Word: plan
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...there are still many unanswered questions as to how the plan can restore confidence. And for consumers, the effect of the latest move will be hard to gauge, since it is designed merely to ease the sting of the coming economic recession - meaning there will still be job losses, bank closures and business failures...
...plan calls for Treasury to inject billions of dollars into the banking system. Paulson is requiring the nine biggest lenders in the country - including Bank of America, Citigroup and JPMorgan - to sell $125 billion of preferred shares to the taxpayer and to commit in return to lending out much of that money. That should have an immediate effect in reviving the lending business. Treasury is making another $125 billion available to smaller banks on the same terms...
...bigger question: Is there enough money to pay for everything the government is proposing? The new plan accounts right off the bat for a big hunk of the $700 billion that Congress approved. Will there be enough left over to buy up the toxic debts in the financial sector, for which the $700 billion was originally designed? Some analysts have estimated that those bad debts could total well over $1 trillion. It would be politically unappealing, to say the least, for the Administration to have to go back to Congress for more bailout money...
...other significant parts of the new plan are funded from other sources, and won't add to the taxpayer tab. The Federal Deposit Insurance Corporation (FDIC) will guarantee certain bank accounts - those mostly used by businesses for payroll and other expenses - above the current $250,000 limit. The FDIC will also guarantee lending between banks by creating a new kind of debt. The FDIC is calling this program a "Temporary Liquidity Guarantee...
...among banks - will determine how badly the real economy is hit: how many people will lose their jobs, how many businesses will close, how many banks will fail. Everyone from Paulson on down acknowledges that those numbers will rise dramatically in the coming months. But the latest plan is meant to lessen the impact. As Paulson said this morning, "Today's actions are not what we ever wanted to do, but today's actions are what we must do to restore confidence in our financial system...