Sold to US taxpayers for $700B: banks’ bad assets
What started as a fairly simple three-page proposal giving the Treasury Secretary unchecked power to orchestrate a bailout of the country’s financial system ended up as a complex rescue package, with enhanced congressional oversight, some added protections for taxpayers and a slap on the wrist to highly paid, underperforming executives.
The ultimate goal of the plan remains the same: buy bad mortgage-related bets from weakened financial companies so they can raise fresh capital and resume normal lending operations to businesses, municipalities and consumers.
Under the Emergency Economic Stabilization Act of 2008, which is expected to come to a vote in the House on Monday, the Treasury Department gets $250 billion immediately to start buying up banks’ and other financial institutions’ least valuable mortgages and complex financial instruments backed by those mortgages.
If needed, an additional $100 billion is available at the discretion of the president, and a final $350 billion is on the table, unless Congress resolves to take it back. The president has the authority to veto such a resolution.
The measure also proposes limited caps on the pay and benefit packages of companies who receive the government rescue, strengthens government oversight of the program and adds an insurance program for financial companies’ bad assets.
While Democratic negotiators made significant changes to the plan Paulson sent Congress a week ago, they did not get everything they had sought, particularly more help for troubled homeowners.
[...]Among the key segments of the bill:
EXECUTIVE PAY. Restrictions would be imposed on the compensation received by executives whose companies sell some of their bad assets through the government’s purchase program. There would be tax restrictions on executive pay over $500,000 and limits on so-called “golden parachutes” for executives who leave the companies getting government bailouts.
OVERSIGHT. The Treasury will be required to provide details of its purchases of bad assets within two days of the transaction. Oversight boards would be created including one with members selected by Democratic and Republican leaders in the House and Senate and one that will include top government officials.
TAXPAYER PROTECTION. Taxpayers would be given ownership stakes in companies whose bad assets are purchased and after five years if the government is facing a loss in the program then the president will be required to submit a plan on how to recoup a portion of the losses from the companies that participated in the program.
$700-billion Wall Street bailout plan is unveiled
“This is not about a bailout of Wall Street,” said House Speaker Nancy Pelosi (D-San Francisco). “It’s a buy-in so we can turn our economy around” and protect the assets of ordinary Americans.
Pelosi said she expected the legislation to pass with bipartisan support.
“This is not a Democratic bill,” she insisted. “This is a bill that was sent by the president, improved by the Congress. . . . And we will need to have bipartisan support to pass this bill.”
But the plan faces fierce opposition from Republicans and Democrats angry at what they say is a taxpayer bailout of Wall Street “fat cats.” As the House opened for an unusual Sunday session, lawmakers from both parties rose, one after another, for one-minute speeches denouncing the agreement — and signaling a continuing struggle as policymakers and their staff work out the final details.
“This morning we should be very much alarmed,” said Rep. Scott Garrett (R-N.J.), addressing taxpayers directly. “Obviously, Washington is not listening to your wishes. Those who used to work for Goldman Sachs will support this deal. . . . Those who have blocked reform in the past will support this deal. I will not support this deal.”
Rep. Marcy Kaptur (D- Ohio) railed against the agreement and the Wall Street financiers who would be helped. “These criminals have so much political power they can shut down the normal legislative process,” she said.
Rep. Ted Poe (R- Texas) rose to compare the administration’s urgings to rush a bailout plan to the pressure exerted on Congress to act after the Sept. 11 terrorist attacks.
“This is the same politics of fear we’re hearing from the financial fat cats on Wall Street,” Poe said. “Backroom deals trouble me because they usually turn out to be bad deals for America.”
The conservative Texan was followed and echoed by the staunchly liberal Rep. Dennis J. Kucinich (D-Ohio), who said, “The $700-billion bailout is driven by fear, not fact.”
[...]The rescue plan, which grew from a three-page proposal sent to Capitol Hill by the Treasury secretary a week ago to more than 100 pages, would allow the federal government to purchase bad debts from ailing financial institutions in an effort to stave off more bankruptcies and provide cash for new loans to ease the credit market freeze-up.
The plan is expected to call for the money to be made available in installments instead of one enormous lump sum. It is also expected to include additional oversight of the government’s spending, limits on the pay of executives of firms that receive government aid, help for homeowners at risk of foreclosure and a provision that taxpayers share in any profits from the sale of distressed assets.
A House GOP leadership aide said the agreement included an insurance program sought by Republicans under which financial institutions would pay premiums to help pay for bailing out less solvent companies.
[...]House Republicans, who have been critical of the growth in government spending under Bush, have been pushing to reduce the cost of the bailout. Unlike the president, they must stand for reelection this fall, and are willing to break with Bush as they try to reclaim the mantle of fiscal responsibility.
But Bush in his radio address said that the cost would be “far less” than $700 billion. “Many of the assets the government would buy are likely to go up in price over time,” he said. “This means that the government will be able to recoup much, if not all, of the original expenditure.”
