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1 1 (October 10, 2008)

handle is hein.crs/crsmthabewu0001 and id is 1 raw text is: Order Code RS22969 October 10, 2008 CRS Report for Congress The Emergency Economic Stabilization Act's Insurance for Troubled Assets Baird Webel Analyst in Financial Economics Government and Finance Division Summary Many observers trace the root cause of recent instability in financial markets to uncertainty surrounding the value of widely held securities that are based on mortgages and mortgage-related assets. Losses on these securities have led to the unexpected and relatively sudden failure of several large financial institutions. Credit markets have nearly frozen at times as financial institutions demanded very high interest rates on traditionally routine short-term lending. While there is limited evidence that financial turmoil has caused widespread damage in the broader economy, it is feared that significant real economic effects may be forthcoming, particularly if credit markets remain frozen. Responding to these economic fears, the House took up the Emergency Economic Stabilization Act of 2008 (EESA) as an amendment to H.R. 3997 on September 29, 2008. This amendment failed by a vote of 205-228. Following this, the Senate took up a bill of the same title with a number of additions and passed it by a vote of 74-25 on October 1, 2008, as an amendment to H.R. 1424. On October 3,2008, the House passed the amended version of H.R. 1424 by a vote of 263-171. The President signed the bill into law, P.L. 110-343, on the same day. Both versions of the act intend to address recent instability in the financial market through a variety of measures, including an insurance program for troubled assets. This insurance program would provide U.S. government guarantees for some of the securities that are perceived as being at the root of the current financial instability. This report briefly summarizes and analyzes the insurance program contained in the enacted version of the EESA; it will be updated as warranted by legislative and market events. Introduction Over the past two decades, mortgages have increasingly been funded indirectly through asset-backed securities and non-bank lenders, rather than directly through deposits in the traditional banking model. In most cases, once a mortgage was made, the mortgage was sold by the entity that originated the loan to another institution, which Congressional Research Service - The Library of Congress Prepared for Members and Committees of Congress

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