700 Billion Dollar Bailout

NEW YORK (CNNMoney.com) -- The Bush administration has filled in one big unknown about its proposed bailout of the banking system - the price tag.
According to the administration's proposal, the federal government would buy up as much as $700 billion of illiquid mortgage assets at a deep discount from banks. The Treasury Department would run the program directly, unlike the savings and loan crisis of the 1990s when Congress created the Resolution Trust Company to spearhead a financial bailout.

"The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy," said Paulson.

What remains to be seen is how the Treasury Department will structure the purchases and what price they'll pay.

The timing and scale of purchases would be at the government's discretion. The price would be established through "market mechanisms." One method that Treasury has suggested is a reverse auction to set the discount at which the assets would be picked up.

The window for the government to purchase the bad assets closes after two years. Private money managers would oversee the assets while they are in the government's possession.

Paulson, speaking Sunday on television, clarified that firms with business operations in the United States are eligible. The original legislative proposal said that only banks with headquarters in the United States qualify.

The cost: While the proposal calls for the purchase of as much as $700 billion of bad loans, it's unknown what taxpayers would ultimately pay for the bailout.

The government will likely buy the assets at below-market rates and hold onto them until the market recovers. Ideally, the loans could then be sold at a gain...