WASHINGTON - It's a race against time for Congress this week as they look to pass a huge $700 billion government bailout to help relieve the credit crisis mess and bail out Wall Street.
It would end up being the biggest government intervention since The Great Depression.
Congress to the Rescue
Another week, another batch of nerves on Wall Street.
While Wall Street sweats, Congress works. The task: Approving a $700 million government bailout in which the government essentially relieves mortgage related debt from banks.
The idea is to get those banks lending again so Americans will be able to get loans thus spurring on the economy, especially the housing market.
"I don't like the fact that the American taxpayer is bearing that burden, but it is far better than the alternative," Treasury Secretary Henry Paulson said.
That alternative, some predict, is that crucial consumer spending could literally dry up. It is responsible for roughly two thirds of consumer activity and America's lending system would be crippled beyond belief.
Paulson warned, "If it does clog up, this is going to have an adverse effect on people's abilities to get jobs, on their budgets, on their retirement savings, on lending for small businesses."
Paulson is imploring Congress to act right away and it seems that congressional leaders on both sides of the aisle understand the urgency.
"If we don't act and we don't act quickly, we're going to jeopardize our economy," GOP Rep. John Boehner said.
Sen. Chris Dodd said, "We need to get this right. We need to do it quickly."
Under Paulson's proposal, the national debt ceiling would rise to roughly $11 trillion. The Treasury Department would have the power to buy and resell mortgages with no restrictions.
The Devil's in the Details
The Bush administration wants this bill done in a few days yet signs from Democratic leaders suggest it may take longer.
Democrats want the government bailout to also include independent oversight, protections for homeowners and making sure Wall Street CEOs don't get huge financial compensation.
"I don't want the federal taxpayer to be at risk for that bad debt and the guy who incurred the bad debt gets tens of millions of dollars on the way out the door," said Rep. Barney Frank, chairman of the Financial Service Committee.
Another potential concern about the bill has to do with foreign banks.
According to The New York Times, foreign banks may also be covered by the bailout and thus off the hook for American mortgage debt.
They would get the same treatment as American banks which may ruffle some feathers. Paulson says it shouldn't matter because it's still American mortgage debt.
Investment Banks go Commercial
Meanwhile, in an attempt to help relieve the credit crisis, the Federal Reserve is allowing America's two big investment banks, Goldman Sachs and Morgan Stanley, to change their status and now become "bank holding companies."
That means they can now create commercial banks which take deposits which will make both of them financially stronger. It's just another move in the topsy turvy world that is Wall Street.
Paulson said, "This is a humbling, humbling time for the United States of America."