Emergency Economic Stabilization Act of 2008

There could be a dozen threads related to this topic. Perhaps a mod would like to mash them together.

The the latest text of the so called bail out package can be found here at senate.gov .

The 205+ page version in legalese can be found here .

Here's a one page summary of the EESA:

SUMMARY OF THE “EMERGENCY ECONOMIC STABILIZATION ACT OF 2008”

I. 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.

II. Homeownership Preservation

EESA requires the Treasury to modify troubled loans – many the result of predatory lending practices – wherever possible to help American families keep their homes. It also directs other federal agencies to modify loans that they own or control. Finally, it 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.

III. Taxpayer Protection

Taxpayers should not be expected to pay for Wall Street’s mistakes. 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.

IV. No Windfalls for Executives

Executives who made bad decisions should not be allowed to dump their bad assets on the government, and then walk away with millions of dollars in bonuses. 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.

V. 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.

But wait, there's more!

PIGGY POLS IN HOG HEAVEN WITH PORK-PACKED PACT

By DAPHNE RETTER, New York Post Correspondent

October 2, 2008

WASHINGTON - Here, little piggies!

Congressional deal-brookers yesterday slopped a mess of pork into the $700 billion financial rescue bill passed by the Senate last night - including a tax break for makers of kids' wooden arrows - in a bid to lure reluctant lawmakers into voting for the package

Stuffed into the 451- page bill are more than $1.7 billion worth of targeted tax breaks to be doled out for a sty full of eyebrow-raising purposes over the next decade.

"This is how Washington works," said Keith Ashdown of Taxpayers for Common Sense, a Washington research group. "A big pot of pork is their recipe for final passage."

The special provisions include tax breaks for:

* Manufacturers of kids' wooden arrows - $6 million.

* Puerto Rican and Virgin Is- lands rum producers - $192 million.

* Wool research.

* Auto-racing tracks - $128 million.

* Corporations operating in American Samoa - $33 million.

* Small- to medium-budget film and television productions - $10 million.

Another measure inserted into the bill appears to be a bald-faced bid aimed at winning the support of Rep. Don Young (R-Alaska), who voted against the original version when it went down in flames in the House on Monday.

That provision - a $223 million package of tax benefits for fishermen and others whose livelihoods suffered as a result of the 1989 Exxon Valdez oil spill - has been the subject of fervent lobbying by Alaska's congressional delegation.

Some of the pork-barrel measures buried in the financial rescue package had been contained in a bill that previously passed the Senate, but died in the House.

The Congressional Budget Office said the package of breaks - including obvious pork and some more defensible tax-relief measures - will add about $112 billion to budget deficits over the next five years because the bill doesn't contain enough offsetting revenue hikes to keep the budget balanced.

The legislative lard annoyed Tom Schatz, president of the watchdog group Citizens Against Government Waste.

"There's always something that goes on at the end where the last dozen members are trying to get something for themselves or for a special interest rather than what might be good for the country," Schatz said.

Some of the other measures added to win approval include a $3.8 billion health-care provision that forces insurance companies to provide coverage for mental-health treatment equivalent to the coverage they provide for physical illness.

Other add-ons will increase individual tax credits and help shield more than 20 million Americans from the painful alternative minimum tax, and offer breaks for businesses that invest in alternative fuels.

Also, several federal income-tax breaks due to expire will now be extended through 2009.

Also, from Lew Rockwell's blog :

Writes a journalistic star: The news articles I've read about the $700 billion Senate bailout bill are focusing on the politics. They haven't offered much analysis of what's actually in it, except to say there's a Troubled Assets Relief Program (or TARP), that the FDIC account limits are raised to $250,000 and that the SEC is authorized to waive its mark-to-market accounting rule.

So I read the whole thing myself -- and found odd things like production credits for "marine renewables" and specifications for "residential top-loading clothes washers." My analysis is based on the final Senate version that you can read for yourself here .

I also found lots of problems. Some of them are:

Procedural: The original Bush administration proposal was just two pages long and at least easy to understand. The latest Senate version has ballooned to an amazing 250 pages, including a huge chunk on energy-related regulations, with no hearings on the final draft and only hours for politicians to review something that's quite complex. This is the same rush-the-flawed-legislation-through process used for the Patriot Act seven years ago.

