The effects of the historic $700 billion bailout package passed Friday by Congress and quickly signed by President Bush will take months to play out. Still, some effects should be almost immediate.

Passing the legislation alone ''will loosen up some credit,'' said Diane Casey-Landry, chief operating officer of the American Bankers Association. ``A lot of the problem has been a crisis of confidence.''

No one knows how long it will take for the banking system to stabilize and the credit markets to return to some semblance of normality.

In recent days, credit markets -- jolted by startling events like the bankruptcy of Lehman Brothers and a government bailout of American Insurance Group -- have bogged down, making it difficult for businesses and consumers to get loans or lines of credit. Banks, worried about the strength of their peers, have refused to lend even to one another, disabling a critical funding mechanism that lubricates the economy.

Among immediate changes from the legislation: U.S. bank account deposits are protected up to $250,000 by the Federal Deposit Insurance Corp., up from $100,000 before passage of the law. That should help ease consumers' worries and halt a rush to move savings to only the safest institutions.

The emergency legislation gives the Treasury power to buy a host of distressed assets to get them off the books of financial institutions to help free up the credit markets.

But the Treasury must still work out rules for how it will buy the assets. One system under consideration is a reverse auction, in which the government would offer to purchase certain types of assets, taking bids from participating banks and institutions and selecting those at the lowest price.

''This is so new, it's going to have to be invented,'' said J. Thomas Cardwell, head of the financial institutions practice at law firm Akerman Senterfitt in Orlando.

FIRST, THE ELECTION

A Treasury official, who declined to be named because details of the agency's plans are still being worked out, said it's unlikely that Treasury Secretary Henry Paulson would begin purchasing distressed assets until after the Nov. 4 election.

It could take up to six weeks for Treasury to hire about two dozen full-time employees for the effort and to contract anywhere from five to 10 asset-management companies to help purchase and later resell troubled assets, the official added.

''We would expect the Treasury to start ramping up the size of auctions over the next several weeks to fund the program -- with an initial target of perhaps $100 to $200 billion in the program account by mid-November, but . . . actual purchases of securities are not likely until perhaps the second half of November,'' Brian Bethune, an economist with forecaster Global Insight, said in a note to investors.

One of the toughest issues for Treasury will be figuring out what to pay for the assets, which include a variety of mortgage-backed securities and other complex packages of assets. The trick is to pay enough to avoid crippling the selling institutions but not so much that taxpayer funds are wasted.

In the current frozen situation, no one knows how to value the assets, because the crisis of confidence has dried up demand, sending values plunging.

THE PRICE QUANDARY

''The lowest price isn't necessarily the right price. You want to get these assets bought at the right price, not the rock-bottom, fire-sale prices, because that might affect the value of the whole market,'' said Scott DeFife, senior managing director of government affairs for the Securities Industry and Financial Markets Association, a trade group that represents securities firms, banks and asset managers.

Join the discussion

Note: If this is your first time using our NEW commenting system, you will have to LOG OUT and then LOG BACK IN.

The Miami Herald is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. In order to post comments, you must be a registered user of MiamiHerald.com. Your username will show along with the comments you post. Thank you for taking the time to offer your thoughts.

     Showing: Oldest first Newest first Most-recommended first Least-recommended first

@Nyx.AuthorDisplayName@ wrote on @Nyx.PostedAtTime@:

@Nyx.CommentBody@

@Nyx.Recommender@ @Nyx.AbuseReporter@