Gingrich Calls on Obama to End Bailouts

/PRNewswire-USNewswire/ -- Former Speaker of the House Newt Gingrich today called on the Obama administration to abandon the strategy of bailing out failing companies, and instead insist that companies choose bankruptcy or receivership as the only way to restore a sense of order and fairness to the economic system.

This includes AIG, who recent reports suggest is going to need another bailout even while rewarding its executives $165 million in bonuses.

In his weekly newsletter for HumanEvents.com, The Newt Gingrich Letter, Gingrich writes about the outrage over the bonuses being paid to AIG executives:

"The cure for our outrage is not merely, as President Obama is demanding, that AIG be prevented from paying its executives... Nor is it acceptable to ask Americans to keep throwing their tax dollars at failed companies and their leaders.

The answer is an old fashioned one: AIG should choose between receivership or bankruptcy. It should not be allowed to choose more bailouts from the taxpayer."

Gingrich continues:

"Thanks to the Bush-Obama-Geithner policy of bailing out failing companies, we now have the worst of all possible scenarios: A taxpayer subsidized, government supervised private company; an unsustainable public/private hybrid that is too public to make its own decisions and too private to be responsible to the taxpayers that are keeping it alive.

"Outrages like the fat cat bonuses currently dominating the headlines will only continue as long as the rule of politicians supplants the rule of law on Wall Street.

"Bankruptcy would replace the rule of politicians over U.S. financial institutions with the rule of law."

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Auto Bailout Leaves Taxpayers on the Hook

U.S. Rep. Lynn Westmoreland on Wednesday voted against the $14 billion bailout package that would provide loans to the Big Three automakers. The bill passed the House 237-170.

“The Detroit automakers maintained an outdated business model, bowing to union demands for bloated salaries and benefits and falling behind their competitors in meeting consumer demands,” Westmoreland said. “I don’t see how my constituents should be asked to pay for those decisions when so many small businesses in my district are facing very tough times and many are going into bankruptcy. There’s no federal bailout for them.

“There’s a Kia plant opening in my district in west Georgia and thousands are applying for the 2,500 jobs that will come there. Why should U.S. taxpayers who work in plants of foreign-based automakers pay to bail out Detroit, their competition? The Big Three’s workers cost their companies, on average, $20 to $30 an hour more than workers of foreign-based automakers.

“It’s good that the bill is designed to prevent huge payouts to executives and golden parachutes, but this still leaves taxpayers on the hook if the Big Three continue to unravel. I also have a problem with the creation of a federal “car czar.” Perhaps the only thing guaranteed to be less responsive to the market than the management of the Big Three is a new federal bureaucracy. Washington politicians and bureaucrats can’t credibly lecture anyone on how to balance the books.

“Congress doesn’t have the best record of late with bailouts. The $700 billion bailout for the financial services industry has not worked. The money has not filtered down to the small businesses and individuals to get loans. The construction industry especially is being hit hard, with banks refusing to restructure loans and allow liquidity. Banks are using the money to buy other banks rather than freeing up the credit market. I’m afraid this auto bailout won’t fulfill its intentions either.”

The bill now goes to the Senate.

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More Than $1 Billion Recovered by Justice Department in Fraud and False Claims in Fiscal Year 2008

PRNewswire-USNewswire/ -- The United States secured $1.34 billion in settlements and judgments in the fiscal year ending Sept. 30, 2008, pursuing allegations of fraud against the federal government, the Justice Department announced today. This brings total recoveries since 1986, when Congress substantially strengthened the civil False Claims Act, to more than $21 billion.

"Now, more than ever, it is crucial that taxpayer dollars aren't lost to fraud," said Gregory G. Katsas, Assistant Attorney General for the Department's Civil Division. "The billion dollars collected this year is only part of the story. By rooting out fraud and vigorously pursuing it, the Department, with the help of concerned citizens who report fraud in hotline calls and in qui tam complaints, undoubtedly saves the country many times that amount in aborted schemes and misconduct."

Assistant Attorney General Katsas also paid tribute to Senator Charles Grassley of Iowa and Representative Howard L. Berman of California who sponsored the 1986 amendments to the False Claims Act, the government's primary weapon to fight government fraud. "Without this important legislation strengthening the Act and, in particular, the qui tam provisions which encourage private citizens to uncover government fraud, such recoveries would not have been possible."