Loopholes: A financial institution can buy $50 billion of financial toxic waste in the form of subprime mortgages, declare bankruptcy, and the Treasury Department is permitted to buy the toxic waste for $60 billion. Or $100 billion. Even though the Treasury should be required to pay _less_ than the original purchase price, that requirement does not exist across the board in this bill. And you can bet that every financial lobbyist in town will be pressuring Congress and the administration to buy up their client's toxic financial assets for insanely high prices. The political process begins to crowd out the free market.

Making housing less affordable: The U.S. Treasury would be authorized to "guarantee" home mortgages, essentially becoming a co-signer, to eliminate foreclosures. If the home-owner stops paying his mortgage, taxpayers will be on the hook. The Treasury Department can also eliminate a "reasonable" amount of a home owner's mortgage debt. This slows the rate of house prices falling, preventing housing from becoming more affordable. And why should careful, frugal homeowners or renters -- who lived within their means -- bail out speculators who didn't? This is in Section 109.

Golden parachutes: There is no statutory dollar limit on how high executive salaries of TARP bailout recipients can be. Section 111 merely says the Treasury Department will come up with "appropriate standards," whatever that turns out to be. And only the top five executives will have their golden parachutes even theoretically limited. All the rest will remain untouched, even if their second-tier salaries and bonuses happen to be in the millions or tens of millions. It's also unclear whether stock options or grants will be covered, which is probably what led Sen. Bernie Sanders to say: "This bill does not effectively deal with the issue of executive compensation and golden parachutes."

Tax deduction: While salaries of failed executives would have no statutory limit, TARP-participating companies would lose a tax deduction if they pay their top executives more than $500,000 a year. But it's not clear how the cap applies to executives at privately-held companies. Chrysler is privately-held; what if its lending arm falters because of bad car loans and it signs up for TARP? In addition, the $500,000 limit only kicks in if the company offloads at least $300 million in assets through TARP.

$700 billion is not the limit: Section 115 of the bill says that the administration can, after notifying Congress and waiting 15 days, purchase and hold $700 billion of assets "at any one time." This is a remarkable loophole. It permits the Treasury Department to buy up, say, $700 billion in 2008, sell those assets off gradually over the next year at a (probable) loss, and repeat the same process in 2009. Losses to taxpayers, in other words, could exceed $700 billion.

Judicial review: Unlike the original Bush administration proposal, judicial review does exist. Sort of. The reality is that Section 119 sharply limits it, tilting the playing field toward the U.S. government if it ends up getting sued as a result of a TARP bailout. Judges cannot issue injunctions related to TARP except for "a violation of the Constitution" (fat chance) and the Feds get automatic halts to any injunctions related to other sections of the law.

The 2013 tax hike: If the TARP ends up costing taxpayers money, the president may ask Congress to consider enacting a law to recoup "from the financial industry an amount equal to the shortfall," presumably through higher taxes. But Congress is under no obligation to do anything; a mechanism to cover the shortfall does not exist in this bill. The other problem is that the firms that benefited the most from TARP may have disappeared five years from now. Why should new companies founded in 2013 pay higher taxes for a bailout that took place in 2008?

FDIC coverage: Even though FDIC coverage would be boosted from $100,000 to $250,000 per account through December 2009, premiums to banks may not take "into account" the higher account coverage. Premiums can't increase for that reason. That encourages more risky behavior on the part of banks.

It's true that is more oversight than in earlier versions, including $50 million to be spent on an inspector general, and a legislative branch "Oversight Panel" producing monthly reports. But even if you support the idea of a bailout in principle, there are plenty of reasons to oppose this particular bill.

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swine fever ....

fin

that's a bit like what happens at work .... the meeting ended with a decision to meet again.

There is actually nothing in the text that stops executives from paying themselves out of the taxpayer subsidy. Paulson has managed to insert all sorts of ifs and buts into the text; he has the final say on whether such actions will serve the purpose of the legislation.

If i remember correctly, the clause can only be applied to companies that take more than 300 million of taxpayer money... i.e. you can happily take 299 million, then write checks to your senior management who walk out the door as the business is collapsing around them, and that will be fully legal.

It also stops companies from issuing new golden parachutes only after the act is legislated - any reasonably intelligent CEO would have been testing his golden parachute last week

Texaner/Phos

C'mon. By the time Schwarzenegger realises you have a problem....you know you have a problem.

There's a problem??

Maybe not. As Arnie says:

“To those critics who are so pessimistic about our economy, I say, Don't be economic girlie men!”

Okay, it passed . So maybe I'll get back to CH after all.

