"The negotiators resolved our differences so we can go forward with
a package to stabilize the market," House Speaker Nancy Pelosi,
D-Calif., told reporters after the deal was hammered out.
The measure, which is expected to be voted on by both the House and
Senate by Wednesday, would authorize $700 billion to the treasury for
buying back mortgage assets, mostly from Wall Street financial
institutions. But the provision provides initial funding of $250
billion, followed by another $100 billion at the president's request.
The final $350 billion would be made available afterwards with
presidential approval, but it would also be subject to a congressional
veto.
The package also provides:
- The Treasury Department with the authority
to provide government insurance for mortgage-backed securities, though
the government is not required to provide it. House Republicans, led by
Rep. Eric Cantor, R-Va., had sought to replace the $700 billion bailout
package with their insurance plan, which they believed would have
driven private capital back into the markets.
- The measure will require the Treasury to take equity stakes or
warrants in participating financial institutions that sell assets to
the government. The equity stake approach was opposed by Paulson, but
lawmakers included it as part of their effort to provide benefits to
taxpayers from the revitalization of the financial sector. In addition
to buying assets from financial institutions, the measure also allows
the government to purchase troubled mortgage assets from pension plans,
local governments and small banks.
- The package puts restrictions on executive compensation of CEOs at
financial institutions participating in the program, an idea that
Paulson also initially opposed. The draft legislation prohibits golden
parachute severance packages and also includes a clawback provision
that would require executives to return bonuses if it turns out after
that their companies actually did not hit benchmark financial targets.
- Lawmakers agreed to create two
oversight boards:
- One that consists of the secretaries of Treasury and
Commerce, the head of the Securities Exchange Commission and of the
Federal Reserve and
- Another made up of reputable economists and other
individuals chosen by bipartisan leaders of Congress. This provision
would take away sole control of government allocations from the
treasury secretary, but appointments to the latter panel are likely to
be the subjects of heated debate.
- The package also requires that an inspector general and Government
Accountability Office staffer be present at the Treasury Department to
oversee the program.
- Transactions will also need to be posted online.
A measure that Democrats wanted that would have made changes to
bankruptcy law and let judges adjust the terms of mortgages was not
included. But the plan gives government officials the authority to
modify mortgages such as reduce principal or interest rates or lengthen
the amount of time to pay back the mortgages.
Bush Administration spokesman Tony Fratto said in a statement that
the administration is satisfied with the progress on the proposal. He
added that Bush spoke with Pelosi on the negotiations Saturday night.
Pelosi expects the House will vote on the measure by late Sunday or
early Monday, though some Republicans want a 24 hour delay on the vote
so they can absorb its complexities. The Senate should vote on it
shortly afterward, most likely by Wednesday. - Ron Orol
See draft of legislation
Ron Orol is a Washington-based reporter for The Deal and author of Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World.
Comments
Republican and Democratic lawmakers in the House and Senate reached a compromise with Treasury Secretary Henry Paulson early Sunday morning over how to move forward on a $700 billion Wall Street bailout plan (
How in the world can you put the people who, either caused, or help cause the bailout problem, in charge of oversight of the bill? The Chairman of the Fed Res Sys, The Sec of Trea, the Director of Fed Home Fin Agency, The Chairman of the SEC, and the Secretary of Housing and Urban Dev.