A deal to fix the nation's broken financial system seemed to be in disarray Thursday evening, after a bipartisan group of lawmakers announced earlier in the day that they had agreed, in principle, to the terms of a $700 billion bailout package.
The change came after presidential candidate John McCain flew to Washington and met with fellow Republicans on Capitol Hill. The party's leadership then suggested changes to the proposed bailout during an afternoon meeting with President Bush and leaders of both political parties, including Democratic presidential candidate Barack Obama.
While it wasn't completely clear what role presidential politics were playing in negotiations, it was becoming increasingly clear that Congress was struggling over the details.
"Whatever bailout program is going to be enacted, it's going to be unfair to somebody, someplace," said David Vang, chair of the finance department at the University of St. Thomas.
Polls say two-thirds of Americans don't like the idea of bailing out Wall Street, though both political parties say the rescue package is necessary to stop the economy from falling into a deep recession.
"It's kind of like visualizing a river that's getting plugged, and the government is kind of buying the sledge and is going to introduce it into the river later," Vang said, describing the task before Congress.
The river, metaphorically speaking, is the financial crisis, and what people don't like is the $700 billion it will take to stop the flooding.
Congress most likely won't pay it all at once, and they want some limits on the amount of money going to wealthy CEOs included in the package. There also are concerns about homeowners whose inability to pay home loans is what first lifted the floodgates. Additionally, Congress wants to build in oversight provisions to prevent Treasury Secretary Henry Paulsen from having too much power to act without answering questions.
There have been government bailouts of private businesses before in this country, but never anything on this scale.
The non-profit group ProPublica compiled a list of bailouts and their cost to taxpayers in 2008 dollars (complete list at www.propublica.org/special/government-bailouts).
Taken together, the $1 trillion package to bail out Bear Stearns, Fannie Mae and Freddie Mac, A.I.G. and the rest of Wall Street dwarfs others. To date, the most expensive bailout was the 1989 Savings and Loan package, which cost almost $294 billion. The first modern corporate bailout was in 1970, when Congress rescued the failing Penn Central Railroad for just over three billion, in today's dollars.
David Vang says it will take more than all of this rescue money for the bad behavior to end.
"We may have to have some stricter regulations in the long term," he said.
If Congress doesn't reach a deal by Friday, it's not clear what will happen with the presidential debate scheduled for that night. John McCain has said he won't debate if the bailout isn't done. Barack Obama said he intends to be there, and the commission hosting the debate in Oxford, Miss., said the debate will go on as scheduled.
(Copyright 2008 by KARE. All Rights Reserved.)