Almost 78 percent of this year's recoveries are associated with suits initiated by private citizens (known as "relators") under the False Claims Act's qui tam provisions. These provisions authorize relators to file suit on behalf of the United States against those who have falsely or fraudulently claimed federal funds. Such cases run the gamut of federally funded programs from Medicare and Medicaid to defense procurement contracts, disaster assistance loans and agricultural subsidies. Persons who knowingly make false claims for federal funds are liable for three times the government's loss plus a civil penalty of $5,500 to $11,000 for each claim.

Relators recover 15 to 25 percent of the proceeds of a successful suit if the United States intervenes in the qui tam action, and up to 30 percent if the government declines and the relator pursues the action alone. In fiscal year 2008, relators were awarded $198 million. (This figure does not include relator shares awarded after Sept. 30, 2008.)

As in the last several years, health care accounted for the lion's share of fraud settlements and judgments-$1.12 billion. This number includes both qui tam claims and those initiated by the United States. The Department of Health and Human Services reaped the biggest recoveries, largely attributable to its Medicare program and the federal/state Medicaid program which funds health care for the needy. Recoveries were also made by the Office of Personnel Management which administers the Federal Employees Health Benefits Program, the Department of Defense for its TRICARE insurance program, the Department of Veterans Affairs and others.

The largest health care recoveries came from pharmaceutical companies and related entities. Settlements with Cephalon Inc., Merck & Co. and CVS Caremark Corp. accounted for more than $640 million. In addition to federal recoveries, these pharmaceutical fraud cases returned $430 million to state Medicaid programs.

The Civil Division's investigation of the pharmaceutical industry is part of a Department-wide effort. Typical allegations include "off-label" marketing, which is the illegal promotion of drugs or devices that are billed to Medicare and other federal health care programs, for uses that were neither found safe and effective by the Food and Drug Administration nor supported by the medical literature; paying kickbacks to physicians, wholesalers and pharmacies to induce drug or device purchases; establishing inflated drug prices knowing that federal health care programs use these prices to reimburse providers, then marketing the "spread" between the federal reimbursement and the provider's lower cost to induce drug purchases; and knowingly failing to report the company's true "best price" for a drug to reduce rebates owed to the Medicaid program.

The Department also collected $133 million in defense procurement fraud. Defense contract recoveries included a $53 million settlement with Pratt & Whitney, a division of United Technologies Corporation, and PCC Airfoils LLC, a subsidiary of Precision Castparts Corporation. The settlement resolved allegations that Pratt & Whitney and PCC Airfoils knowingly submitted false claims to the Air Force for defective turbine blades sold to the government to retrofit the F100-PW-220 engines in F-16 and F-15 aircraft. This case was pursued as part of a National Procurement Fraud initiative, launched in October 2006, to promote the early detection, identification, prevention and prosecution of procurement fraud.

FACT SHEET: SIGNIFICANT RECOVERIES IN FISCAL YEAR 2008

Among the Department's most significant settlements and judgments in fiscal year 2008 were:

* $361.5 million from Merck & Company to resolve allegations that the pharmaceutical manufacturer knowingly failed to pay proper rebates to Medicaid and other government health care programs, and paid kickbacks to health care providers to induce them to prescribe the company's products. The settlement resulted from two lawsuits brought under the qui tam provisions of the False Claims Act.

In the first, which accounted for $221.9 million of the $361.5 settlement, a former Merck employee alleged that the company violated the Medicaid Rebate Statute by providing deep discounts to hospitals that used its drugs Zocor and Vioxx in place of competitors' brands, without reporting those discounts and other cost information to reflect its "best price," as required by the statute to ensure that Medicaid obtains the benefit of the same price concessions other purchasers enjoy. This suit also alleged that Merck paid kickbacks to physicians, disguised as fees for training, consultation, and market research, to induce them to prescribe its drugs, also contrary to law. The United States paid the relator $46.6 million as his share of the settlement under the False Claims Act's qui tam provisions. In addition to the federal recovery, Merck paid $162 million to state Medicaid programs.

