury also announced they seek to impose caps on executive compensation and spending at AIG and other companies that receive government funds.
These are positive steps and hopefully a sign that the government is getting on a better track. Whether the this bill ends up a "bailout" of Wall Street and a few executives or a "rescue" of Main Street and the general economy remains to be seen. With a new focus on the economy and new administration there is hope on renewed emphasis on the bailout and other plans to help consumers.
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Roland Carrillo, PhD
Branch Manager
VanDyk Mortgage in Cary, NC
Email: rjcarrillo@gmail.com
Website: http://www.mymortgageanalysis.com/
Our branch specializes in affordable lending options including FHA / VA and the Community Heros program. As both a banker and a broker, you have access to a full menu of products including all Fannie Mae and Freddie Mac Conforming loans, Reverse, Jumbo and Commercial financing on a variety of property types. We are located in Cary, North Carolina and are within easy reach of the entire RTP Area including Wake, Durham and Orange Counties.
