So, the New $700 Billion Dollar Mortgage Bailout Bill (aka. HR 1424) has been passed by both houses of Congress and signed by the President.
Now What? How does this Bill help Main Street?
There are 4 major components designed to help Joe Sixpack on Main Street.
- Freeing up the credit markets so financing is easier to get.
- Assist Homeowners with Loan Modifications to avoid Foreclosure.
- Increase the FDIC Insurance Limit to $250,000. (temporary)
- Delay the implementation of the Alternative Minimum Tax (AMT) for 1 year
While the over all Goal of the Bill is to give the Market a "Shot in the Arm", markets did not react favorably. Stocks, Gold and Oil all closed down after the signing.
So how does the plan work to Free up the Credit Markets? The plan is by the the Fed buying up the debt that nobody else wants, banks can then lend money more freely. The Banks will not have to increase their reserves to cover delinquent loans and foreclosed assets, because they have sold these notes to the taxpayers.
Since the Banks don't have to increase their reserves they can lend money more freely in the market and the leverage can get the economy rolling again.
These Loans and other debt that the Feds have procured can be renegotiated to help troubled borrowers regain financial stability. Since the Feds are buying the debt at a discount the goal is that restructuring the payments could stop the default hemoraging and eventually turn a profit.
To help mitigate "Runs on the Bank" on institutions like Wachovia, currently seeking refuge in the arms of Citi Bank or Wells Fargo, a provision to temporarily increase the FDIC insured deposit limit to $250,000. This should help big and small banks that are struggling from having their deposits wiped out keeping them in business.
There have been several riders and amendments stuffed into the Bail Out Plan. These include money for rural schools, mental health benefit inclusions and a bunch of tax extensions and exemptions. The most important of which is the delay of implementing the Alternative Minimum Tax (AMT) for one year.
The delay of the AMT will save save middle class Americans from a tax increase and help them have more money that can be spent to help the economy.
To read the $700 Billion Bail Out Bill in its entirety use this link.
http://www.govtrack.us/data/us/bills.text/110/h/h1424.pdf
Danke Schoen,
Nate Ellis
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