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More analysis of the bailout plan -

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ELEANOR HALL: The details that are emerging about the bailout of the financial system suggest that
the US Government is planning to buy the troubled assets from the banks at hugely inflated prices.

Economics correspondent Stephen Long has been analysing the proposal and the comments made to the
Senate Banking Committee by the US Treasury boss and the Federal Reserve chairman.

He joins us now. Stephen, we've just been hearing from Michael that the Prime Minister thinks that
Australian banks will get something from this bailout, what can you tell us about the details we
know so far?

STEPHEN LONG: Well the devil is in the detail and it's actually in off-the-cuff remarks that Ben
Bernanke, the chairman of the Federal Reserve made to the Senate Banking Committee, not in the
prepared text, and the giveaway is that he said that the Treasury will be paying hold-to-maturity
prices or something close to hold-to-maturity prices for these assets.

ELEANOR HALL: What does that mean?

STEPHEN LONG: In plain English what it means is they will be paying a hugely inflated price to
their current book value.

How do you work out what the current maturity price is, well the logic is you probably go back to
something close to the original price that applied to these assets, before the huge financial
meltdown and the mortgage meltdown.

And so really what you're seeing here is a fairly transparent attempt within this coded language,
it's a giveaway, that it's a fairly transparent attempt to subvert the current market where there
is no price, they are liquid assets, you can't sell them at any price, and they're worth hardly
anything, if anything and to pay something close to the original value, what they would notionally
be worth on maturity.

And that's just a transparent attempt to throw cash at the banks, subvert the current market and
throw cash at the banks.

ELEANOR HALL: It's not normal behaviour though for a bank to pay something way above what an asset
is worth, what's the rationale for it?

STEPHEN LONG: Well the rationale is that basically, the US financial system will be hugely
undercapitalised, is hugely undercapitalised, doesn't have enough money to continue operating and
providing new lending, the puzzle in this bailout up till now has been how it would help just
taking the distressed assets off the books of the banks, because they would still be lacking
sufficient capital, they would have to raise new capital.

But what this shows is that they're not just looking at taking the assets off the hands of the
banks, they're looking at doing it in a way where, by sort of subverting the market price and
giving this hold-to-maturity price, they can throw a whole lot of new capital into the US banking
system.

So it's effectively a taxpayer bailout of the banking system.

ELEANOR HALL: Well the head of the US Federal Reserve and the head of the US Treasury have been
facing a very rough time in congress it seems, convincing them that this plan should go through.
Will it help that these details are coming out?

STEPHEN LONG: Well the problem that they've got is that the congressman are going back to their
constituencies and facing outrage, some of them have said that, at the idea that you would have
this massive bailout for Wall Street without anything being done for the homeowners who are losing
their homes.

And there are respected economists, we had Prof Nouriel Roubini on this program yesterday saying
that unless you actually deal with the wave of foreclosures you won't solve the problem.

So they're getting huge resistance from Congress and a lot of economists about having a big bailout
for Wall Street without doing anything for the homeowners.

ELEANOR HALL: Is it possible they could do a bailout for homeowners as well?

STEPHEN LONG: Well I guess there's a limit to the money, you've got a situation now where they're
going to have to raise a huge amount of foreign debt, essentially selling bonds overseas to pay for
all this and they're going to have a trillion dollar US budget deficit, just on the basis of this
bailout and the other ones in recent times.

So there's a limit to how much money they've got, but they are getting huge resistance, my
suspicion is that, push comes to shove, this is a game of brinkmanship and that Congress will have
to approve some sort of package, the question is what kind of caveats they can put into it before
it's passed.

ELEANOR HALL: Stephen Long our economics correspondent thank you.