In the next few hours, the negotiators on the financial rescue plan will announce an agreement in detail. Legislative language is being finalized. It's still not clear how many House Republicans will vote for it, but enough will for the House to pass it tomorrow morning. There is not enough time for the Senate to take it up before Rosh Hoshanah, which begins tomorrow at sundown, but Senate passage on Wednesday or Thursday is not in doubt. I expect President Bush to sign it late this week.
The broad outlines of the deal were released after last night's meeting of the negotiators broke up just after midnight. The Republicans did get a "mandatory insurance/guarantee program at no expense to the taxpayer." Owners of mortgage backed securities would pay "based upon risk" to get the insurance. Executive compensation would be limited for companies selling assets to the Treasury, and the taxpayers would get equity participation based upon the percentage of assets sold to the Treasury. Bankruptcy judges would not be empowered to reset mortgages, although Treasury and the Department of Housing and Urban Development will be in a position to foster easier mortgage terms for assets underlying the securities Treasury acquires.
This deal should be sufficient to avoid a market meltdown in the Asian markets tonight and in our markets tomorrow. Taxpayers will unbdoubtedly be better if with this deal than without it, but there will be large costs associated with the hundreds of billions of dollars of additional debt to fund this rescue. This is one of these lose now to avoid losing a lot more later deals. Without the rescue, a lot more businesses would be forced to shut down for lack of credit, and a lot more workers would lose their jobs.
Side-by-Side Comparison of Rescue Legislation
|
Issue |
Paulson Plan |
Frank-Dodd |
Final Bill |
|
$ |
700B |
700B – Delivered in 150B traunches that can be delayed by Congressional disapproval (and a Presidential signature) |
250B – Immediately available to the Secretary. 100B – Available upon report to Congress. 350B – Available ONLY upon Congressional action.
|
|
Insurance (House Republican Mode) |
|
|
Requirement to establish mandatory insurance/guarantee program at no expense to the taxpayer. “Pay to play” for participating companies, based on risk.
|
|
Executive Compensation |
|
Far reaching executive compensation standards that would affect companies not even involved in this financial crisis. Additionally, the bill lowered the deduction on executive pay to $400,000 for ALL companies. |
Workable prohibitions on executive compensation to ensure bad actors are not rewarded. In a total takeover (like what happened with AIG), there will be no golden parachutes or severance pay. For equity participation, over $300M total ban for top 5 executives on golden parachutes and tax deduction limit on compensation above $500,000.
|
|
Oversight/Transparency |
|
Onerous, unworkable and repetitive reporting and oversight requirements, hindering proper implementation of program. |
Establishment of bipartisan oversight commission, split evenly between minority and majority. Practical reporting requirements to ensure proper reports to Congress and the public.
If after 5 years the government has a net loss of taxpayer funds as a consequence of the purchase program, the President will be required to submit a legislative proposal to recoup such funds from program beneficiaries.
|
|
“Say on Pay” Union Take Over of Corporate Boards |
|
So-called “say on pay” or “proxy access” which propose to mandate a nonbinding shareholder vote on proxy access and other corporate governance issues for all companies in which the Treasury Department buys a direct stake in certain assets.
|
OUT |
|
Affordable Housing Slush Fund (ACORN Fund) |
|
Included a giveaway that would force taxpayers to bankroll a slush fund for ACORN – an organization fraught with controversy for, among other scandals, its fraudulent voter registration activities on behalf of Democratic candidates.
|
OUT |
|
Bankruptcy “Cramdown” (aka, trial bar give-away) |
|
Included so-called “cramdown” provisions allowing bankruptcy judges to reduce mortgage principal under the guise of helping those at risk of foreclosure. If enacted into law, the provision would be a bonanza for trial lawyers and undercut the effectiveness of any economic recovery effort by making it even harder to value mortgage-backed securities.
|
OUT |
Mark-to-Market Accounting |
|
|
GAO study on the impacts of mark-to-market accounting standards and effects on the banking crisis. Restatement of existing authority to suspend mark-to-market.
|
|
Equity/Warrants |
|
Mandatory equity interest in all participating firms. |
Mandatory equity interests in total takeover scenario. Proportional equity interest based on percentage of assets sold if deemed appropriate Secretary. |
|
Tax benefits for community banks |
|
|
Ability for community banks to take capital losses on GSE assets against ordinary income. |
Well, well, well
Wake up boys.
http://banking.senate.gov/public/_files/LegislativeTextofChairmansDoddsp...
Dodd Plan
Mandatory insurance not in final bill
"Requirement to establish mandatory insurance/guarantee program at no expense to the taxpayer. "
No. The Treasury will establish a VOLUNTARY program that gives firms the ability to purchase insurance on troubled assets, rather than selling them.
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