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Rescue plan raises fairness issue

By Tom Raum

Associated Press Writer

WASHINGTON — The economy is listing. So it must be time to bail.

While there is little enthusiasm for government bailouts in general, voters are increasingly demanding immediate government relief as the economy ebbs.

The Fed-engineered bailout of investment banker Bear Stearns and other assistance to financial institutions has further raised expectations. To some, the $30 billion JP Morgan-Bear Stearns deal also raised a fairness issue: Should the government bail out a prestigious investment bank while doing little to address the hardships of Americans facing foreclosures on their homes, or caught in other troubled segments of the economy, such as laid-off factory workers?

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Members of Congress, particularly Democrats, will press the issue when they return from their spring break next week. Bailout proposals for homeowners abound, including several measures to get lenders to rework home loans. There are also bills to increase federal regulation over the nation’s financial system.

"The big thing about the Bear Stearns bailout — if you want to call it that — is that it kind of opens the doors for other types of bailouts, like for homeowners and individuals," said federal budget expert Stanley Collender.

"If the Fed is thinking about the business community, the lending community and the credit markets, then members of Congress are tending to think about individuals," said Collender, with Qorvis Communications, a Washington consulting firm.

All three major presidential candidates gave what their campaigns billed as major speeches on the economy this week.

Democratic Sens. Hillary Rodham Clinton and Barack Obama both called for direct federal intervention to help burdened homeowners. Sen. John McCain, the certain GOP presidential nominee, has called for caution.

Controversy still swirls around some earlier big bailouts.

In the 1980s and 1990s, more than 1,000 savings and loan institutions failed, leading to a federal bailout totaling roughly $125 billion.

The 1998 collapse of hedge fund Long-Term Capital Management, amid the Asian financial crisis, rocked Wall Street and prompted the Federal Reserve to help arrange a $3.6 billion private bailout.

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In 1975, President Ford first ignored pleas from a struggling New York City for help but later relented with a $7 billion loan package. President Clinton came to Mexico’s aid in 1995 after a sharp devaluation of the peso, persuading countries and banks to lend the country $50 billion.

Congress bailed out what was then known as Lockheed Aircraft in 1971 and Chrysler in 1979 with loan guarantees. In 1984, the failing bank Continental Illinois was effectively taken over by the federal government.

After the Sept. 11, 2001, terror attacks, Congress quickly authorized $5 billion in cash to help shore up the airline industry and followed up with $10 billion in loan guarantees. It set up a compensation fund for victims of the attacks.

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