Senate Banking Committee Chairman Christopher Dodd, D-Conn., said on "Good Morning America" today that in his 28 years in Congress, this is one of worst situations he's encountered, especially when told last night "that we're literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally."
"This is about a serious a situation, as both Richard and I would say we've confronted in our collective years in Congress -- I've been here 28 years," Dodd said of Sen. Richard Shelby, R-Ala., the top Republican on the Senate Banking Committee.
Whatever the cost turns out to be, it will be astronomical.
"I figure it'll be at least a half a trillion," Shelby said when pressed on "GMA" on the size of the bailout. "But when you look at what the Federal Reserve has already done, and the extension of power to Treasury to deal with Fannie Mae and Freddie Mac, I believe we're talking about a trillion dollars."
"We know $500 billion or $1 trillion, that's a lot of money. And sooner or later it's going to visit the taxpayer. Sooner or later it's either going to be a debt charged to all of us to our children," Shelby said.
For months, traders have stayed away from the mortgage investments because it is unclear what type of mortgages they contain and how risky they are. Since nobody wants to buy them, one Wall Street firm after another has had to mark down the value of these investments to nearly zero. By doing so, they then needed to raise large amounts of cash to cover their bad bets.
One of the reasons nobody swept in to save Lehman Brothers is that they didn't want to take on the bad debt. Once the company entered bankruptcy, Barclay's offered to take over the profitable parts of the company.
If the government takes these mortgage-backed securities off the banks' hands, Wall Street firms can focus on their other, still-profitable investments without having to constantly divert profits to cover ever-growing mortgage losses.
Many questions still loom, including how this will work exactly, how much will it cost and who will manage all the new government-owned investments?
Also unresolved: How would the government set the price for the bad debt? Will members of Congress be able to act on this before heading home to their districts to campaign? And, of course, will this finally do the trick to end the crisis?
Shelby stressed the need for more information. "Is this their superplan?" he asked on "GMA."
"We want to see the details. This is not a done deal yet, but we know there's a crisis. There's stress in the financial markets," he said.
News of this comprehensive plan has been followed by two other emergency actions by the government.
First, the Securities and Exchange Commission this morning temporarily banned short selling -- basically betting that a stock's value will decline -- of 799 financial companies until Oct. 2. Regulators in the United Kingdom took a similar step Thursday.
"The Commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets," Cox said in a statement. "The emergency order temporarily banning short selling of financial stocks will restore equilibrium to markets.