Posted by: admin | October 6, 2008

$700 billion Bailout Visual Summary

I’m a huge fan of visual learning. The above graph is a great way to understand the US government’s strategy to address the current financial crisis.  The biggest question I have of all is how the gov is going to value the distressed assets they will buy off all the financial institutions.  In the debt capital markets, asset backed loans such as mortgages are defaulting, credit card balances are rising from high interest rates, and auto loans are going unpaid from a saturated & depressed auto market.  How do you value these accurately when you don’t know how much farther they will fall?

Key Points:

  • President Bush signed the $700 billion financial bailout package into law Friday October 3, 2008, after the the House voted 263-171 in favor of the legislation.
  • The new law authorizes the Treasury Department to spend up to $700 billion to buy mortgages and other troubled assets from financial institutions. It requires the department to modify mortgages whenever possible to keep people in their homes.
  • Companies that sell mortgages and mortgage-back securities to the government will be required to provide warrants to the government so taxpayers will benefit if the companies’ earnings improve. The bill also includes limits on golden parachutes and executive compensation for companies that participate in the program.  In addition, the bill also creates a government insurance program to guarantee troubled assets.
  • The Senate added additional provisions, including a temporary increase from $100,000 to $250,000 in Federal Deposit Insurance Corp. coverage of bank deposits.
  • The bill also extends a variety of expiring tax breaks, ranging from the research and development tax credit to tax incentives for alternative energy. The bill also would keep the alternative minimum tax from hitting an additional 24 million people considered “middle class”.
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