What Now? Life After the Bailout Bill

Bailout Delay: The Bad News?

Citigroup's Alexander said that if a new deal happens this week, it would cushion the blows recently dealt to the U.S. economy, including the collapse of the investment bank Lehman Brothers, the near-collapse of insurance AIG (which received an $85 billion loan from the government), and the conversion of Morgan Stanley and Goldman Sachs from investment firms into bank-holding companies.

But, he said, the delay of a bailout approval has already had some consequences. Besides the turmoil in the stock markets, Alexander said that consumer and business spending will likely continue to slow.

"Each new little bout of economic volatility, financial volatility, pushes people in the direction of being more cautious," he said.

If it takes even longer for a bailout plan to be approved -- say, until after the presidential election -- Alexander said that policymakers could turn to smaller-scale solutions. The Federal Reserve, he said, could cut interest rates once again and could also lend more money to financial institutions.

And, even without congressional approval, mortgage giants Fannie Mae and Freddie Mac -- which were taken over by the government earlier this year -- could buy off a limited array of troubled mortgage assets from banks.

But even with the advent of such alternative solutions, Alexander said, Americans could expect to see the economy to continue to deteriorate with a tightening of the credit market, making loans harder to get for individuals and businesses alike. That means lower consumer spending, more job losses and possibly more bank failures.

"I think it would be a good thing if Congress came back and passed" the bailout bill, he said.

Citigroup had previously released a statement in support of the bill, but a spokeswoman for the bank said that Alexander, as an economist, had formed his opinions independently of his employer.

Bailout Delay: The Good News?

Some homeowner advocates see promise amid the forecasts of doom and gloom.

"I think all we can hope for is this presents an opportunity for them to do more for homeowners," said Brenda Nuiz, the legislative director for the Association of Community Organizations for Reform Now, an advocacy group for low- and middle-income families.

Nuiz said that lawmakers now have the chance to include in the bill provisions that were conspicuously absent in the legislation defeated by the house on Monday -- measures to directly help homeowners.

"We're looking for real language with some real teeth," Nuiz said.

Specifically, Nuiz said that the bill should allow the government, as the new owner of troubled mortgages, to mandate that loan servicers, such as banks and other companies, modify home loans to increase the likelihood that struggling homeowners will avoid foreclosure.

The defeated bill included a provision that said the U.S. Treasury secretary could "encourage" servicers to prevent foreclosures by turning to programs like Hope Now, a White House-backed effort by the private sector to work out solutions between lenders and home loan borrowers.

According to a statement released by Hope Now in July, the program had helped some two million homeowners fend off foreclosure.

But Nuiz said that many of the solutions offered by the program come in the form of "work-outs" that don't actually lower the amount of money homeowners must pay to stay in their homes. And the loan modifications that do happen, she said, take a long time.

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