While no-one was paying attention the US Congress agreed to lend $25 billion to the three big US car manufacturers at 4% interest to help them develop fuel efficient and alternative energy vehicles. The US Treasury has added about $450 billion to the national debt since June already apparently (can't find the link for this now).
In the meantime, the FDIC seized Washington Mutual and sold the good assets to J.P. Morgan already. This deal means no loss to depositors and the shareholders wiped out. Not clear what happens to preferred stock etc. yet.
The Republican Plan that has derailed the financial bailout talks makes no sense at all. It calls for the Treasury to charge insurance premia to insure mortgage back securities a la FDIC. Yeah, let's take more money out of the banks, rather than vice versa. There is increasing talk of a emergency Fed rate cut in the next few days.
The proposed bailout plan might not be the best and it has been explained very poorly if at all to the public. But it seems that something needs to be done to stop the banking system in the US completely collapsing. Most people have no idea why the Great Depression happened. Primarily, it was due to bad policy allowing 1/3 of US banks to collapse. The economy still had the same real assets in terms of factories, land, machines, workers, and ideas, but they couldn't be put to work without the ability to borrow money. And that is what is in danger of happening again.
Up till now the Federal Reserve and the Treasury have been battling a potential collapse. They've made a lot of mistakes and now they're running out of firepower or realize they need bigger guns. The Democrat suggestion to reduce the package size while leaving the door open to granting more spending ability might be a good move as is adding oversight for sure. The other $350 billion might be needed for buying stakes in banks to recapitalize them. If the goal is to increase bank's net worth it is far more efficient for the government to buy new shares from them where each dollar goes 100% into recapitalization than to buy assets from them at a small premium where only the premium goes towards increasing net worth. But the Paulson plan is primarily for the government to act as market maker and it seems to jack up the value of mortgage related assets on the balance sheets of banks that don't actually participate in the scheme, which is a good thing.
BTW, the U.S. Government made money on the post 9/11 bailout of U.S. airlines. So it is possible and it's definitely a misinterpretation to think that the whole $700 billion represents government spending.
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