Beltway press releases notwithstanding, $700 billion is not the maximum the U.S. Treasury may spend under the terms of Treasury Secretary Henry Paulson's proposed Wall Street bailout.
It's just the ceiling on the outstanding amount at any one time.
The proposal does not in fact set forth an expenditure limit. Instead, it gives Treasury virtually imperial powers, making decisions by the Secretary "non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."
And while purchases are "intended to be residential and commercial mortgage-related assets" Treasury will have the power — after consulting with the Fed — to buy other, unspecified assets as well.
Paulson "is asking for a huge amount of power,'' New York University economist Nouriel Roubini told Bloomberg News. "He's saying, 'Trust me, I'm going to do it right if you give me absolute control.'"
Meanwhile, Barron's reports that an additional $150 billion in write-downs may be ahead at the very time that external sources of liquidity, like sovereign wealth funds, are drying up.
All of which means that the U.S. taxpayers will wind up paying more of the final bill, or the Fed will have to orchestrate additional mergers between financial institutions that will reduce the impact of capital inadequacy, analysts say.
Because rising unemployment makes raising taxes difficult — and because the Fed's resources already are seriously depleted — bank consolidation seems to be the more likely of the two.
How much money is $700 billion, by the way? It's comparable to the hard cost of the Iraq war and it's more than the Pentagon's annual budget.
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