The mortgage bailout deal would essentially make the taxpayers liable for bad mortgage lending by private companies, but federal officials argued that this was the best way of stemming the credit crisis. Investors worldwide hold $5 trillion in debt backed by the two firms, and their failure would shake the global economy.
In this current economic situation, there needs to be some kind of viable way to repair credit lines and get the economy moving again. Treasury Secretary Paulson’s Troubled Asset Relief Program, or TARP, doesn’t seem to cover enough. The FDIC’s chairperson, Sheila Bair, has set up her own strategy; a $24 billion plus plan for the 1.5 million homeowners facing foreclosure. Her idea is to give a stimulus of $1,000 to lenders for each renegotiated loan to owners in danger of heading to foreclosure. In the event of default, the FDIC will take on up to half of the burden. Paulson hates it, straight away, and proclaims that its just more spending that will lead to the bankruptcy of the FDIC. Some others view Bair’s actions as one of the first real attempts to help repair credit of the banking system and get cash flowing again.