In the second lawsuit, which accounted for the remaining $139.6 million of the settlement, a physician alleged that Merck provided deep discounts to hospitals to induce them to administer its antacid, Pepcid, as a means to boost sales through continued use after the patient's discharge. The suit went on to allege, similar to the first suit, that Merck knowingly failed to report these discounts as required by the Medicaid Rebate Statute, which resulted in illegal and inflated claims to federal and state Medicaid programs. In addition to paying the United States $139.5 million in federal claims, Merck paid $114 million to settle state Medicaid claims. The relator received $24 million as his federal share of the settlement and an additional sum for the state recoveries. Merck also entered into a Corporate Integrity Agreement with the Inspector General of the Department of Health and Human Services (HHS) to ensure compliance with federal health insurance programs in the future.

For the original press release, see:
http://www.usdoj.gov/opa/pr/2008/February/08_civ_094.html
http://www.usdoj.gov/usao/pae/News/Pr/2008/feb/steinkrelease.pdf


* $258 million from Cephalon Inc. to resolve claims that the company marketed three drugs for uses not approved by the Food and Drug Administration (FDA). By promoting the drugs for so-called "off label" uses, Cephalon caused providers to charge federal health insurance programs such as Medicare, Medicaid, TRICARE and the Federal Employees Health Benefits Program for unapproved uses of the drugs not covered by the programs. The settlement resolved four lawsuits, three of which were brought by former Cephalon sales representatives under the qui tam provisions of the False Claims Act. Consistent with those provisions, the relators who filed the suits will share $46.7 million as their part of the settlement. In addition to the $258 million recovered for federal programs, the United States recovered $116 million for the Medicaid programs in 14 states and the District of Columbia. Cephalon also pleaded guilty to related criminal charges, paid $50 million in fines and forfeitures and entered into a five-year Corporate Integrity Agreement with the Inspector General of HHS to ensure strict compliance in the future.

For the original press release, see:
http://www.usdoj.gov/opa/pr/2008/September/08-civ-860.html


* $225 million from Amerigroup Corporation to settle both federal and state allegations that Amerigroup, together with its Illinois subsidiary, systematically avoided enrolling pregnant women and other high-cost patients in the company's managed care program in Illinois. The program was funded by Medicaid, which required open enrollment to all eligible beneficiaries. By excluding pregnant women and other high-cost patients, Amerigroup increased its profits in conflict with the law. The United States and Illinois jointly brought suit under the federal False Claims Act and the Illinois Whistleblower Reward and Protection Act. In October 2006, following a lengthy trial, the court entered judgment for $334 million. Amerigroup appealed and the parties entered negotiations leading to settlement. The relator received $56.25 million as his share of the federal and state recoveries. In conjunction with the settlement, Amerigroup entered into a Corporate Integrity Agreement with the Inspector General of HHS to ensure future compliance.

For the original press release, see:
http://www.usdoj.gov/opa/pr/2008/August/08-civ-723.html



* $75 million to settle claims that Kyphon Inc., now Medtronic Spine LLC, violated the False Claims Act by knowingly causing the submission of false claims to Medicare for its kyphoplasty procedure-a minimally-invasive surgery used to treat compression fractures of the spine. The settlement resolved a lawsuit filed by two former Kyphon employees under the qui tam provisions of the False Claims Act. The suit alleged that Kyphon engaged in a seven-year marketing scheme that resulted in certain hospitals billing Medicare for kyphoplasties performed on an inpatient basis rather than for less costly and clinically appropriate outpatient kyphoplasty treatment. This conduct resulted in the Medicare program paying more for inpatient kyphoplasty procedures. The relators received a total of $14.9 million as their share of the settlement. In conjunction with the settlement, Kypon entered into a Corporate Integrity Agreement with the Inspector General of HHS to ensure future compliance.

For the original press release, see:
http://www.usdoj.gov/opa/pr/2008/May/08-civ-455.html


* $74 million from Staten Island University Hospital (SIUH) to resolve two False Claims Act qui tam suits and two other matters. In the first action, a physician and former SIUH Director of Chemical Dependency Services, filed suit alleging that SIUH fraudulently billed Medicare and Medicaid for substance abuse and alcohol detoxification services provided to inpatients in unlicensed beds, in violation of state law, between 1994 and 2000. SIUH paid the United States $11.8 million in settlement of this qui tam action, with the relator receiving $2.3 million as his share of the government's recovery. In related allegations of inflated Medicaid billings asserted under New York State's false claims statute, SIUH paid New York $14.88 million, with the relator receiving $2.97 million as his share of the state's recovery.

