More Clarification of Bailout Details (Updated)

From the Washington Post:

House Financial Services Committee Chairman Barney Frank (D-Mass.) said the bailout deal reached by key lawmakers calls for dividing the $700 billion pricetag into three parts: Paulson would receive $250 billion immediately and another $100 billion upon White House certification of its necessity. The final $350 billion could be dispersed without additional Congressional approval, but Congress would be given 30 days to object.

The agreement also includes a strong oversight board for the bailout program, a ban on golden parachutes and other excessive compensation for executives at participating firms and protections for taxpayers, including a provision that would require participating companies to give taxpayers equity in their firms. It also includes relief for community banks that own now worthless stock in mortgage finance giants Fannie Mae and Freddie Mac, which were taken over by the government.

The main point of contention between Democrats and Republicans, Frank said, is a proposal to give bankruptcy judges new power to modify mortgages for homeowners, an idea that is widely viewed as a bargaining chip. Democratic presidential candidate Barack Obama (D-Ill.) has said the measure, which is fiercely opposed by the banking industry, should not be in the bill.

Meanwhile, House Democrats were still considering a plan to increase taxes to pay for a portion of the bailout, possibly by taxing stock transfers or levying a “surtax” on millionaires.

As I read this, the mods in bankruptcy is still in play.

The Wall Street Journal Economics Blog provided this text outline of principles:

1. Taxpayer Protection

a. Requires Treasury Secretary to set standards to prevent excessive or inappropriate executive compensation for participating companies

b. To minimize risk to the American taxpayer, requires that any transaction include equity sharing

c. Requires most profits to be used to reduce the national debt

2. Oversight and Transparency

a. Treasury Secretary is prohibited from acting in an arbitrary or capricious manner or in any way that is inconsistent with existing law

b. Establishes strong oversight board with cease and desist authority

c. Requires program transparency and public accountability through regular, detailed reports to Congress disclosing exercise of the Treasury Secretary’s authority

d. Establishes an independent Inspector General to monitor the use of the Treasury Secretary’s authority

e. Requires GAO audits to ensure proper use of funds, appropriate internal controls, and to prevent waste, fraud, and abuse

3. Homeownership Preservation

a. Maximize and coordinate efforts to modify mortgages for homeowners at risk of foreclosure

b. Requires loan modifications for mortgages owned or controlled by the Federal Government

c. Directs a percentage of future profits to the Affordable Housing Fund and the Capital Magnet Fund to meet America’s housing needs

4. Funding Authority

a. Treasury Secretary’s request for $700 billion is authorized, with $250 billion available immediately and an additional $100 billion released upon his or her certification that funds are needed

b. final $350 billion is subject to a Congressional joint resolution of disapproval

Looks like no provision to use bankruptcy courts to do mods.

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  1. Anonymous

    The banks will not participate in this plan initially. Paulson will say “I told you so”…the crisis will worsen, Paulson will get his way.

    They neeed to flush this plan intirely and look at bank recap. options.

    Otherwise we are done

  2. Anonymous


    I note that you have only one blog entry filed under “banana republic.”

    So far. The day is young.

  3. Anonymous

    For all you A-types out there – you can’t fool Mr. Market. So go home climb up on your mommy’s lap and let the market mechinism work. Whatever happen to “the American Economy is resilent,” response?

  4. Anonymous

    First they bail out Morgan Stanley. Apparently that costs $250 B. Then if they decide to help someone else in trouble they do that.

  5. satan

    About borrowing money for the 700 B bailout.. ahem..

    China banks told to halt lending to US banks-SCMP
    Wed Sep 24, 2008 9:52pm EDT

    BEIJING, Sept 25 (Reuters) – Chinese regulators have told domestic banks to stop interbank lending to U.S. financial institutions to prevent possible losses during the financial crisis, the South China Morning Post reported on Thursday.

  6. Anonymous

    Any agreement should include a clause stating that the president will not attach any signing statements interpreting the bill. Otherwise the Taxpayer Protection, Oversight and Transparency are toast.

  7. Lewis B. Sckolnick

    If this is real such a great Win-Win idea its too bad that they just can’t get a conventional loan.

    $350,000,000,000 without ‘Congressional Approval’

  8. Matthew Dubuque

    Matthew Dubuque

    I agree bankruptcy mods look unlikely.

    But Obama is so spineless for not pushing this, it shows a lack of leadership.

    I’m fully persuaded Bernanke was for it, even if Paulson wasn’t.

    Would Bush have vetoed it with that one provision?

    I doubt it.

    They are planning to sell this toxic waste based on projected cash flows to maturity, while AT THE SAME TIME undermining attempts to maximize that cash flow through bankruptcy cramdowns.

    Go figure.


    Matthew Dubuque

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