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WSJ Escreveu:SEPTEMBER 29, 2008
Shape of Massive Bailout Bill Starts to Develop Definition

WASHINGTON -- Congress will decide on broad new powers for the Treasury Department in sweeping legislation that could be put to a vote as early as Monday.

At its core, the legislation would give Treasury Secretary Henry Paulson the authority and as much as $700 billion to buy rotten financial assets that Mr. Paulson says are choking business by making it all but impossible for banks to lend.

After days of negotiations, Treasury agreed to such concessions as curbs on executive pay, government acceptance of equity stakes in companies and oversight that will include the inspector general. Here are the details of the proposed compromise. Some terms could change before a final vote.
The Troubled Asset Relief Fund:

The bill authorizes $700 billion for the fund in installments. Treasury will first get $250 billion, with an additional $100 billion immediately accessible. Congress would have the option of blocking the final installment of $350 billion by issuing a joint resolution within 15 days of any requests.
How it works:

Treasury plans to hire asset managers to determine how to buy bad loans and other ailing assets from financial institutions. Many of the details, including pricing and purchase procedures, will be worked out between those managers and Treasury. The legislation requires Treasury to set guidelines within 45 days for pricing methods and setting the value of troubled assets, as well as mechanisms for purchasing assets, procedures for selecting asset managers and criteria for identifying troubled assets to buy.

The legislation requires Treasury to purchase assets at the lowest price, and allows the government to buy through auction or direct from institutions.

Treasury expects to start buying the simplest assets first -- mortgage-backed securities, for example -- followed by more complex securities. Treasury likely will publish a list of the assets it is seeking to purchase. Banks and other institutions are expected to submit bids in a competition to sell bad loans and securities.
Executive compensation:

The legislation places restrictions on executive compensation for certain companies that sell assets to Treasury. If Treasury buys assets from a company directly -- something it would do if a firm were failing -- then no "golden parachute" exit payments could be made during the period when Treasury has an ownership stake in the firm. Companies that sell assets to Treasury through an auction process will be subject to some limits. Firms that sell more than $300 million of assets to Treasury won't be allowed to make any new golden-parachute payments to top executives. A tax-deduction limit on compensation above $500,000 also will apply.
Equity stakes:

The legislation requires Treasury to receive warrants in companies that participate in the program. If a company sells its assets through an auction, Treasury will get a nominal amount of nonvoting warrants. If Treasury buys assets directly, it could get a majority equity stake.
Oversight:

The Troubled Asset Relief Fund will be overseen by a bipartisan congressional commission that will receive reports from Treasury every 30 days. The program will also be overseen by a board comprising the heads of Treasury, the Federal Reserve, the Securities and Exchange Commission, the Housing and Urban Development Department and the Federal Housing Finance Agency.

The office of accountability will have an inspector-general office within Treasury.

Treasury will have to submit a written report to Congress no later than April 30 on the overall financial regulatory system and "its effectiveness at overseeing the participants in the financial markets, including the over-the-counter swaps market and government-sponsored enterprises" and recommend improvements.
Protecting taxpayers:

If after five years the government has a net loss, the president will be required to submit a legislative proposal to seek reimbursement from the financial institutions that participated.
Help for homeowners:

Treasury will buy mortgage-backed securities, mortgages and other assets secured by residential real estate. The legislation requires Treasury to use its position as the investor in those loans and securities to "encourage the servicers of the underlying mortgages" to help minimize foreclosures.

It also calls for Treasury to "identify opportunities" to acquire "classes of troubled assets" that will improve the ability of Treasury to help modify and restructure loans. The idea is that Treasury would be more patient with homeowners who have fallen behind on their payments than commercial lenders.
Insurance:

The bill would require Treasury to establish, alongside the asset-purchase plan, a program to insure mortgage-backed securities. Financial institutions that want to participate would essentially pay the government a fee and, in return, the government would insure their assets against any future losses.
Accounting:

The legislation would require the Securities and Exchange Commission to study so-called mark-to-market accounting standards, which require that firms reflect the market value of assets on their books. Such accounting has culminated in many financial institutions writing down big losses as the value of certain assets has fallen in price. The SEC would have to study the accounting rule's effect on balance sheets and report to Congress within 90 days of its findings.