In the second action, the widow of an SIUH cancer patient filed suit alleging that between 1996 and 2004, SIUH submitted false claims to Medicare and TRICARE using incorrect codes for cancer treatments not covered by the programs. SIUH paid the United States $25 million, including a relator share award of $3.75 million. In the third matter, the United States alleged that SIUH deliberately inflated the number of residents it employed to fraudulently increase Medicare reimbursement between 1996 and 2003. SIUH paid the United States $35.7 million in settlement of this matter. Lastly, SIUH paid the United States $1.47 million to settle allegations that it billed Medicare and Medicaid for treating psychiatric patients in unlicensed beds from 2003-2005. In conjunction with the settlement, SIUH also entered into a Corporate Integrity Agreement with the Inspector General of HHS to ensure future compliance.

For the original press release, see:
http://www.usdoj.gov/usao/nye/pr/2008/2008sep15.html


* $60 million from Lester E. Cox Medical Centers, a health care system headquartered in Springfield, Mo., to settle claims that it violated the False Claims Act, the Anti-Kickback Statute and the Stark Statute between 1996 and 2005. The United States alleged that Cox entered into illegal financial relationships with referring physicians at a local physician group and engaged in improper billing practices with respect to Medicare. Under the Stark Statute, providers such as Cox are prohibited from billing Medicare for referrals from doctors with whom the providers have a financial relationship, unless that relationship falls within certain exceptions. The United States contended that Cox and the referring physicians ran afoul of the Stark Statute, as well as the Anti-Kickback Statute, which prohibits offering inducements to providers in return for patient referrals. The settlement also resolves claims that Cox included non-reimbursable costs on its Medicare cost reports and improperly billed for dialysis services. In conjunction with the settlement, Cox entered into a Corporate Integrity Agreement with the Inspector General of HHS to ensure future compliance.

For the original press release, see:
http://www.usdoj.gov/opa/pr/2008/July/08-civ-638.html
http://www.usdoj.gov/usao/mow/news2008/cox.settlement.htm


* $53 million from Pratt & Whitney, a division of United Technologies Corporation, and PCC Airfoils LLC, a subsidiary of Precision Castparts Corporation, to resolve allegations that the companies knowingly submitted false claims for defective turbine blades purchased by the Air Force to retrofit the F100-PW-220 engines found in F-16 and F-15 aircraft. The settlement includes corrective action to replace defective blades and inspection of potentially serviceable blades to ensure their integrity. The case was pursued as part of a National Procurement Fraud Initiative launched in October 2006, to promote the early detection, identification, prevention and prosecution of procurement fraud.

For the original press release, see:
http://www.usdoj.gov/opa/pr/2008/August/08-civ-675.html



* $26 million from St. Joseph's Hospital of Atlanta to resolve allegations that the hospital falsely claimed Medicare reimbursement for inpatient admissions that were, in fact, less costly outpatient visits. A registered nurse, formerly employed by the hospital, initiated suit under the False Claims Act's qui tam provisions. The complaint alleged that the hospital improperly billed for short inpatient admissions, usually of one day or less, when the service should have been billed as an outpatient "observation" or emergency room visit. Medicare reimburses hospitals a higher rate for inpatient admissions than it does for observation care or emergency room visits. The nurse who triggered the investigation received $4.94 million as her share of the recovery. St. Joseph's entered into a Corporate Integrity Agreement with the Inspector General of HHS in conjunction with the settlement, to ensure future compliance.

For the original press release, see:
http://www.usdoj.gov/usao/gan/press/2007/12-21-07.pdf


$23.2 million from Bechtel Infrastructure Corp. and PB Americas Inc. to settle allegations of false claims for federal highway funds in connection with the firms' failure to provide adequate management and quality assurance services during the construction of the Central Artery Tunnel, known as the Big Dig, in Boston. The recovery, part of a $458 million settlement of state and federal claims, resolved parts of a qui tam lawsuit, a related federal investigation and additional claims that Bechtel and PB Americas violated federal and state criminal and civil laws in connection with their services on the Big Dig. In addition to the federal recovery, the companies paid $40 million in state claims and $335 million into a state warranty fund for future repairs to the Big Dig. The private citizen who filed the suit received $54,000 and $96,000 as his share of the federal and state recoveries, respectively.

