by Mike Carney
The Bush administration’s effort to “avoid an imminent meltdown of the U.S. financial system” could end up costing taxpayers $1 trillion, according to The Politico.
They’ve already seized control of Fannie Mae and Freddie Mac, facilitated the sale of Bear Stearns and agreed to lend $85 billion to troubled insurer AIG.
Treasury Secretary Henry Paulson is set to brief reporters at 10 a.m. on the government’s latest rescue plan, which the Los Angeles Times says “would relieve financial institutions of the mortgage-backed securities and other bad assets that are threatening the nation’s economic health.”
He outlined the proposal to lawmakers last night on Capitol Hill.
Sen. Richard Shelby, the senior Republican member of the Banking Committee, talked about the overall pricetag this morning on ABC’s Good Morning America.
“I figure it’ll be at least a half a trillion,” Shelby says. “But when you look at what the Fed has already done, and the extension of power to Treasury to deal with Fannie Mae and Freddie Mac, I believe we’re talking about a trillion dollars.”
Update at 4:49 p.m. ET: The Hill reports that budget writers are warning that the bailout could severely limit government spending, regardless of who controls the White House or Congress.
“This cripples the domestic policy priorities of the next president, whoever it is, because it soaks up so much cash,” said Tennessee Rep. Jim Cooper, a senior Democrat on the House Budget Committee and a former investment banker. “In the long term, it is good news because it will encourage better behavior from everyone.”
As for the cost of the rescue effort, “Don’t assume there will be revenue next year when we do this,” said Rep. John Campbell of California, a Budget Committee Republican, former CPA and member of the conservative Republican Study Committee. He and Cooper both support the Treasury proposal.
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