TARP Bill Raise the National Debt to 11.3 Trillion

The new 700B (actually 800B) TARP passed bill will make national debt to 11.3 Trillion, this is almost double when President Bush took the office. The US Dollar will have to suffer and that will cause another longer term problem. Anyway, here is the highlight of the bill

1. The Treasury department can purchase troubled asset (CDO, MBS, CDS etc) from the Financial Institution upto 700B. 250 Billion immediately, and 100B as required and rest of them with the President advise. It expires by Dec 31, 2009 and can extend upto one year if Treasurey want to do so. They can define the terms and condition.
   
2. It is treasury responsibility to price the security based on the risk. They have to consider tax payer cost, national debt, stability of the financial market, preserving home ownership, need of financial institution and local communities; expect corruption with this line. There will be lot of regulation to avoid the conflict of interest though.
   
3. There will be Financial Stability Oversight Board to review and make recommendation. The board will have Fed Res. Chairman, Ben B, Sec. Hen P, Chairman of SEC, Director of FHA, Secretary of Housing Development. There will be also a special inspector general to supervise and coordinates audit and investigations. He has to provide the quarterly report to congress as well. There will be also a Congressional Oversight Panel, who will review the financial market, regulatory system and use the authority. They all have to cooperate with the FBI too.
   
4. Within 60 days treasury has to report to Congress what they have purchased, if it is more than 50B they have to provide detailed report. Within six month they have to report the effectiveness of this program. They have to also report the transaction within 2 days to public.
   
5. If any profit they have to pay the national debt. There will be profit for sure if it is managed properly.
   
6. Plan will try to avoid foreclosure by modifying the loan terms for the trouble and other home owners, who might consider foreclosure.
   
7. It prohibit the golden parachute for the executives who sell the trouble assets.
8. They will also study of mark to market accounting and its effect,
9. Raise the FDIC limit from 100k to 250k, until Dec 2009. Also raise the borrowing limit for the insurance.

The Question is: Will this works? If "works" means avoid recession then NO. If "works" means potential failure of other financial firms then YES. This program will be more effective if they did earlier; IMO its too late. Also to the other note it is government intervention in the open market, they are fixing the prices, as Ron Paul said. The company like GE and Goldman (both are AAA grade company) are paying 10% to their investor. How much is the cost to borrow the money for the BBB grade company? Costco is selling $100 Starbuck Giftcard for $80. How creative to raise the money? Will government come and rescue them as well? This is the problem and that will bring the economy into the recession. Furthermore small business; if mom and pop shop cannot borrow at sufficient cost, to do their business, that business is going to fail.

Full detail of House Bill here