From Office of Speaker Nancy Pelosi -- Sept. 28, 2008

REINVEST, REIMBURSE, REFORM

IMPROVING THE FINANCIAL RESCUE LEGISLATION

Significant bipartisan work has built consensus around dramatic improvements to the original Bush-Paulson plan to stabilize American financial markets -- including cutting in half the Administration's initial request for $700 billion and requiring Congressional review for any future commitment of taxpayers' funds. If the government loses money, the financial industry will pay back the taxpayers.

3 Phases of a Financial Rescue with Strong Taxpayer Protections

* Reinvest in the troubled financial markets … to stabilize our economy and insulate Main Street from Wall Street

* Reimburse the taxpayer … through ownership of shares and appreciation in the value of purchased assets

* Reform business-as-usual on Wall Street … strong Congressional oversight and no golden parachutes


CRITICAL IMPROVEMENTS TO THE RESCUE PLAN

Democrats have insisted from day one on substantial changes to make the Bush-Paulson plan acceptable -- protecting American taxpayers and Main Street -- and these elements will be included in the legislation

* Protection for taxpayers, ensuring THEY share IN ANY profits

* Cuts the payment of $700 billion in half and conditions future payments on Congressional review

* Gives taxpayers an ownership stake and profit-making opportunities with participating companies

* Puts taxpayers first in line to recover assets if participating company fails

* Guarantees taxpayers are repaid in full -- if other protections have not actually produced a profit

* Allows the government to purchase troubled assets from pension plans, local governments, and small banks that serve low- and middle-income families

Limits on excessive compensation for CEOs and executives

New restrictions on CEO and executive compensation for participating companies:

* No multi-million dollar golden parachutes

* Limits CEO compensation that encourages unnecessary risk-taking

* Recovers bonuses paid based on promised gains that later turn out to be false or inaccurate


Strong independent oversight and transparency

Four separate independent oversight entities or processes to protect the taxpayer

* A strong oversight board appointed by bipartisan leaders of Congress

* A GAO presence at Treasury to oversee the program and conduct audits to ensure strong internal controls, and to prevent waste, fraud, and abuse

* An independent Inspector General to monitor the Treasury Secretary's decisions
Transparency -- requiring posting of transactions online -- to help jumpstart private sector demand

* Meaningful judicial review of the Treasury Secretary's actions


Help to prevent home foreclosures crippling the American economy

* The government can use its power as the owner of mortgages and mortgage backed securities to facilitate loan modifications (such as, reduced principal or interest rate, lengthened time to pay back the mortgage) to help reduce the 2 million projected foreclosures in the next year

* Extends provision (passed earlier in this Congress) to stop tax liability on mortgage foreclosures

* Helps save small businesses that need credit by aiding small community banks hurt by the mortgage crisis—allowing these banks to deduct losses from investments in Fannie Mae and Freddie Mac stocks

