Neil's Spotlight Reinvest, reimburse, reform: Improving the financial rescue legislation
September 28, 2008
The Office of House Speaker Nancy Pelosi has prepared the following information about the legislation:
Significant bipartisan work has built consensus around dramatic improvements to the original Bush-Paulson plan to stabilize American financial markets—including requiring a plan to ensure the taxpayer is repaid in full, and cutting in half the Administration’s request for $700 billion and requiring Congressional review for future payments.
Three phases of a financial rescue with strong taxpayer protections
Reinvest in the troubled financial markets … to stabilize our economy and insulate Main Street from Wall Street;
Reimburse the taxpayer…requiring a plan to guarantee they will be repaid in full;
Reform how business is done on Wall Street…no golden parachutes and sweeping Congressional oversight
Critical improvements to the rescue plan
Democrats have insisted from day one on substantial changes to make the Bush-Paulson plan acceptable—protecting American taxpayers and Main Street—and these elements are included in the draft legislation under consideration.
Protection for taxpayers, requiring a plan to be repaid in full
Requiring Congressional review after the first $350 billion is disbursed
Gives taxpayers a share of the profits of participating companies, or puts taxpayers first in line to recover assets if a company fails
Requires a President five years from now to submit a plan to ensure taxpayers are repaid in full, with Wall Street making up any difference
Allows the government to also purchase troubled assets from pension plans, local governments, and small banks that serve low- and middle-income families
Limits on excessive compensation for CEOs and executives
For companies publicly auctioning over $300 million:
No multi-million dollar golden parachutes for top 5 executives after auction
No tax deduction for executive compensation over $500,000
Penalizes golden parachutes for CEOs who are fired or have run the company into the ground
For companies from which the government makes direct purchases:
No multi-million dollar golden parachutes
Limits CEO compensation that encourages unnecessary risk-taking
Recovers bonuses paid to executives who promise gains that later turn out to be false or inaccurate
Strong independent oversight and transparency
Four separate independent oversight entities or processes to protect the taxpayer
A strong oversight board appointed by bipartisan leaders of Congress , can overturn Treasury decisions
GAO oversight and audits at Treasury to ensure strong controls; to prevent waste, fraud, and abuse
An independent Inspector General to monitor the Treasury Secretary’s decisions
Transparency—requiring posting of transactions online—to help jumpstart private sector demand
Meaningful judicial review of the Treasury Secretary’s actions
Help to prevent home foreclosures crippling the American economy
The government can work with loan servicers to change the terms of mortgages (reduce principal or interest rate, lengthen time to pay back the mortgage) to reduce the 2 million projected foreclosures in the next year
Extends provision (enacted earlier in this Congress) to stop tax liability on mortgage foreclosures
Helps save small businesses that need credit by aiding small community banks hurt by the mortgage crisis—allowing these banks to deduct losses from investments in Fannie Mae and Freddie Mac stocks
