Tuesday, September 23, 2008

Making Progress on the Bailout Plan - Treasury, Congress, Bush Administration

On Monday, the Bush administration and U.S. lawmakers moved closer to an agreement on a massive plan to prop up financial markets as stocks slid and the chiefs of the Treasury and Federal Reserve prepared to defend the plan on Capitol Hill. "We seem to be making progress," said House Financial Services Committee Chairman Barney Frank. "There is a lot more agreement today."

While the key lawmaker said the Bush administration and Democrats have agreed to additions to the plan, including creating an independent oversight board and aid for homeowners facing foreclosure, there is uncertainty over a proposal to allow the government to take an equity position in companies that participate in the U.S. program. Frank said that the Treasury had agreed but reports later Monday afternoon said Treasury had not.

On Tuesday morning, the action will move back to Capitol Hill, with scheduled appearances by Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke. They are set to testify before the Senate Banking Committee at 9:30 a.m. EDT, along with Securities and Exchange Commission Chairman Christopher Cox.

The drop in U.S. stocks on Monday, which erased all the gains from Friday, highlighted nervousness among investors that bickering over details could derail the bill and leave the markets exposed to a potentially devastating systemic meltdown. The goal is for a bill to be passed by the end of the week, when Congress is scheduled to adjourn.

Some investors appear to be fretting that government's getting shares of financial companies would further dilute already battered shareholders. A sticking point seems to be that the Democrats would like for the government to have an equity position in both the selling firm and buying firm. Analysts are worried that this move will have some private equity, hedge funds, and other corporations unwilling to bid on the securities.

Frank said House Republicans were more opposed to a revision of bankruptcy law to help struggling homeowners than curbing executive compensation -- two other provisions Democrats are trying to push through as Congress and the administration finalize the rescue package.

Members of Congress and their staffs and Bush administration officials have been working furiously to hash out the details of the rescue package, which was first presented to Congress late Friday night. Senate Banking Committee Chairman Christopher Dodd, D-Conn., said staff from both parties continued their meetings on Monday. "We want to act but we also want to act responsibly," Dodd told reporters. But Sen. Richard Shelby, R-Ala., the top Republican on the banking panel, said he's concerned the Treasury plan isn't either "workable" or "comprehensive."

Earlier Monday, President Bush warned Democrats not to load down the proposed rescue plan for the U.S. financial system with extra provisions, but Democratic leaders are insisting on some aid for homeowners and curbs on executive pay. "There will be differences over some details, and we will have to work through them," Bush said as congressional staff and administration officials restarted meetings on the bill. "That is an understandable part of the policy-making process. But it would not be understandable if members of Congress sought to use this emergency legislation to pass unrelated provisions, or to insist on provisions that would undermine the effectiveness of the plan."

Members of Congress met with Bush administration officials all weekend to discuss details of the package, which aims to purge bad mortgage-related assets from the books of several financial institutions in a bid to address the root cause of the credit crisis.

House and Senate lawmakers would need to agree on a common bill. Frank told reporters that he and Dodd are almost in agreement on what to add. Frank said that he hoped Congress could complete work on the plan in the next few days. A Treasury spokesman said Monday that Paulson is making calls to lawmakers, and that the department is "confident a bill can be done this week."

The downturns in markets over the past week and the dramatic restructuring of Wall Street come as voters prepare for the Nov. 4 presidential election. On Monday, candidates John McCain and Barack Obama traded barbs over the rescue plan, with each accusing the other of failing to grasp what is needed to resolve the crisis.

In separate action Monday, financial officials from the seven wealthy industrial nations agreed to take "whatever actions may be necessary" to ensure the stability of the international financial system.

"We reaffirm our strong and shared commitment to protect the integrity of the international financial system and facilitate liquid, smooth functioning markets, which are essential for supporting the health of the world economy," the Group of Seven said in a joint statement.

Sources: CBS MarketWatch, Yahoo


Jamie Turner said...

Thanks for your excellent blog. It's one of the few I read every day. Can you answer one question? How come the American taxpayer is going to get stuck with a $700 billion bill, but Wall Street CEOs who made the boneheaded decisions are going to walk away scot free? Does that make sense to anybody?

Rollins Financial Advisors, LLC said...

Jaime - Thanks for your comments and questions.

You bring up some good questions that do not seem to be getting addressed much, but they will be. Joe has a blog that will be posted in the morning that will discuss your questions as well as many others. Be sure to check back tomorrow.

Thanks again for your comments.