New York-based research firm CreditSights Inc. says that although it remains to be seen how the U.S. federal bailout of mortgage securities works in practice, it should at least limit the systemic turmoil.

In a research note on the Emergency Economic Stabilization Act of 2008, which was finalized over the weekend, CreditSights notes that the proposed bill is more limited than the one first put forward by Treasury secretary Henry Paulson in that it provides more oversight, limits executive compensation, contemplates the provision of insurance as well as outright asset purchases, and doles out the US$700 billion in tranches.

Still, there are important details that have yet to be worked out. Most importantly, it remains to be seen what is actually purchased — and at what price. CreditSights reports that the draft bill gives the Treasury the right to buy assets directly and to use a market-based process for other asset acquisitions.

It specifically gives authority for the purchase of any instruments based on mortgages but also allows for any other financial instruments to be included if deemed necessary by the Treasury secretary and Fed chairman.

“It will be in the details that become available about this aspect of the plan that the real impact on financial markets and ultimately the overall economy will be found,” CreditSights says. “Clearly, a key initial goal of the bailout was to deliver a confidence-restoring ‘gesture’ that was both large enough and quick enough to stem the spreading financial panic and prevent further damage to the real economy.”

Under the revised bill, US$250 billion will be available to the plan immediately, with another US$100 billion on request; the remaining US$350 billion originally contemplated will also be available, but it is subject to Congressional approval.

CreditSights says that, “it is not a question of whether US$350 billion or US$700 billion is enough to buy all the impaired assets in the banking system as it is whether the existence and operation of the TARP provides enough clarity in the pricing of illiquid securitized assets and confidence in the financial system to restore ‘normalcy’ to the banking system.”

Ultimately, CreditSights concludes that the effort “should begin to heal the systemic stress in the financial sector in a way that nothing else in this crisis has done. The execution risk is high in that a proper targeting of the right asset class subsets is critical, and has to be done with the right institutions that will free up capital in the marketplace and promote more balance sheet turnover.”