Last week, Obama’s bailout plan failed to reach the minimum votes required for it to pass in the Senate. The $819 billion economic stimulus package passed in the House, made up primarily of Democrats, however in the senate, not a single Republican voted in favor of the plan. The senate has shown a will to find some compromise due to the state of the economy. The adjustments proposed include tax cuts, aid to the housing market, and a reduction in spending provisions. Also, a policy to cap executive pay in banks that have received taxpayer aid may emerge as early as this week. These alterations have pushed the overall cost of the bill to $890 billion. The extent to which the White House will compromise is yet to be seen.
A major difficulty complicating economic proceedings is what to do with toxic funds. Although Bush Secretary of Treasury Henry Paulson’s original idea of creating “bad banks” to buy toxic assets from “good banks” was quashed by Congress in September and October, the Obama administration is now looking at the possibility of instating this policy with certain reforms added to ensure that the government does not pay exorbitantly inflated prices for toxic assets (which would essentially be a handout from taxpayers to banks). Reforms in capital requirements for banks may also be considering, raising the amount of money a bank must have to lend during good financial times and lowering the amount necessary to lend during the hard times. Essentially, the Obama administration must sort through a quagmire of economic confusion in order to come to a solution, and hopefully they will make it through the sludge of toxic assets.
