Despite the $700 billion bailout plan passed by Congress, financial institutions remain relatively unwilling to extend credit to consumers. Henry Paulson, the Secretary of the Treasury, has described a solution to be administered by the Federal Reserve with the goal of alleviating the credit crunch.Instead of channeling the funds directly to banks and lending institutions, the Federal Reserve would allocate about $50 billion to make it easier for consumers to secure car and student loans, for example. Though the goal of the plan is to help consumers directly, $50 billion is a relatively low amount compared to the $40 billion already devoted to the bailout of AIG and the $125 billion for the country’s nine largest banks.
The decision to distribute funds in a way that would make them more available to consumers marks a shift in the original plan Paulson proposed in September. The program was designed with the intention of buying mortgage backed securities, or “troubled assets” to give banks more resources to make loans.
In his remarks on Wednesday, Paulson also re-emphasized his stance that the Treasury will not be using the bailout money to help the American automakers GM, Ford, or Chrysler. The House of Representatives, however, is in the process of drafting a bill that could provide support to the car companies.
Barney Frank, the chairman of the House Financial Services Committee commented on the issue to the New York Times. “The consequences of a collapse of the American automobile industry would be particularly troublesome.”
He offers assurance, however, that the legislation would include language to protect taxpayers.
--Bridget O'Sullivan
