WASHINGTON (AP) -- Home prices. That's what the Bush administration's historic Wall Street bailout is really about.
Falling home prices nationwide have acted like dominoes, knocking homeowners into foreclosure and taking down lender after lender, until the entire global financial system was in jeopardy.
Experts say that the government's enormous plan to relieve Wall Street banks of their bad investments has a decent chance of stabilizing home prices, at least in theory. If that happens, it will stop Wall Street's bleeding, but could still keep many families locked out of the housing market.
By buying troubled mortgage debt from major banks, the government can help make more money available to borrowers -- and maybe at lower interest rates. The government also will have more power to modify delinquent loans and keep homeowners out of foreclosure.
"If the government -- as the mega-investor -- can speak with one voice ... there can be big changes in the rate of foreclosures," said Alan White, a law professor at Valparaiso University and a longtime consumer attorney.
The downside, however, is that in many areas like California and Florida, where prices soared and are now falling precipitously, homes in many cities remain unaffordable -- even for well-paid professionals.
"The root cause of the problem is that we don't have any homebuyers," said Edward Leamer, an economist at the University of California, Los Angeles. "They're going to sit on the sidelines -- by and large -- until they get a better deal."
Rather than reward Wall Street investors for making bad decisions and exposing taxpayers to hundreds of billions in losses, Leamer said the government should be providing incentives for first-time homebuyers to get into the real estate market.
Even if the government's plans succeed, experts don't foresee a dramatic recovery in home prices anytime soon.
"When housing rebounds, it will not do so with the kind of speed and activity that we have seen in the last couple of years when the housing market was strong," said Bernard Baumohl, chief economist at the Economic Outlook Group in Princeton, N.J.
After having been burned by skyrocketing loan defaults, banks are "going to be to be very reluctant to issue any kind of risky mortgage," he said.
Treasury Secretary Henry Paulson gave few details of the government's plan in a news conference Friday morning, but said he would work through the weekend with leaders of Congress from both parties to flesh out the program, the biggest proposed government intervention in financial markets since the Great Depression.
Paulson said that the bailout would cost "hundreds of billions," but said it would be "far less than the alternative -- a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion."
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