Business/Economy

(CBS4.com) The $700 billion price tag attached to the government bailout of Wall Street might be hard for most people to get a full grasp on. The plan, called a "Hail Mary" by some, seeks to inject money into the market in hopes of avoiding a long-term economic slowdown, or possibly even a depression.

Here are some frequently asked questions about the Wall Street bailout:

1. How much will the plan cost?
    Congress will appropriate $250 billion to begin with, another $100 billion can be accessed if the Treasury secretary deems it necessary. Another $350 billion could be available, but access to the final $350 billion can be blocked by a Congressional vote.
    The total cost of the plan is estimated at $700 billion dollars. The key word is estimate. Some believe the price tag could be much less, if the mortgages purchased by the Treasury Department can be turned around and resold at a profit when Wall Street begins to go up. However, if the drop in home prices continue, along with any other financial turmoil, losses from the purchasing of bad mortgages could push the plan's cost to $1 trillion.

2. What is the government actually going to purchase?
    The primary focus of the bailout is mortgage-backed securities whose value has crashed due to rising foreclosures and a decline in how much some homes are worth. But, Congress may add in debt tied to auto loans, credit cards, and student loans into a final bailout package.

3. How long will the bailout plan be in place?
    The bailout plan would allow the government to purchase bad mortgages over the next two years. Around 10% of the United States' $11 trillion in mortgages are listed as delinquent or in foreclosure. The plan would allow the government to purchase these mortgages and keep them on the government's books for an extended length of time in hopes of one day reselling the mortgages to investors for a profit.

4. How much will the government
    In the current market, the Federal Government and Wall Street don't know how much the mortgage securities the government may purchase are actually worth. Fed chairman Ben Bernanke said the government doesn't need to buy the mortgages at fire sale prices, but instead should be willing to pay market value for the faulty mortgages in order to help the bailout stabilize Wall Street.

5. What if more than $700 billion is needed to bailout Wall Street?
    If the bailout plan requires additional funding past the $700 billion the initial plan proposes, Congress will have to approve additional funds. The determining factor will be how the purchase of the bad mortgages impacts the market. If the bailout sends the economy upward, the bailout would cost less than the $700 billion tag.

6. How much will the plan cost an individual taxpayer?
         Some estimates say the bailout will cost every resident in the United States over $2,000, assuming the bailout plan works. However, depending on how the money is put into use, the liabilities owned by the new fund would exceed the value of the annual budget of the Pentagon.

7. Who will be in charge of the new fund?
    The plan would also give almost unprecedented power to the Treasury Secretary. Included in the plan was a provision that removed oversight from the Treasury Secretary and made any decision the Secretary made outside the realm of judicial review. However, that provision was quickly frowned upon by most members of Congress and will likely be altered before a final bill passes.

8. Will executives still be eligible for so-called "golden parachutes?"
    In the past few days, lawmakers on both sides of the aisle have agreed to limiting the executive pay for companies that take part in the bailout program. In the past, millions of dollars have been given to the CEO's of companies who are now in trouble, the practice has been dubbed giving a "golden parachute."

9. Is the government taking other steps to help the markets?
    The government put into place a ten-day ban on short-selling shares of hundreds of financial companies. Short-selling is a bet that the company stock will go down and in a small way helped drive some institutions out of business.
    Some experts say the Federal Reserve may have to raise interest rates if the market believes the Treasury overpaid for the mortgages. And, as part of the bailout plan, the Bush Administration asked Congress to raise the nation's debt ceiling from $10.6 trillion to $11.3 trillion for fiscal year 2009.

10. Has anything like this ever happened before?
    Historically speaking, a bailout of the markets is not unprecedented. Dating back to a financial crisis in 1792, the government has often stepped in to help the market.
    In the 1930's, the United States was sinking into the middle of the Great Depression. President Franklin Roosevelt and Congress created the Home Owners Loan Corporation to prevent foreclosures on a large scale. At the time the agency was created, 1,000 people per day were losing their homes to banks. The agency would end up issuing mortgages backed by the government to around one million homeowners. Around 80% of those who took the mortgages paid their loans off on time.
    More recently, the Savings and Loan crisis struck the United States during the late 1980's. The S&L industry broke down when interest rates jumped and the financial institutions began to collapse. The most infamous collapse was that of Lincoln Savings and Loan. Lincoln collapsed leaving the government with a tab of billions of dollars, the CEO of Lincoln wound up in jail and several senators were rebuked for their role.
    3,234 S&L's closed from 1986-1995. Congress created the Resolution Trust Corporation to try and clean up the mess. The government wound up owning shopping centers, homes, resorts and other assets after buying up the S&L assets. In the end, it cost U.S. taxpayers $124 billion, according to the FDIC.

    Source material for this article came from Time Magazine, the Wall Street Journal, Times Online (UK), Marketwatch, and the Treasury Department.

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