Election means more twists for U.S. bailout program

By Kevin Drawbaugh and David Lawder - Analysis

WASHINGTON (Reuters) - Whether it's Barack Obama or John McCain, the next U.S. president will inherit a major policy tangle when he takes over the Bush administration's $700-billion financial bailout program.

Already clouded by uncertainty over who it is helping, why and how, the program will likely face even more questions as Inauguration Day approaches on January 20 and the new occupant of the White House puts his stamp on it.

What began six weeks ago as a plan for the government to buy up toxic mortgage-backed bonds from struggling banks and restart the credit markets has evolved into pumping capital directly into banks through government stock purchases.

While that has unfolded, the troubled American auto industry and some insurance companies have also begun pleading for the government to expand the program to help them as well.

"The definition of what the program is going to look like keeps changing," said Andrew Jakabovics, an associate director at the Centre for American Progress Action Fund, the political affiliate of a Washington, D.C. think tank.

Urgent meetings will begin on Wednesday -- hours after the election ends -- between the winning campaign and the Treasury Department on managing the bailout through the transition to a new administration.

Treasury Secretary Henry Paulson has already been in regular contact with both candidates about the program, said Treasury spokeswoman Brookly McLaughlin.

No staff-level meetings have been held between the two campaigns and Treasury, but the department has prepared briefing materials. "We will be ready on Wednesday morning to begin working with the incoming team," McLaughlin said.

Both candidates have said that homeowners should come first in any plan to fix the crisis in finance and housing.

Arizona Republican Sen. McCain has proposed spending $300 billion of the $700 billion program on buying shaky mortgages and replacing them with more affordable home loans. He is also calling for $52.5 billion in tax cuts.

Illinois Democratic Sen. Obama has offered a $60 billion package of tax measures, infrastructure spending, loan guarantees for automakers, help for struggling homeowners and a 90-day moratorium on home foreclosures, among other steps.

HIGH STAKES

The transition will saddle the incoming White House with a highly complex, costly program carrying explosive political risk that will still be far from fully implemented, said lobbyists and housing market experts.

The stakes riding on its success or failure will be high, with the economy stumbling, credit markets squeezed, and stocks on a daily roller-coaster. Precisely how much of the massive bailout program will still have to be implemented and carefully supervised after Inauguration Day is hard to say.

It looks unlikely that mid-November deadlines, set by Congress weeks ago, will be met for businesses to submit applications to participate in the program, and for Treasury to issue guidelines on how it will work, lobbyists said.