Sunday, 28 September 2008


Okay, here it is...

Bailout plan comparison based on statements and press coverage.  Sources and revision history at the bottom.

IssueOriginal (Paulson) PlanInterim proprosals (mostly Frank-Dodd)
9/28 compromise
Cost$700 billion taxpayer-funded Line-Of-Credit
(all at once)
$700 billion
in $150 billion tranches
$700 billion:
  • $250 billion at once
  • $100 billion on report to congress
  • remaining $350 billion requires further congressional approval
If after 5 years the government has a net loss of taxpayer funds as a consequence of the purchase program, the President will be required to submit a legislative proposal to recoup such funds from program beneficiaries.
Applies to“Toxic paper” backed by subprime mortgages.
‡ Adds “other troubled assets” owned by “pension plans, local governments, and small banks”
Government Acquires Equity?
Mandatory equity interest in all participating firms.Mandatory equity interest in total takeover scenario.

Proportional equity interest based on percentage of assets sold if deemed appropriate by Treasury Secretary.

Requirement to establish mandatory insurance/guarantee program at no expense to the taxpayer. “Pay to play” for participating companies, based on risk.
Oversightnone, plus immunity from court review
(“trust us”)
(Various reporting and oversight requirements)Bipartisan oversight commission, split evenly between minority and majority.

† Inspector General and GAO to monitor Treasury Dept. actions.

† Treasury must post all transactions online.

† Immunity provision OUT.
Executive Pay
Executive compensation standards that would affect companies not involved in this financial crisis.

Lowered the deduction on executive pay to $400,000 for ALL companies.
Prohibitions on executive compensation to ensure bad actors are not rewarded:

In a total takeover (like what happened with AIG), no golden parachutes or severance pay.

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

For equity participation over $300M, total ban for top 5 executives on golden parachutes and tax deduction limit on compensation above $500,000.
“Affordable Housing” Slush Fund
20% of any transaction profits channeled to Housing Trust Fund and Capitol Magnet Fund. “Profit” calculated on each individual sale, taxpayers stuck with any losses. See Jim LindgrenOUT
“Say on Pay”

(Mandated union representation on corporate boards)

Mandate a nonbinding shareholder vote on proxy access [by unions] and other corporate governance issues for any company in which the Treasury Department buys a direct stake in certain assets. OUT
Bankruptcy “cramdown”
Allow bankruptcy judges to reduce mortgage principal.OUT (Blunt) but...

‡ “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)” (Pelosi)
Loan to auto industry
$25 Billion for developing energy-efficient vehiclesMoved to continuing resolution.  (Not part of this bill, but will be spent anyway.)[2]
Oil shale development ban[1]
Extend to September 30, 2009 Not in “discussion draft”[3]
“Mark-to-Market” Accounting Standard

GAO study on the impacts of mark-to-market accounting standards and effects on the banking crisis.

Restatement of existing authority to suspend mark-to-market.
Tax benefits for community banks

Allow community banks to offset capital losses on GSE assets (= Fannie Mae and Freddie Mac paper) against ordinary income. (i.e., tax deduction)
Personal taxes

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

Anything I’ve missed?

House Republican Whip Roy Blunt (via Tapscott).
† Wall Street Journal coverage
‡ House Speaker Nancy Pelosi
[1] (Added 23:35)  Thanks to “Vic” at Ace
[2] (Added 23:55) thanks to Bill Quick
[3] (Added 080929 14:01)

Posted by: Old Grouch in Rants at 18:15:09 GMT | Comments (3) | Add Comment
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Old Grouche:  the only thing I've read about this deal that's not mentioned in your chart is the Treasury Sec. ability to re-establish the real estate value of foreclosed mortgaged properties.  This is one of the details that could be un-constitutional.

For instance: you live in a cul-de-sac of eight homes (all are pretty equal in value and features), four of which are foreclosed and empty.  You value your home at $300,000.  The Treasury comes in revalues the foreclosed homes at $100,000 to get them sold, what does that do to the value of your home, which is either paid for or current with your payments?

If I missed that in your chart I apologize.  Thanks.

All The Best,

Frank W. James

Posted by: Farmer Frank at 09/29/08 12:39:30 (1QbQK)

2 Here in Texas, the "rule" by which tax appraisers value homes is to ignore totally any prices on sale or resale of foreclosed homes, unless more than 50% of a given neighborhood (which is flexibly defined to include more houses so the 50% is always hard to meet) is composed of foreclosure homes.  If the 50% limit is met, then foreclosure prices are included in appraisal values for the other homes in the neighborhood.

Effectively, this means if you are in a non-foreclosed home it is nearly impossible to get the tax appraisers to reduce your home appraisal based upon nearby house prices on foreclosed houses. Similarly, if you buy a foreclosed house at auction on the courthouse steps, the appraised value of the house is based on non-foreclosed comparables in the neighborhood. However, if you buy a foreclosed home (say, from an investor who got it at auction) at a good price, that price is definitive for the first year of your tax appraisal. It then can go up the next year.

Posted by: Mikee at 09/29/08 13:31:18 (PN5d2)

3 Frank:
Actually, the value adjustment appears to apply to any property whose mortgage the government winds up owning, not just those in foreclosure. See Pelosi quote in "Bankruptcy cramdown" section
“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)”
There's already been concern that the language in the "draft document" actually mandates reevaluation, making it a backdoor mass-bailout of foolish borrowers. See next post.

Posted by: Old Grouch at 09/29/08 13:47:56 (jfwiq)

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