Last Friday President Bush signed into law the Emergency Economic Stabilization Act of 2008 -- more infamously known as the $700 billion bailout.  It’s the most expensive government intervention in U.S. history.

In Tuesday night’s presidential candidates’ debate, which was organized like a town hall meeting, with questions coming from voters themselves, one audience member asked, “So, what will with $700 billion bailout plan do for me?”  It’s a good question.  But, perhaps not too surprisingly, one that neither candidate answered very thoroughly (to their credit, they only had 2 minutes).  So I thought I’d do that here, take a thorough look at what, exactly, the bill aims to do.

Among the provisions in the 450-page bill are:

• The Treasury Department will buy “toxic” mortgage assets -- mortgage-backed securities whose value had dropped sharply or had become impossible to sell -- from financial institutions as part of the bailout.  This is really the lynchpin of the package, designed to get bad debts off of banks’ books so that those banks, with a renewed sense of health, can start lending money again.

• The bill increased bank deposit insurance from $100,000 per account holder to $250,000 through the end of 2009.  This is designed to inject new confidence into the system.  The worst thing that could happen now is a run on banks -- when everyone tries to take their money out of the bank at the same time.  It’s what bankrupted IndyMac and (nearly) Wachovia -- and was a big instigator of the financial crisis that preceded the Great Depression.

• The law extends for eight years a 30 percent tax credit for homeowners who put solar panels on their roofs.  There is also a new 30 percent tax credit for homeowners installing a small wind turbine on their property. Geothermal heat pumps also qualify for a credit.  Not sure how this qualifies as “emergency economic stabilization”. . .

• A tax credit encouraging energy efficiency in existing homes has also been extended for a year. Improvements like installing a biomass stove or an efficient water heater will be eligible. Contractors working on new homes will be eligible for a credit of up to $2,000 if they include highly efficient systems for things like heating and cooling.  The law also gives manufacturers of energy-efficient dishwashers, clothes washers and refrigerators a tax credit.  Again, not sure how this helps resolve the financial crisis. . .

• And owners of plug-in electric vehicles will be eligible for a tax credit of up to $7,500 that will start to phase out after 250,000 of the vehicles are sold in the United States.  Sure, alternative forms of fueling our cars are important, but do they qualify as “emergency economic stabilization”?

• The new law includes a provision to protect middle-class taxpayers from the alternative minimum tax by reducing the amount of income that is subject to the tax.  For joint filers, the exemption would increase to $69,950 from $66,250 in 2007, and, for singles, to $46,200 from $44,350.  Spending $700 billion to save the economy and reducing taxes at the same time?  Is that a good idea?

• Another part of the law could affect how health insurance works. If an employer has 51 or more workers and offers mental health or substance abuse coverage, it must now have the same rules and limits on what it will pay for as it would for, say, a visit to a cardiologist.  Again, health care reform is a critical issue, but what’s it doing in this bill?

• There are a variety of items that extend current tax breaks. A deduction for higher education expenses was extended through 2009, and applies to all taxpayers, including those who do not itemize their taxes.  Another provision extends taxpayers’ option to deduct state and local sales taxes instead of income taxes, if they itemize.  The law extends the additional standard deduction for property taxes. And it also extends a provision that allows people older than 70 ½ to use distributions from individual retirement accounts to contribute up to $100,000 to charity, and exclude that amount from their income.
  

• The law contains provisions to help victims of this summer’s storms in the Midwest.  It includes a waiver of a 10 percent penalty for disaster-related distributions from I.R.A.’s, increases the amount that people affected by the disaster can borrow from their 401(k)s and gives a tax exemption for anyone housing up to four people dislocated by the floods. The bill also includes tax relief and scholarship provisions for people affected by other disasters.

Yet, unfortunately, despite the passage of the bailout plan, the Fed’s early cut of interest rates on Wednesday, and more money for the AIG bailout, the stock market is still nose-diving.  Last time I checked, it had blown past (in the downward way) 10,000 to close under 8,600 on Thursday.  Yikes.