Pols Pitch Federal Agency to Take On Bad Debt

Agency would formalize what feds are already doing in money crisis

By Rob Quinn, Newser Staff

Posted Sep 17, 2008 2:40 AM CDT

(Newser) – The idea of creating a federal agency to dispose of the toxic debt at the heart of the credit crisis is gaining traction in Washington, the New York Times reports. The proposed agency would resemble one set up in 1989 to resolve the savings and loan crisis—but in a controversial extension would also acquire assets not backed by federal deposit insurance.

With the presidential election only 7 weeks away, observers believe it's unlikely that lawmakers will move swiftly to create an agency to manage hundreds of billions of dollars in bad debt. But the government has effectively embarked on a similar course already with its bailouts of Bear Stearns, Fannie Mae, Freddie Mac and now AIG—and the proposed agency would simply be a formalization of current policy, say analysts.

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House Financial Services Chairman Rep. Barney Frank (D-Mass.) questions Federal Reserve Chairman Ben Bernanke during a committee's hearing on Capitol Hill earlier this summer. (AP Photo/Susan Walsh)

Rep. Barney Frank (D-Mass.) has floated the idea of a federal agency to acquire bad debt. (AP Photo/Lisa Poole)

Japan headquarters of AIG, American Insurance Group, Inc., soars in downtown in Tokyo Wednesday, Sept. 17, 2008. In a bid to save financial markets and economy from further turmoil, the Federal Reserve... (AP Photo/Katsumi Kasahara)

A woman walks past the office of U.S. insurance giant AIG, American International Group, in Croydon, South London, Tuesday, Sept. 16, 2008. (AP Photo/Sang Tan)

Pedestrians walk past AIG headquarters on Monday, Sept. 15, 2008 in New York. New York's governor says he will allow American International Group Inc. to use $20 billion in subsidiary assets to provide... (AP Photo/Jin Lee)

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Are we at the point where the private market has made so many bad decisions and is so depressed that it can't
get out from under? - Barney Frank (D-Mass)

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Pols Pitch Federal Agency to Take On Bad Debt