Wall Street Bailout: $700 Billion Won't Be Enough

Three Experts Criticize Proposed Rescue of Financial Institutions

It looks like Congress may finally pass a bailout package for Wall Street, called the Economic Emergency Stabilization Act of 2008, according to Bloomberg Radio.

Full details have yet to be released, but the New York Times reports that the proposal includes the initial release of $250 billion to wipe bad debts off the balance sheets of financial firms.

The remaining $450 billion will be disbursed after a report by the president on the progress of the bailout is issued and a specific request by the president is made for the money.

Congress will have the authority to deny the Treasury the money ("Breakthrough Reached in Negotiations on Bailout," New York Times, Sept. 28, 2008).

But will $700 billion be enough? According to Marc Faber, publisher and editor of "The Gloom, Boom & Doom Report," it'll be a drop in the ocean.

"Looking at the size of the credit default swap market, which is around $62 trillion now, and the world wide derivatives market which is now $1,300 trillion dollars, I very much doubt that $700 billion would make any difference at all," he told CNBC ("$700 Billion May Not Be Enough: Dr Doom," Sept. 26, 2008).

Martin Weiss, president of Weiss Research, shares a similar view. He said in a Sept. 25 press release that not only would the amount not be enough to end the crisis, but "the additional burden of a $700 billion bailout (would put) major upward pressure on U.S. interest rates, aggravating the ... debt crisis."

According to the press release, 1,479 U.S. banks and 158 U.S. thrifts are at risk of failure, with total assets of $3.2 trillion. There are also multiple problems with U.S. interest-bearing debts valued at $51 trillion.

"Reckless people have deluded themselves that this was a subprime crisis," Nouriel Roubini, professor of economics and international business at the NYU Stern School of Business, told the Globe and Mail. "But we have problems with credit-card debt, student-loan debt, auto loans, commercial real estate loans, home-equity loans, corporate debt and loans that financed leveraged buyouts."