Bailout bill unveiled, heads to House
Text includes some executive-pay caps, taxpayer protections
By Ruth Mantell & Andrea Coombes, MarketWatch
Last update: 7:44 p.m. EDT Sept. 28, 2008Comments: 2425WASHINGTON (MarketWatch) -- Democratic congressional leaders announced their agreement Sunday on details of a massive financial rescue plan proposed by the Bush administration, releasing a draft text trumpeting taxpayer guarantees and caps on executive compensation.
The draft bill, titled the "Emergency Economic Stabilization Act of 2008," follows days of legislative wrangling over a $700 billion plan proposed by Treasury Secretary Henry Paulson as U.S. financial markets teetered on the edge of a collapse triggered by the U.S. mortgage crisis.
The bill will be introduced in the House of Representatives Monday morning and then head to the Senate, said Senate Majority Leader Harry Reid, D-Nev.
"This isn't about a bailout of Wall Street, it's a buy-in so we can turn our economy around," House Speaker Nancy Pelosi, D-Calif., said at a press conference announcing the agreement.
The draft legislation would authorize $250 billion immediately, with another $100 billion upon presidential certification. A further $350 billion would also be available subject to congressional approval.
"I appreciate the leadership shown by members on both sides of the aisle, who came together to write a very good bill," President Bush said in a statement. "This bill provides the necessary tools and funding to help protect our economy against a systemwide breakdown."
Under the proposed bill, the Treasury Department can use a combination of tactics to buy bad loans, focusing on mortgages and mortgage-backed securities but also including other types of loans under certain conditions. Treasury could purchase the bad debt through an auction process as well as by buying loans directly, a Treasury official said in a conference call with reporters.
The proposed legislation also allows companies to participate in an insurance program, whereby Treasury would guarantee troubled assets, charging companies a premium "sufficient to cover anticipated claims," according to the bill.
"This bill provides the necessary tools to deploy up to $700 billion to address the urgent needs in our financial system, whether that be by purchasing troubled assets broadly, insuring troubled assets, or averting the potential systemic risk from the disorderly failure of a large financial institution," Treasury Secretary Henry Paulson said in a press release.
"I am confident this legislation gives us the flexibility to unclog our financial markets [and] increase the ability of our financial institutions to deliver the credit that will help create jobs. We are taking the steps needed to be ready to begin implementing this legislation as soon as it is signed," he said.
The government would get a stake in companies receiving bailout funds so that taxpayer money could be recovered if those companies grow in the future, according to the bill.
The proposed legislation also requires that in five years, the president submit a proposal to Congress "that recoups from the financial industry any projected losses to the taxpayer." Read proposed legislation
Existing executive-pay contracts will stay in place
In some cases, the bill requires companies limit executive pay, but those limits vary depending on the method by which Treasury purchases a firm's troubled assets, and how much Treasury antes up.
"When Treasury buys assets at auction, an institution that has sold more than $300 million in assets is subject to additional taxes, including a 20% excise tax on golden parachute payments triggered by events other than retirement, and tax deduction limits for compensation limits above $500,000," according to a synopsis of the text of the bill.
While the proposed bill prevents companies from signing new golden-parachute deals with top executives after Treasury gets involved, it does not change the terms of already-existing contracts, apparently in an effort to encourage companies to participate in the bailout program.
"Those are contractual obligations between a company and their employees," the Treasury official said. "We want to encourage all institutions, even healthy institutions, to participate," he said, adding that "we're not abrogating contracts."
In situations where Treasury steps in to directly purchase a company's bad loans, the government will move "aggressively" to ensure executive compensation isn't excessive, the official said. "In one-off negotiations, then we would be imposing executive compensation standards that the secretary will define. That's nothing new. We've expressed a strong view [in the past] when it comes to executive compensation."
Keeping an eye on progress
The bill puts oversight provisions in place, including creating the position of an inspector general as well as a congressional oversight panel to monitor the program, plus a requirement that the Treasury secretary regularly report to Congress the details of all loan purchases.
Also, "all of the transactions related to this legislation will be on the Internet within 48 hours," Pelosi said. "That transparency, that oversight, will be very important to our economy."
The bill also contains some provisions to help families in financial distress avoid foreclosures, in part by creating a plan to "encourage services of mortgages to modify loans" and allowing the Treasury to use loan guarantees to avoid foreclosures.
While critics have noted that government encouragement won't necessarily impel servicers to work with borrowers, the Treasury official said that buying large groups of loans will help push that process forward. "Treasury will be buying many of the securities in volume. We will have a lot of influence on the servicers and we will work aggressively to ... prevent foreclosures," the official said.
Candidates weigh in
Before the release of the draft text, presidential candidates John McCain and Barack Obama said Sunday morning that they would be willing to sign off on the massive financial rescue plan but would need to first consider the details. See full story.
When asked if he supported the plan, McCain told ABC's This Week: "I'd like to see the details, but hopefully yes. ... This is something we'll all swallow hard and go forward with."
Obama told CBS's Face the Nation: "We have to get something done. ... My inclination would be to vote for it, understanding that I'm not happy about it -- we should have never gotten to this place."
Ruth Mantell is a MarketWatch reporter based in Washington.
Andrea Coombes is an assistant personal finance editor for MarketWatch, based in San Francisco

Branc0 Escreveu:Ainda não li o draft mas se o Garfield poder esclarecer o seguinte ponto:

se no prazo de 5 anos o estado tiver ainda um saldo negativo no que diz respeito à gestao dos activos adquiridos ao abrigo do programa serão as empresas financeiras envolvidas a pagar esse saldo de forma faseada.

Se as empresas falirem entretanto como funciona? O estado é o primeiro a ser pago?

se no prazo de 5 anos o estado tiver ainda um saldo negativo no que diz respeito à gestao dos activos adquiridos ao abrigo do programa serão as empresas financeiras envolvidas a pagar esse saldo de forma faseada.