...and STAY there.

hmmmm. doesnt seem like the nasdaq has moved that much... seems to still be 10360, thats awfully close to that 10000 mark.

we are going through that on monday i think.

Ehr... NASDAQ ?...

Anyway - the "wisdom" of the market is voting with it's wallets & it's feet.

How low can you go??

Paul

I wish there were a way to have given the decision to the next administration. Might not have liked the results, but at least it would not have been a lame-duck admin signing off on it...

fduvall

I take a small measure of comfort in knowing that my congressional representative voted 'no.'

For whatever it's worth to other EFers, here's the email message his office sent out to his constituents Friday evening after the vote: Dear Tim:

My preferred solution to the credit crisis was to repeal the mark-to- market accounting rule and raise the $100,000 FDIC insured limit on bank deposits to $250,000. Unfortunately, this bailout bill also included $42 billion in tax increases and pork barrel spending, and I could not support it. I am committed to finding a solution that restores liquidity to the banking system, and these two steps will help immensely, giving Congress and the Administration time to think the problem through carefully. While I am glad the SEC Chairman Chris Cox repealed the mark to market rule, and that the bailout bill raised the FDIC insured limit to $250,000, I co-sponsored the conservative alternative, H.R. 7223. To read about the Free Market Protection Act, click here. http://culberson.houseenews.net/mail...ng_linkid=4918 [pdf]

The White House and the Treasury both tell us that nothing in this bill will prevent this crisis from happening again, or bring those responsible to justice and that $700 billion may not even be enough. The bill grants the Treasury Secretary unprecedented authority - he can bail out any financial institution operating in the United States by paying any price he wants for any financial instrument, for any reason, and no one can stop him or restrain him in any way as long he makes a phone call or writes a letter to Congress telling us what he has done.

Since we will have to borrow the $700 billion by selling TBills on the international bond market, and the largest percentage of TBills are bought by the Chinese or other hostile powers through Middle Eastern sovereign wealth funds, under this bill, American taxpayers will borrow billions of dollars from Chinese and Middle Eastern banks to bail out Chinese and Middle Eastern banks.

This bill also raised the national debt to $11.3 trillion, doubled the deficit overnight, and saddled our children with at least $1 trillion in new unfunded obligations. All for a bill the Treasury Secretary admits won't prevent the problem in the future and may not solve the urgent problem in front of us.

Federal property managers will be able to rewrite mortgages to reduce principal and lower interest rates to zero if they wish, and they can give away foreclosed or distressed-loan homes in your neighborhood to anyone they wish. Liberals who manage these programs will give away millions of free or reduced homes in neighborhoods all over America to families who could not otherwise afford them. The federal government now has the power to create federal housing projects, house by house, in neighborhoods all over America. Just imagine what that means for property values and the safety and security of your neighborhood.

I was one of only seven House members to vote against loosening lending restrictions on FHA home loans in 2007, I opposed the taxpayer bailout of Fannie Mae and Freddie Mac earlier this year, and I strongly supported the unsuccessful Fannie/Freddie reform bill of 2005, which would have helped avert this crisis.

We need Congressional action to help forestall and ease the credit crisis, but this bill won't solve that problem, won't prevent future problems, and was rushed through far too fast for us to be thoughtful and deliberative.

Here are several recent news articles that help explain the history of the current credit crisis:

http://www.independent.co.uk/opinion...is-949653.html

http://online.wsj.com/article/SB122212948811465427.html

Sincerely,

John Culberson

Member of Congress

I think that was actually the idea. Making it a lame-duck's baby leaves both candidates of the bipartisan monopoly equally unscathed, and neither of them more culpable than the other, especially since the vote went anything but along party lines (which shouldn't surprise anybody who's been paying attention).

hahahaha... ok you got me there. It was late and my brain is fried. NASDAQ under 10000 isnt exactly a fastbreaking news story, is it.

DJIA it is then.

Your representative clearly fails to understand the absolute urgency in granting tax breaks to makers of toy arrows and auto racetrack owners, Mr Texaner. Think about your nation's children archers and Nascar enthusiasts. Surely they are more deserving of a bailout than the Wall Street fat cats.

Notice the hypocrisy of BOTH presidential candidates harping for change on the campaign trail, yet rushing back to Washington to press for the passage of the bill.... even in its more premature form. Yeah right... "We Stand For Change" my a$$!

SwissInfo reports :

Joseph Stiglitz will be speaking in Geneva next week (if I remember correctly). I will be interested in hearing his comments.

fduvall