Year of the bailouts: It's all about timing
Every day brings more news about the government's efforts to fix the economy. Here is how the plans are taking shape.
NEW YORK (CNNMoney.com) -- Now the clock is really ticking for Henry Paulson.
The Treasury secretary has just $20 billion of unallocated money from the $350 billion Congress put under his charge for the financial bailout package. With Paulson hinting that the remaining $350 billion of the $700 billion Troubled Asset Relief Program (TARP) would be saved for the next administration, time is of the essence.
Treasury has committed the first pile of money -- $250 billion to capital injections for financial institutions. So far, it has sent out $158.6 billion to banks, or 63% of the total allotment. President Bush asked for another $100 billion in October, 80% of which has already been allocated.
In that second batch of funds, the government gave troubled insurer AIG (AIG, Fortune 500) $40 billion and lent Citigroup (C, Fortune 500) $20 billion (on top of the $25 billion it received from the first bailout batch). Then, Tuesday, Treasury dedicated another $20 billion to cover any losses that the Federal Reserve might suffer as a part of a new consumer loan bailout.
That new bailout, announced Tuesday, will be financed by a different pile of funding - most likely from the printing of more money. The Federal Reserve and Treasury Department said they will allocate $800 billion more to go to holders of loans backed by consumer debt in an attempt to jumpstart lending by the nation's banks for mortgages, credit card purchases and cars.
And that may not be the last new bailout measure. There's a growing chorus of voices outside of Treasury to spread bailout money around.
The recent struggles of GM (GM, Fortune 500), Ford (F, Fortune 500) and Chrysler have built momentum for a bailout of the U.S. auto industry. Automakers have until Dec. 2 to submit proposals for how they would use - and pay back - $25 billion of government funding. The Bush administration has said it does not want a Detroit bailout to come from TARP funds.
Some government officials like FDIC Chair Sheila Bair have called for TARP money to be used to guarantee mortgages backed by private lenders to encourage them to restructure loans to troubled homeowners. The Bush administration's new program to modify mortgages announced earlier in November stopped short of providing direct government financial help.
The Treasury would have to go back to Congress for the remaining $350 billion. Paulson has repeatedly said there is no "timeline" for asking lawmakers for that authority, which many economists believe means that will be left for President-elect Barack Obama's nominated Treasury secretary, Timothy Geithner.
Here is how the government has thus far invested billions of dollars to rescue banks, companies, consumers and their homes.
The government has taken these steps to aid financial institutions.
Term-auction facility: $1.6 trillion in loans to banks so far in exchange for otherwise unwanted collateral. The Fed increased its monthly auction limit to $300 billion in October, up from $20 billion when the Fed began the program.
Dollar swap lines: Unlimited dollars to 13 foreign central banks to provide liquidity to foreign financial institutions. The Fed lifted its cap after raising it to $620 billion in October from $24 billion in December.
Bear Stearns: $29 billion in a special lending facility to guarantee potential losses on its portfolio. With the lending facility, JPMorgan was able to step in to save Bear from bankruptcy.
Lending to banks: $70 billion lent on average every day to investment banks, after facility opened to non-commercial banks for first time in March. $92 billion a day to commercial banks.
Cash injections: $250 billion allocated to banks in exchange for equity stake in the financial institutions in the form of senior preferred shares.
Citigroup: $300 billion in troubled asset guarantees and $45 billion in cash-injections to prevent fourth-largest bank from failing.
Fed rate cuts: Down to 1% in October 2008, from 5.25% in September 2007.
Consumers are benefiting from the government's actions in recent months.
Stimulus checks: $100 billion in stimulus checks made their way to 140 million tax filers to boost consumer spending and help grow the economy.
Unemployment benefits: $8 billion toward an expansion of unemployment benefits, to 39 weeks from 26 weeks. Some states must now offer 39-week benefits after an extension act was passed in November.
Bank takeovers: $15.5 billion drawn down so far from the FDIC's deposit insurance fund after 22 bank failures in 2008.
Rehab foreclosed homes: $4 billion to states and municipalities in assistance to buy up and rehabilitate foreclosed properties.
Student loan guarantees: $9 billion so far in government purchases of student loans from private lenders. Higher borrowing costs made student loans unprofitable for a number of lenders, many of whom stopped issuing the loans.
Money-market guarantees: $50 billion in insurance for money-market funds. The Fed then began to lend an unlimited amount of money to finance banks' purchases of debt from money-market funds. The Fed then agreed to purchase up to $69 billion in money-market debt directly. In October, the Fed said it would loan up to $600 billion directly to money-market funds, which was extended for six months in November.
Housing rescue: $300 billion approved for insurance of new 30-year, fixed-rate mortgages for at-risk borrowers. The bill includes $16 billion in tax credits for first-time home buyers. But lenders have been slow to sign on.
Deposit insurance: $250,000 in insurance for interest-bearing accounts, up from $100,000. The FDIC also issued unlimited guarantees on non-interest- bearing accounts and newly issued unsecured bank debt.
Consumer loans: $800 billion extended to consumer loan-backed securities, including $200 billion for assets backed by credit cards and car loans and $500 billion in mortgage-backed securities. The Fed will also buy $100 billion of Fannie Mae and Freddie debt to try to make loans cheaper.
Uncle Sam has intervened to help companies in the following ways.
Business stimulus: $68 billion in tax breaks to corporations to help loosen the stranglehold on businesses trying to finance daily operating expenses.
Fannie Mae, Freddie Mac: $200 billion to bail out the mortgage finance giants. Federal officials assumed control of the firms and the $5 trillion in home loans they back.
AIG: $152.5 billion restructured bailout, including a direct investment through preferred shares, a easier terms on a $60 billion loan, and new facilities meant to take on the companies exposure to credit-default swaps.
Automakers: $25 billion in low-interest loans to speed the industry's transition to more fuel-efficient vehicles.