The federal government is now planning to buy up distressed mortgages -- the underlying cause of the current financial crisis -- in "what could become the biggest bailout in United States history," according to the Times. While no numbers were cited, it would likely be larger than the largest bailouts to date, so think in terms of hundreds of billions. Congressional leaders seem to be taking part in these negotiations, a change from the past week when the Treasury and the Federal Reserve had operated as more-or-less independent entities and the Bush administration itself remained silent:
Leaders of both parties had complained about a lack of hard information flowing from the administration. House Republicans even canceled a closed-door party session Thursday morning after the administration refused to provide an official to brief them on the administration's emerging policies.
Thing to look out for: House Republicans desperately trying not to vote for the legislation that comes out of the current negotiations -- since it's antithetical to all their values -- but doing so anyway. John McCain first oppossing, then supporting this legislation while attacking Barack Obama for supporting "massive government." Obama's reaction will be the most interesting: Will he come out in favor of this plan? His agnosticism on the AIG bail-out gave McCain traction yesterday, but this is plan could be much more effective. I'll let you know.
Update: Barry O. says go! Sort of. While coming out in favor of "bold and decisive action" and emphasizing a number of solid first principles (see his statement after the jump), he has declined to have his staff present a more detailed blue-print until after the Treasury and the Federal Reserve present their plan.
On the other hand, John McCain has offered up a plan for a Mortgage and Financial Institutions Trust (also after the jump), which would be a kind of Treasury-based clearinghouse for voluntarily collecting bad loans and eventually reselling them to the private markets. It's a funny compromise between McCain's pro-regulation rhetoric and his deregulation policies, and I'm not sure it would work because a) it's voluntary and b) it seems to be a good way for corporations to use the government to funnel them a lot of cheap loans.
Obama's plan may be smarter policy-wise (best to let the people in charge actually be in charge), but it's possible McCain's direct answer may play better politically. As ever, we shall see.
--Tim Fernholz
