Proposed $700 Billion Bailout Is Too Little, Too Late to End Debt Crisis; Too Much, Too Soon for U.S. Bond Markets

Weiss Research Submits Policy Recommendations to Congress Today

JUPITER, FL, September 25, 2008 — The proposal before Congress for a $700 billion financial industry bailout will not only fail to end the massive U.S. debt crisis but could actually aggravate the crisis by driving up interest rates, according to a white paper submitted to Congress and banking regulators today by Weiss Research, Inc.  Therefore, Weiss recommends limiting and reducing the bailout as much as possible, while bolstering existing safety nets for consumers.

Based on recently released FDIC and Federal Reserve data, Weiss Research finds that:

  • 1,479 U.S. banks and 158 U.S. thrifts are at risk of failure, with total assets of $3.2 trillion, or 41 times the assets of banks on the FDIC's list of troubled institutions.

  • Among those with $5 billion or more in assets, 61 banks and 25 thrifts are heavily exposed to nonperforming mortgages.

  • The bailouts announced and proposed to date, although expected to cost over $1 trillion, are too small to rescue most institutions at risk, let alone address multiple problems with U.S. interest-bearing debts outstanding of $51 trillion and derivatives held by U.S. banks of $180 trillion.

Martin D. Weiss, president of Weiss Research, comments: "There should be no illusion that the $700 billion estimate proposed by the Administration will be enough to end the crisis. Nor should there be any false hopes that the market for U.S. government securities can absorb the additional burden of a $700 billion bailout without putting major upward pressure on U.S. interest rates, aggravating the very debt crisis that the government is seeking to alleviate." Among its policy recommendations, Weiss urges Congress to:

  • Severely limit the government's authority to buy bad private-sector debts by requiring it to pay strictly fair market value, including a substantial discount that reflects their poor liquidity.

  • Disclose to the public that there are significant risks in the financial system that the government is not able to address.

  • Focus more resources on strengthening existing safety nets, including FDIC insurance of bank deposits, SIPC coverage of brokerage accounts and state guarantee associations that cover insurance policies.

"Rather than focusing on the protection of imprudent institutions and speculators," concludes Weiss, "Congress should do more to protect prudent individuals and savers."

Regardless of what Congress decides, Weiss recommends that individuals continue to invest and save prudently, seeking the safest havens for their money, such as safe banks and U.S. Treasury bills or equivalent.

The Weiss Research white paper, "Proposed $700 Billion Bailout Is Too Little, Too Late to End the Debt Crisis; Too Much, Too Soon for the U.S. Bond Market," is available at
http://www.weissgroupinc.com/bailout.  In addition, as a public service for consumers seeking advice on how and where to find safer institutions, Weiss Research provides a free 1-hour informational video on the Internet, entitled "The X List," at MoneyandMarkets.com.