Obama to Decide Soon Whether to Add to Bailout
Saturday, January 24, 2009
Lawmakers on Capitol Hill are bracing for a fresh request from President Obama for another massive round of spending to shore up the nation's faltering financial system, which could send the total price for the bailout soaring toward $1 trillion.
So far, Congress has approved $700 billion for the financial system rescue. The first half of that money has been committed, and lawmakers last week agreed to give Obama access to the second half.
But with the economy deteriorating rapidly, financial companies are incurring trillions of dollars in losses on failing mortgage loans and other assets, forcing the federal government to consider substantially expanding its response to the crisis, officials said. Leading economists and lawmakers calculate that hundreds of billions more could be required.
"I don't think many people at the top of the Treasury or the Fed thinks this is the last amount of money they're going to need to deploy," said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, who speaks regularly with top officials.
Obama has pledged, for instance, to use at least $50 billion of the remaining rescue funds to help troubled borrowers avoid foreclosure on home loans. But in a private luncheon Thursday with Senate Democrats, some of the nation's top economists said the cost of that element of the rescue program alone could approach $250 billion.
Lawmakers voted less than four months ago to approve the financial bailout, which remains hugely unpopular with voters. At Obama's request, they are now at work on a separate $825 billion stimulus package that aims to prop up the sagging economy by creating millions of jobs. With a variety of economists saying the crisis is likely to demand even more money, some in Congress are urging Obama to quickly name a price.
"It seems to me there are inadequate resources to deal with housing, deal with the financial sector and to give an immediate lift" to the ailing economy, said Sen. Kent Conrad (D-N.D.), chairman of the Senate Budget Committee. "The last thing I want is to come back here in five months and have another big package. I'd rather do it now."
Administration officials said that they have made no decision about whether to ask for more money and that they are still pondering how to spend the remaining $350 billion from the fund, which should become available Tuesday, congressional aides said. White House officials are crafting a comprehensive plan for aiding financial firms, helping distressed homeowners and reviving the consumer credit markets, which they expect to present to Congress as soon as next week.
The situation is urgent. Home prices are plummeting and are projected by some financial analysts to lose a third of their peak value before the market recovers. Foreclosures have skyrocketed, with an estimated 8 million families expected to lose their homes over the next four years. Meanwhile, the jobless rate jumped to a 16-year high of 7.2 percent in December and is forecast to climb higher. Auto and credit card loans are also increasingly defaulting, raising the pressure on the banking system.
"Conditions are eroding far more rapidly than anyone anticipated," said Mark Zandi of Moody's Economy.com, one of three economists who addressed Senate Democrats on Thursday. "The job market is now consistently losing 500,000-plus jobs per month, something you couldn't have envisioned eight to 12 weeks ago. Losses in the banking system over the last week or two have been much larger than people had been expecting. We're coming to the realization that these things are self-reinforcing and the problems aren't developing in a linear way. They're getting worse very rapidly."
The escalating crisis has pushed the days-old Obama administration to a critical point: Obama must quickly choose a course of action, and he must choose correctly because the options are so expensive that he is unlikely to get a second chance, lawmakers and economists said.
Perhaps the greatest challenge facing Obama's team is how to stem losses piling up at banks that hold huge sums in toxic assets backed by failing mortgages and other troubled loans. As the economy weakens, assets that financial firms once thought were safe are swiftly declining in value, including securities backed by credit cards, auto loans and commercial mortgages.