Ho-hum response: Plan is to resuscitate financial markets

WASHINGTON — The New Deal it is not.

The government's biggest economic bailout since the Great Depression is aimed not at relieving unemployment or reforming questionable business practices but at resuscitating financial markets debilitated by lousy bets on the housing market.

Put simply, the hastily crafted plan lawmakers agreed to in principle on Sunday is intended to revive jittery and fragile banks on Wall Street and Main Street with enough money — by using taxpayer funds to purchase billions upon billions of dollars' worth of their worst mortgage-related assets — so that lending, the lifeblood of the American economy, flows freely again.

If it is working, signs will emerge almost immediately in the interest rates on short-term Treasury securities and in an array of obscure — but crucial — financial benchmarks.

Loans — particularly those made from one bank to another — would be more available and less expensive in a matter of weeks, if not days.

And as the government gobbles the banks' toxic assets, the industry would gain the confidence and strength needed to make it easier and cheaper for families to borrow for homes, cars and college — and for businesses to secure ample debt to pay for plants, equipment and workers.

Still, rising unemployment, high energy prices and falling real estate values will not disappear overnight. Even if the bailout is passed — the House votes today, and the Senate later this week — the economy remains balanced on the edge of a recession.

"At first, there will be some sort of sigh of relief, which I'm afraid would be misplaced, because when you get through the shorter-term terror, you're left with an economic landscape that will be very fragile," said Michael Farr, president of Farr, Miller & Washington, which manages investment portfolios for people and businesses.

Were the clogged credit markets of the past year — and more crucially, the past few weeks — left to fester without a massive government intervention, the United States faced a financial calamity that could have plunged the economy into a deep recession, putting the livelihoods and investments of millions of ordinary Americans at risk, President Bush and Federal Reserve Chairman Ben Bernanke warned.

"Bernanke told us that our American economy's arteries, our financial system, is clogged, and if we don't act, the patient will surely suffer a heart attack maybe next week, maybe in six months, but it will happen," said Sen. Chuck Schumer, D-N.Y., chairman of Congress' Joint Economic Committee.