With hours to go before world financial markets open for Monday trading, Congressional leaders have released the details of the compromise bailout bill they’ve been working on:
NEW YORK (CNNMoney.com) — Congress on Sunday made public a proposed bill that would enact a far-reaching government rescue of the financial system.
The core of the bill is based on Treasury Secretary Henry Paulson’s request for authority to purchase as much as $700 billion in troubled mortgage assets from financial institutions so banks can resume lending and so the credit markets, now virtually frozen, can begin to operate more normally.
But Democrats and Republicans - concerned about the potential taxpayer cost - have added several conditions and restrictions. Key negotiators for the financial rescue plan will be busy trying to line up votes on Capitol Hill on Sunday to support the accord they reached soon after midnight.
Among the provisions:
- The $700 billion would be disbursed in stages, with $250 billion made available immediately for the Treasury’s use.
- Curbs will be placed on the compensation of executives at companies that sell mortgage assets to Treasury. Among them, companies that participate will not be allowed to offer golden parachutes to executives; they will not be able to deduct the salary they pay to executives above $500,000.
- An oversight board will be created. The board will include the Federal Reserve chairman, the Securities and Exchange Commission chairman, the Federal Home Finance Agency director and the Housing and Urban Development secretary.
- Allow for the Treasury to receive the option to take ownership stakes in participating companies under certain circumstances.
- Treasury may establish an insurance program - with risk-based premiums paid by the industry - to guarantee companies’ troubled assets, including mortgage-backed securities, purchased before March 18, 2008.
Lawmakers’ goal is to shore up a deal before financial markets around the world open on Sunday evening.
I’ll leave it to more expert minds to comment on the specifics, but the moral hazard issues I raised earlier still remain, and I’m more than a little bit troubled at the prospect of the Federal Government having an ownership stake in any private company.
Assuming this passes, though, it should be enough to calm financial markets, at least in the short term. Where we go after this is something that neither I, nor the people on Capitol Hill who came up with this scheme, can say with any degree of certainty.
