The New Lay of the Land from Wall Street to Capitol Hill

If you missed it on CNN, then you've probably seen President Bush's announcement in your email or online - you, we, all of us taxpayers are going to be stockholders in major U.S. banks to the tune of $250 billion (which will come out of the $700 billion economic rescue legislation passed by Congress and signed by the President). The Wall Street Journal has an excellent write, or if you prefer here is the Treasury press release.

What Why You Care thinks is interesting is that the Treasury press release says that the $250 billion is coming out of rescue legislation's TARP program (Troubled Assets Relief Program).

Here's why you care: Yesterday we attended a breakfast discussion with Interim Assistant Secretary for Financial Stability Neel Kashkari who is responsible for the TARP program. TARP is interesting because until this weekend it seemed like the $700 billion would be used to buy up the problem assets (bad loans, mortgage products, mortgages themselves) from the banks to hold and resell them. However, that takes infrastructure and bureaucracy, both of which take time to build. That's why Mr. Kashkari yesterday detailed all the things Treasury is doing at breakneck speed to put in place the necessary tools to buy and hold assets. Meanwhile, Friday night and over the weekend it became more apparent the U.S. government would start buying essentially shares in banks (thus allowing banks to have fresh cash). It would seem that TARP is not going to be as big as we thought in terms of buying loans/mortgages etc. (There may still be some purchase and reselling of the assets, just not as much as first signaled).

What's this mean for you? It means less taxpayer built infrastructure. That might be good, it might not. BUT, we can tell you this is a shift, and you will see this debated in the days, months, years to come depending on how successful it is - Was the direct purchase of the banks' shares a better call than the direct purchase, holding, and reselling of the banks' assets?

Why You Care just wants you to be ahead of the curve when it comes to policy debates that will play out on the business pages, and on Capitol Hill.