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November 24, 2008 Issue Posted November 13, 2008, 5:00PM EST

News You Need to Know

Squaring Off Over a Stimulus Plan

It's tricky being President-elect in the midst of an economic disaster. Barack Obama and his wife paid a ritual visit to the White House on Nov. 10, during which he and President George W. Bush sat down to trade ideas on what is to be done. Obama pressed for a quick bailout of U.S. carmakers, given that they had just reported astoundingly bad numbers. General Motors (GM) burned through $6.9 billion in the third quarter and raised the specter of bankruptcy. But Bush demurred, so Obama will work with congressional Democrats on both an auto bailout and a $60 billion to $100 billion stimulus package they hope to pass in the upcoming lame-duck session. Obama won't attend the international crisis summit on Nov. 14, limiting its chances for action.

—Edited by Harry Maurer & Cristina Linblad

A Bailout Balloons

First it was a piddling $85 billion. Then it was $123 billion. Oh, heck, throw in $21 billion more. Oops—still not enough. So on Nov. 10 the Treasury Dept. and the Fed announced a complete overhaul of aid to AIG (AIG). The maximum outlay now stands at $173 billion—some of it secured—and the credit default swaps that have so haunted the insurer will be moved off its balance sheet. The deal didn't come soon enough to save AIG's third quarter, in which it rang up a $24 billion loss. Repaying Washington still depends on selling off units, and so far no deals have come through. Meanwhile, guess who also wants in on the bailout money? American Express (AXP) said on Nov. 10 that the Fed approved its application to become a bank holding company, which makes it eligible.

See "Will AIG Be Able to Repay Taxpayers?"

—Edited by Harry Maurer & Cristina Linblad

Rescue Moves

So you're three months late on your home loan and owe more than 90% of what the place is worth? Don't move in with Mom just yet. On Nov. 11, Fannie Mae (FNM) and Freddie Mac (FRE), the giant mortgage companies nationalized in September, said homeowners who had suffered a hardship that caused them to fall behind may get their loans rejiggered so payments come to no more than 38% of their income. Some critics, among them FDIC Chairwoman Sheila Bair, said the effort falls short of what's needed. Bair favors using some of the $700 billion financial services bailout package to avert foreclosures. On another front, Treasury Secretary Henry Paulson said on Nov. 12 that he wants to use $350 billion of the bailout fund not to buy toxic assets but to spur consumer lending.

See "Modifying Mortgages Is Just a Band-Aid"

—Edited by Harry Maurer & Cristina Linblad

Mortgage Snake Pit

At the heart of the subprime meltdown and global credit crisis lie some of the most egregious business practices that American finance has ever seen—including those perpetrated by hired guns called mortgage wholesalers. To satisfy Wall Street's craving for dubious mortgages, men and women on the front lines of the market offered sexual favors and cash under the table to cut deals that skirted both ethics and the law.

—Edited by Harry Maurer & Cristina Linblad

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