For the original press release, see:
http://www.usdoj.gov/opa/pr/2008/January/08_crt_048.html
http://boston.fbi.gov/dojpressrel/pressrel08/govtclaimsettlement012308.htm



* $21.1 million from CVS Caremark Corp. to settle claims that from 2000-2006, the company illegally switched patients from the tablet version of the drug Ranitidine (generic Zantac) to a more expensive capsule version for the sole purpose of increasing Medicaid reimbursement. For example, CVS pharmacies in Illinois would charge Medicaid $79.80 for 60 Ranitidine capsules, rather than $17.10 for the tablets prescribed, increasing reimbursement by $62.70 on a single prescription. CVS Caremark is headquartered in Rhode Island and operates more than 6,000 pharmacies nationwide. The settlement resolves qui tam claims under federal and state false claims statutes. In addition to the federal recovery, CVS Caremark paid $15.6 million to 23 states and the District of Columbia. The qui tam plaintiff received $4.3 million as his share of the federal and state settlements. CVS Caremark also entered into a Corporate Integrity Agreement with the Inspector General of HHS to ensure future compliance.

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Illegal Immigration Costs Georgia $1.6 Billion Annually, Finds New Report by FAIR

PRNewswire-USNewswire/ -- A new report by the Federation for American Immigration Reform (FAIR) demonstrates why Georgia has taken a lead in adopting state-based policies to control the costs of illegal immigration. According to the new study, The Costs of Illegal Immigration to Georgians, the state currently spends about $1.6 billion a year to provide three basic services to illegal aliens and their dependents -- K-12 education, public health care, and incarceration of criminals. These costs associated with the estimated 495,000 illegal aliens residing in the state amount to a $523 a year burden for every Georgia household headed by a native-born American.

K-12 education for the children of illegal aliens constitutes the largest share of the Georgia's cost burden, finds the report. The annual price tag for schooling an estimated 64,100 children who are themselves illegal aliens, and an estimated 89,700 U.S.-born children of illegal aliens, runs to about $1.38 billion. Unreimbursed health care costs add an additional $210 million to the taxpayers' tab, while another $22.6 million is spent incarcerating illegal aliens who have committed other crimes in Georgia. All of these costs compound an already difficult fiscal situation, as state officials estimate a current budget shortfall of about $2 billion.

"At a time when governments at every level are struggling with huge deficits, slashing vital programs and services, and US-workers are losing their jobs, we see repeated examples of how illegal immigration is adding to already significant fiscal worries," said Dan Stein, president of FAIR. "As Georgia businesses have padded their profit margins in recent years by using illegal aliens to undercut American workers, the true costs for this low wage labor force have been passed along to the taxpayers."

In response to the spiraling costs associated with illegal immigration, Georgia adopted workable state-based enforcement policies in 2007, which have begun to have a positive impact. "Georgia provides a case study in how a state can respond effectively to crushing cost burdens associated with illegal immigration, and provides a model for other state governments," said Stein.

The Costs of Illegal Immigration to Georgians is the latest in a series of studies FAIR has produced examining the impact of illegal immigration on state governments and local taxpayers. "Until fairly recently, regions like the South had been largely unaffected by the phenomenon of mass illegal immigration. The findings of this report, that illegal immigration now costs Georgia $1.6 billion a year, is evidence that mass illegal immigration is truly a national problem that demands real enforcement solutions at the federal, state and local level," concluded Stein.

The Costs of Illegal Immigration to Georgians is available on FAIR's website, www.fairus.org.

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Americans Face Greater Difficulty Seeking Tax Relief as IRS Continues Push for Tax Compliance During Economic Downturn

PRNewswire/ -- Amid the slow economy and increasing federal deficit, a much needed surge in tax revenue means that a growing number of taxpayers can expect to be audited while Americans already burdened by tax debt will find it harder than ever to resolve their IRS tax problems.

In fiscal year 2007, IRS audit rates were up from the previous year for individuals overall. Additionally, audits of S Corporations were up 26% and audits of partnerships increased almost 25% from 2006.

According to tax expert Michael Rozbruch, the IRS will continue to increase audits of corporations, partnerships and individuals. And if you do receive an audit letter, you should respond strategically and by the deadline in order to avoid being placed in the collection department.

"If the IRS garnishes your wages, they can take as much as 75% of your net pay and make you live on $168 a week," said Rozbruch, founder and CEO of Tax Resolution Services, a company that provides affordable solutions to people with IRS problems. "The IRS is the most brutal collection agency on the planet."

