Questions About The Mother of All Bailouts

As Congressional staffers met with Treasury and Fed officials over the weekend to begin working out the details of the proposed plan for the government to ease the strains on the banking system by buying up toxic mortgage-related assets that are behind the credit crunch, a few more details emerged. According to a three page outline of the plan prepared by the Treasury, they would like authorization to buy up $700 billion in assets; that’s on top of the roughly $200 billion that could be spent shoring up Fannie and Freddie and the $85 billion for AIG. All of which raises huge questions about how the facility will be structured, who will benefit, and what the implications are for the incoming Adminstration. The only certainty? Two months ago, in a story examining why neither of the two candidates’ economic plans add up, we wrote about the severe budgetary and political constraints that either McCain or Obama will face come January; now, those constraints will be far worse. With a budget deficit that looks like it could surpass $1 trillion next year, whichever of the two is elected will face an even tougher time funding his spending and tax cut plans. The enormous spending required for the bailouts will force each to confront tough questions about which of his priorities can still be funded, and which will have to fall by the wayside. Big spending on new health care, or big new tax cuts, are likely to go first.

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