Update-4 : House passes bailout plan, Bush signs the bill
Tiny URL: http://tinyurl.com/3qqxao
Update:
10/03/08 - 4
The House has ok’d the revised bailout bill with a 263-171 vote. President Bush acted quickly and signed the bill providing his approval. The bill will provide money for banks to keep their payroll expenses going and allow them to lend money to each other. What it won’t fix is easy credit for individuals trying to buy a car or a house or take a loan for home improvement. Also, the bill is not likely to take the economy out of the current recession it is in. There should be some releif to average consumers as market volatility should decrease and that will provide relief to their 401k and individual investment portfolios. The bill has also increased the FDIC safeguard limit from $100,000 to $250,000 providing some assurance to consumers who may have savings in troubled banks which have significant exposure to illiquid mortgage assets.
10/02/08 - 3
The Senate yesterday approved the revised $700 billion bailout bill by a 74 to 25 margin. The house is slated to vote on Friday on the revised bill that has additional provisions. The senate added $110 billion in tax breaks for businesses and the middle class, plus a provision to raise, from $100,000 to $250,000, the cap on federal deposit insurance. The bill doesn’t designate a way to pay for many of the tax cuts and will add to the deficit pool.
09/29/08 - 2
Dow has now shed 777 points or almost 7% for the day. The Nasdaq fared even worse as Apple Computers was downgraded by Morgan Stanley and Nasdaq was down 9%. Other big names in the tech industry including Intel, Sun and Google were down 10%+ as well.
09/29/08 - 1
The bailout bill has failed in the House of Representatives. The vote started at 1:30. Around 2 PM, only 205 House members had voted for the bill versus 228 against. The bill needs 218 to pass. Only 66 Republicans voted for it, with 132 against. Among the Democrats, 141 backed the bill and 94 voted against. The Dow is now down around 560 points.
09/28/08:
Congressional leaders approved the $700 billion bailout package under the EMERGENCY ECONOMIC STABILIZATION ACT OF 2008 ( EESA ). The original proposal sent by the White House was a request for authoritarian powers for the treasury secretary on the use of the $700 billion dollars. The bush administration wanted Congress to approve the bill as is and asap saying that ”The risk of not acting would be far higher”.
Congress and several GOP leaders have been against approving the bailout proposal without sufficient debate on the wisdom of the government interfering with free market forces and not without significant oversight on how the money will be spent.
The week long discussions are now over and the proposal has been approved with some significant changes. The highlight of EESA are as follows
- Stabilizing the Economy - The Emergency Economic Stabilization Act of 2008 (EESA) provides up to $700 billion to the Secretary of the Treasury to buy mortgages and other assets that are clogging the balance sheets of financial institutions and making it difficult for working families, small businesses, and other companies to access credit, which is vital to a strong and stable economy. EESA also establishes a program that would allow companies to insure their troubled assets.
- Homeownership Preservation -
- The treasury will be required to modify troubled loans wherever possible to help American families keep their homes and other federal agencies to modify loans that they own or control.
- Improves the HOPE for Homeowners program by expanding eligibility and increasing the tools available to the Department of Housing and Urban Development to help more families keep their homes.
- Taxpayer Protection - The legislation requires companies that sell some of their bad assets to the government to provide warrants so that taxpayers will benefit from any future growth these companies may experience as a result of participation in this program. The legislation also requires the President to submit legislation that would cover any losses to taxpayers resulting from this program from financial institutions.
- No Windfalls for Executives - In order to participate in this program, companies will lose certain tax benefits and, in some cases, must limit executive pay. In addition, the bill limits “golden parachutes” and requires that unearned bonuses be returned.
- Strong Oversight -
- Rather than giving the Treasury all the funds at once, the legislation gives the Treasury $250 billion immediately, then requires the President to certify that additional funds are needed ($100 billion, then $350 billion subject to Congressional disapproval).
- The Treasury must report on the use of the funds and the progress in addressing the crisis.
- EESA also establishes an Oversight Board so that the Treasury cannot act in an arbitrary manner.
- It also establishes a special inspector general to protect against waste, fraud and abuse
Presidential nominee Barack Obama issued the following statement after the deal was approved
To understand how this tentative deal was reached, it’s important to remember how this all began. The Bush Administration initially asked for a blank check to respond to this problem, which I strongly opposed. It would have been unconscionable to expect the American people to hand this Administration or any Administration a $700 billion check with no conditions and no oversight when a lack of oversight in Washington and on Wall Street is exactly what got us into this mess. If the American people are being asked to pay for the solution to this crisis, their tax dollars must be protected.
That is why over the past ten days, in conversations with the President, Secretary of Treasury and leaders of Congress, I laid out the four core principles I believed had to guide any solution: oversight by an independent board; protections for taxpayers to ensure that they are treated like investors and that they receive any profits - and recoup any losses - from this plan; measures to help homeowners stay in their homes; and rules to make sure CEOs are not being rewarded at taxpayers’ expense. While I look forward to reviewing the language of the legislation, it appears that the tentative deal embraces these principles.
One final point. If elected President, I will order a thorough review of this plan to make sure that it fully lives up to the principles I’ve laid out. And I will also move quickly to upgrade our financial regulations for the 21st century, establishing new rules of the road and tougher oversight to ensure that the American taxpayers are never again forced to put their money and their futures at risk because of bad decisions in Washington and on Wall Street.
John McCain had ” suspended” his campaign to go to Washington to help solve the crisis but reached 22 hrs after announcing the suspension, only to find that an agreement was mostly in place. A press statement is yet to be released by McCain on the agreement.
Despite the oversight and the changes, the fact of the matter is tax payers are footing the bill for bad decisions made by greedy wall street firms and investment bankers.
With the oversight clauses the treasury secretary can no longer have his decisions exempted from congressional review, as was sought in the original proposal sent by the the Bush administration. However, the secretary still has the authority to hire “experts” of his choice for making his decisions.
Markets should cheer the news tomorrw even though it is unclear if the $700 billion is sufficient to fix all the problems in the financial system.
The complete analysis of the sections of the EESA are available here. The complete text of the EESA can be found at - http://financialservices.house.gov/
