How is the Federal Government financial rescue package progressing?

The US Government's $700 billion financial rescue effort is only a few weeks old - but word is getting around that it's already morphed into something far broader and more ambitious than its original intent.

The speed and severity of the nation's economic problems simply may have forced it to change. First, the Treasury added direct investment in banks to its plan to buy up troubled mortgage-based assets. Second, it now seems primed to partially guarantee some home mortgages in an effort to stem a rush of foreclosures sweeping through US neighborhoods.

Further modifications could be coming. Insurance companies and auto firms are also arguing that their credit arms are vital financial institutions now suffering from a cash-flow crisis and they want some of the bail-out money. Other industries may seek to be included, particularly if Congress holds a post-election, lame-duck session to consider additional moves.

The federal government in fact may still be able to set limits on who/what needs to be rescued. But in any case, with all of the financial turmoil, a $700 billion commitment that seemed large at the beginning of the month appears smaller at the end.

At a recent Senate Banking Committee hearing, a Treasury official overseeing the bailout, said the US remains committed to the plan's first intention - the purchase of bad mortgage-based securities that are cluttering the books of financial institutions.

While the Treasury hasn't actually bought any bad loans yet, it has moved ahead with an infusion of cash into the nation's nine largest banks with an additional 20 smaller regional banks slated to receive government money.

One story making the news is about some of these banks using its new government cash to buy other banks or to pay dividends to investors or executive bonuses. While these uses are allowed under rescue bill provisions, questions are coming forth whether they'll help jump-start lending to cash-starved US businesses.

What are your thoughts on the progress of the Emergency Economic Recovery Act?

Emergency Economic Recovery Act

On Monday, September 29, 2008, the House rejected 205-228 a proposed financial rescue package (Cong. Mica and Cong. Feeney voted NO) so it went back for adjustments.

Two things happened the following week before the House then approved a revised financial package by a 263-171 vote (Cong. Mica and Cong. Feeney voted NO).

1. Stock and especially credit markets responded quickly and negatively to the first House vote, threatening a financial market meltdown.
2. The Senate then sweetened the package by increasing the FDIC insurance limit from $100,000 to $250,000 and including the popular tax "extenders" (AMT relief, deduction for state sales taxes, credits for alternative energy and R&D, and more).

On Wednesday, October 1, they approved the package by a 74-25 vote (Sen. Martinez voted YES; Sen. Nelson voted NO).

The rescue provisions of the final package authorize the Treasury Department to buy up to $700 billion in troubled financial assets in several stages, beginning with $250 billion immediately. Treasury will receive an equity stake in financial institutions which choose to participate. Those companies also face limits on the compensation of top executives. Programs to help homeowners avoid foreclosure would be strengthened and expanded. Congress, the GAO, a new inspector general, and a new oversight board will monitor all aspects of the program.

Many agree that the rescue package is far from perfect, but proponents said it should avert a much worse financial crisis.

Monday, October 13, 2008 - stocks are up more than 500 points today as Wall Street seeks to recover from last week's devastating losses. However, there is no doubt we're going to experience a credit crunch, and obtaining a loan or a line of credit is going to become more complex.

How are these developments going to affect your business plans for the future?