Recovery Still Depends On Bold Actions, Officials Say
Saturday, May 9, 2009
The Obama administration still plans to spend tens of billions of dollars reviving the nation's financial system, even after the government's unexpected finding that major banks need only a little bit more direct government aid.
The initiatives being crafted include helping municipalities borrow money, providing insurers with new capital and after a long delay buying troubled assets from financial firms. Senior officials see signs that the recession may be bottoming out, but they say they continue to think big actions are necessary to spark an economic revival.
Officials overseeing the federal bailout suddenly find themselves flush with cash, just months after saying they might run out. Rather than needing to spend what remains in the bailout to shore up weak banks, some government officials say they now expect the healthy ones to return well more than $35 billion. That would give the Treasury Department at least $145 billion for other initiatives.
Some expensive problems remain. The government still needs to stabilize the auto industry, including General Motors, and the government-sponsored system for supporting mortgage loans, which includes Fannie Mae, Freddie Mac and the Federal Home Loan Bank network.
Auto financier GMAC may receive a $7.5 billion infusion as soon as next week, sources said. It appears likely that no other major banks will need additional federal money.
Still there was a feeling of relief in the halls of the Treasury this week, as officials considered options for the remaining bailout funds. Officials are pondering programs to help businesses and governments far afield from Wall Street -- actions that may win political support from lawmakers as well as earn economic dividends.
The Treasury, for instance, is working on a plan to help cities, school systems, hospitals and other agencies borrow money at cheaper rates. The credit crisis made it more expensive to get money for buildings, ballparks and other projects. The problem has been particularly acute for those with lower credit ratings, which require them to pay more for their bonds.
Officials are considering options including the creation of a federal agency that could back the bonds, aiding bond insurers that backstop municipal bonds or simply providing subsidies that could lower the rate for municipalities.
Separately, the government has begun serious discussions to provide federal aid to the nation's largest life insurers, such as the Hartford or Lincoln Financial, sources said. Officials consider helping the industry a critical piece of the financial rescue because these firms provide insurance to millions of ordinary families and use their insurance premiums to invest in the markets.
Many of these companies teetered after their investment portfolios began to crumble while they had to continue making regular insurance payments to customers. Hartford and Lincoln, among others, last year bought savings and loans so they could become banks and qualify for federal aid. But several healthy insurers, such as MetLife and the Prudential, are expected to turn down government money, sources said.
The government is also moving closer to funding purchases of devalued assets after more than a year of discussions and aborted plans.
In June, the Federal Deposit Insurance Corp. plans to support the purchase of $1 billion in home mortgage loans as a test run for a broader program that could eventually sweep $500 billion in loans from bank balance sheets, officials said.