The Bail Out Breakthrough
Posted by Slobokan @ 17:51 · 796 words · print
The 'bail out' is no longer a $700 billion blank check.
You can download the draft of the "Emergency Economic Stabilization Act of 2008" (PDF). Remember, this is NOT the final version, but simply a first draft.
It's a lot different now than it was last week. In fact, initially, it is $450 billion smaller. That's right, after initial passage, it's only a $250 billion plan, unless Congress votes to allow more in the future. The new plan also requires a mandatory insurance/guarantee program at NO EXPENSE TO TAXPAYERS.
Take a look at this table of changes from The QandO Blog:
| Issue | Paulson Plan | Frank-Dodd | Final Bill |
|---|---|---|---|
| $ | 700B with no strings. | 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, certified by the President. 350B – Available ONLY upon Congressional action. |
| Insurance (House Republican Model) | NONE | NONE | Requirement to establish mandatory insurance/guarantee program at no expense to the taxpayer. “Pay to play” for participating companies, based on risk. Outlays reduced by premiums collected. |
| Executive Compensation | Not Specifically Addressed | 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. Creation of a Special Inspector General Creates a financial stability oversight board Implements strict conflict of interest and unjust enrichment rules 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. |
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| “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 p
It's definitely a step in the right direction. Adding more responsibility to the companies involved and removing more burden from the taxpayers is the correct course of action. Along with removing so much taxpayer burden, the best part (as far as I am concerned) was the requirement for insurance, which in itself should reduce much of the taxpayer burden from this bill. Of course the removal of the the ACORN slush funds, the added oversight, and the lowering of executive compensation were all pluses as well. So how did they finally reach this deal? Who came to the table to help negotiate the draft as it stands right now? House Republicans and John McCain. Believe it or not, they are the reason the discussions have come this far and have had such a large change in direction since the original plan was introduced. From The Next Right:
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Posted In: National News
Posted by Tyrone
September 28, 2008 @ 20:33
I appreciate the breakdown, but my read of the "final" bill still includes the ACORN giveaway provision. See Section 106 which still mandates "not less than" 20% of the profit from the sale of each troubled asset "shall" go to the Housing Trust Fund (65%) and Capital Magnet Fund (35%). ACORN, Urban League, LaRaza and similar groups get money from the Housing Trust Fund.
Posted by Slobokan
September 28, 2008 @ 20:59
Thanks for the heads up on that, I haven't read that far into it yet, had to eat dinner first so I had energy for my all night reading session.
I still think the best bet is to vote this whole idea down.
Posted by Tyrone
September 28, 2008 @ 21:02
Sorry, I was reading first draft. Thankfully, the ACORN provision has in fact been removed. I'm still not sure about the bailout however.
Posted by Slobokan
September 28, 2008 @ 22:47
Yeah, I still don't think the idea as a whole is good. With the negotiations, however, they are moving in the right direction.