While taxpayers can expect renewed IRS compliance efforts, the national credit crisis will make it even more difficult for Americans to pay their taxes. But Americans who anticipate having problems with their taxes should know that there are ways to work with the IRS.

"Not filing your taxes is the worst thing you can do because you can incur a 25% failure to file penalty right off the bat," Rozbruch said. "What you need to do is start lining up expert tax representation to help negotiate a payment plan or an offer in compromise on your behalf."

Tax Resolution Services is dedicated to providing affordable solutions to businesses and individuals alike who find themselves in trouble with the IRS. The tax experts at TRS have a success rate of 90% -- second to none in the industry -- and an Offer in Compromise Settlement Rate of $0.13 on the dollar. For more information or to receive a FREE tax relief consultation, visit http://www.taxresolution.com/ or call (818) 774-1813.

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Only the First of Many Future Bailouts

PRNewswire-USNewswire/ -- For those who think the U.S. Treasury's bailout of the banking industry is bad, here's some news for you -- this mortgage bailout is only the first, and the smallest, of a series of bailouts that are going to be necessary in the future, warns the Institute for Policy Innovation (IPI). And taxpayers who have made responsible financial decisions are going to be on the hook for those as well.

Americans are rightly concerned not only about the cost of the bailout, but of the precedent of letting actors in the market make enormous profits while having the risk backstopped by taxpayers. And taxpayers are disturbed by the fact that elected officials were repeatedly warned about these risks and problems, but did nothing.

The bailout will affect regulatory policy, tax policy and the funds available for any number of other programs, to say nothing of affecting our ability to deal with any future crisis that might arise.

Medicare and Social Security are both going broke, and everyone knows it. The combined unfunded obligations of Medicare Part A and Social Security are in the neighborhood of $48 trillion -- 48 trillion dollars that the federal government has promised to retirees but has no way to pay -- and knows it has no way to pay.

But it's worse than that -- taking into account the three major components of Medicare, its unfunded liability alone is $85 trillion. Combined with Social Security, that results in about $100 trillion in promises the federal government has made that it has no plan to fulfill.

Medicare went into deficit this year -- 2008. That means that this year Medicare began paying out more than the program takes in. And Social Security will go into deficit in 2017 -- less than nine years from now.

As far as bailouts go, you ain't seen nuthin' yet.

It's time for voters and taxpayers to start holding elected officials accountable for heeding the warnings they are given and solving problems BEFORE gigantic taxpayer bailouts are required. Any fool can go to Washington, collect campaign contributions and stand in front of the TV cameras. But we can't afford that luxury anymore.

Voters must hold the next Congress and the next President accountable to take action to prevent the need for a massive taxpayer bailout of Social Security and Medicare. That's the bad news. The good news is that, in the weeks before an election, we all get to choose who makes those decisions.

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Duke: Treasury Action Should Work, But at High Cost to Taxpayers, Professor Says

The Treasury’s proposed action to use government money to purchase mortgage-backed securities held by financial institutions should work, but at an unnecessary cost to taxpayers, says Steven Schwarcz, the Stanley A. Star Professor of Law & Business at Duke University.

Schwarcz has studied systemic risk for more than a year and has suggested, in congressional testimony last October, that the government should consider acting as a market liquidity provider of last resort, but to do so at the outset of a financial market panic. His article, “Systemic Risk,” will be published next month in the Georgetown Law Journal.

“The focus from the outset should have been on treating loss of confidence in the financial markets, which is the underlying cause of problems in the financial system,” Schwarcz says. “While it may have been necessary under the circumstances for the Fed to act to prop up AIG and Bear Stearns, among others, preventing financial institution failure amounts to treating symptoms of the disease, not its underlying cause. By delaying, the government missed a vital opportunity to nip the problem in the bud at a much lower cost to the American taxpayer.”

The Treasury’s proposed bailout plan is a semi-strong version of Schwarcz’s proposal, which he said would work most effectively if used at the outset of a market panic. The current panic has become so entrenched, however, that financial institutions now distrust the creditworthiness of other financial institutions; they do not know how much in mortgage-backed securities those institutions hold or the value of those securities.

The Treasury, therefore, needs to address both this counterparty risk perception and the market collapse. It is proposing that government money be used to purchase, at a deep discount, mortgage-backed securities held by financial institutions, which would stabilize market prices and reduce counterparty risk.

'This should work," says Schwarcz, "but it will be much more expensive than if the government had stabilized the market at an earlier point."

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