Here is the tentative agreement that looks poised to pass in the next few days (http://www.reuters.com/article/marketsNews/idINN2732937820080927?rpc=44):
Following are provisions compromise legislation is expected
to incorporate, based on a draft bill and comments from
lawmakers about the state of negotiations.
- The bill would create a Troubled Assets Relief Program
(TARP) to purchase mortgage-related assets originated or issued
on or before March 14, or any assets if needed to promote
financial stability.
- $700 billion overall to be authorized in installments of
$250 billion. That could be increased to $350 billion upon
notification to Congress by the president.
- Assets could be purchased from any financial institution
having significant operations in the United States.
- Government to get warrants for equity in participating
companies as a way of protecting taxpayers and allowing them to
benefit from any profit gains.
- Foreclosure mitigation for Americans at risk of losing
home. However, a provision House Democrats had sought to help
save homes in bankruptcy proceedings has been dropped.
- Restrictions on executive compensation at companies that
participate.
- Incorporates House Republican proposal to allow for
private-sector funded mortgage insurance program as an option
for Treasury secretary.
- Financial Stability Oversight Board comprised of the
chairmen of the Federal Reserve, Securities and Exchange
Commission and Federal Deposit Insurance Corp, and two members
appointed by Congress to oversee activities of the program.
- Requires a government investigation into causes of
crisis, with report delivered to Congress by June 2009.
- Regular and detailed reports on transactions and other
activities under the rescue program.
- Establishes a congressional oversight panel that would
also submit a report on regulatory reform no later than Jan.
20, 2009, the date a new president takes office.
- Would direct 20 percent of any future profits from the
bailout fund to the Affordable Housing Fund and the Capital
Magnet Fund to meet U.S. housing needs. House Republicans,
however, have made clear they oppose this provision.
- Authorizes a temporary money market mutual fund guarantee
program for up to one year. Requires U.S. Treasury to restore
any funds to the Exchange Stabilization Fund that had been used
for that purpose and prohibits their further use.
- Requires federal financial regulatory agencies to
cooperate with federal law enforcement to investigate fraud or
misrepresentation with respect to financial products.
- Investors who sold preferred stock in mortgage finance
giants Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz), between Jan.
1, 2008, and before Sept. 7, 2008, to pay higher ordinary
income taxes on any gains rather than the lower capital gains
tax. The government announced the seizure of Fannie Mae and
Freddie Mac on Sept. 7.
(Compiled by Reuters' Washington bureau, editing by Patricia
Zengerle)
It appears to be a bipartisan agreement with both sides of the aisle agreeing to joint concessions in order for a deal to get done. I think it is a great foundation for moving forward and hopefully establishing some stability in the capital and credit markets. The key to success will be how soon will the banks begin re-lending money? I think if banks decide to freeze lending, then this plan was in vain and will cause the taxpayers to shoulder a significant burden. Banks should begin generating loans immediately and get rid of products such as no-document mortgages (aka liar loans), ARMs for individuals who don't have strong credit or are buying too much home, and the issuance of loans greater than 3xs household income. Sub-prime lending has to continue in this country, especially now since many individuals have been negatively impacted by this crisis, this market probably has grown by 2 fold. The question that still is left to be understood is will Congress allow for Fannie Mae and Freddie Mac to still operate as a Government Sponsored Entity (GSE) and be publicly traded? It's my opinion that they should remain a publicly traded entity with more Government Oversight, however, many Americans lost money in these companies and they should be given the opportunity to re-coup some of those losses.
If this legislation is passed there will be several significant advantages like homeowners who not currently in the bankruptcy court will be allowed to re-negotiate their mortgages to more favorable rates, any company that participates in the program their executive compensation will be subject to mandated guidelines, and the Federal Government will be able to receive preferred stock warrants which generally pay dividends and trade at higher prices as a means to generate repayment for the taxpayer dollars that are being distributed. These concessions are big and make the legislation more taxpayer friendly rather corporate friendly. The next step will be constructing favorable job creation legislation, however that is a topic for another discussion.
Many Americans are not high on this legislation, but it is something that is needed right now. Moving forward we all have to look at our finances more responsibly, begin to shifting each household from credit base to more savings deposit based thus allowing for each household to become more liquid and able to handle rising pressures that may affect our everyday lives. Many lessons have been learned as a result of this crisis and it is up to everyone to put those lessons learned into action and attempt to avert this catastrophe from happening again in the future.
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