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Bailout Plan Reached, Vote Coming Later
If the bill is passed and signed, Treasury would immediately get $250 billion to start buying up bad mortgage-related assets.
September 29, 2008
After a week of intense negotiations on legislation to rescue the financial industry, Republican and Democratic leaders finally settled on a bill Sunday night.
Lawmakers said they hope to push the bill through the House by sundown Monday, in time for lawmakers to observe the Jewish holiday, and finish in the Senate Wednesday.
The deal represents a high-stakes bet that Treasury Secretary Henry Paulson's plan to purchase up to $700 billion in illiquid assets from banks and other financial companies will stabilize the credit markets and prevent the teetering economy from plunging into a recession.
Now it is up to the House and Senate leadership to convince rank-and-file members that passing the bill "is the right thing to do for our country," said House Minority Leader John Boehner, an Ohio Republican. Many House GOP members, whose support has been in question since talks broke down at the White House Thursday, remained uncertain after emerging from a three-hour caucus meeting with Rep. Boehner and other key negotiators. A number of Democrats also need some convincing, lawmakers and other observers said.
"They'll find a way to break arms until they have a majority," said Ed Yingling, the president and chief executive of the American Bankers Association in an interview.
Rep. Chris Shays, a Connecticut Republican who sits on the Financial Services Committee, said he plans to vote for the bill, but understands why many have misgivings. He called it a "legacy vote," on par in significance with the vote on the Iraq war.
"It's going to be a tough battle for them to get the 100 votes that they need," he said of the Republican leadership.
Rep. Shays said that some members feel like they have been left out of negotiations and need time to digest such a weighty bill. Other free-market Republicans simply oppose such significant government intervention.
"What's been fascinating about this is that is has never been a battle between Democrats and Republicans; it's been a battle within each conference," he said.
Rep. Carolyn Maloney, D-N.Y., the Financial Services Committee's financial institutions subcommittee chairwoman, said she was convinced the bill was necessary to jumpstart the sputtering economy, but admitted some of her colleagues are skeptical.
"I'd say Democrats are divided over it, yes," she said. "But frankly it has to pass. We need to get credit into the economy."
If the bill is passed and signed by President Bush, Treasury would immediately get $250 billion to start buying up bad mortgage-related assets from banks and other financial services firms.
Financial services industry represents were still dissecting the final product Sunday, but many said their initial doubts about the program had mostly been alleviated.
"The bill is enormously important. It is certainly a necessary, if not sufficient, step to staunch the bleeding. It's not perfect, legislation never is," said Eugene A. Ludwig, the chief executive of Promontory Financial Group, and a former Comptroller of the Currency.
Camden Fine, the president of the Independent Community Bankers of America, applauded a provision ensuring that an insurance fund the government created for money-market mutual funds is only temporary. He said his members are also pleased that the bill provides tax relief for banks that have seen the value of their investments in Fannie Mae and Freddie Mac plunge since the mortgage giants were taken over by the government.
Yingling also touted the bill's benefits, but he said his group has issues with a provision that would assess fees to financial services firms that participate in the government program if after five years the government has not recouped its cost. The assessment plan would still require congressional approval, but it would extend to the entire industry, not just the firms that had been assisted.
"It's unfair because it potentially asks banks that didn't have anything to do with the problem to pay for it," said Yingling.
Yingling said he further worries that the banking industry could be facing more regulation and legislation as payback for Congress bailing out the market.
"Even though the recoupment provision has no teeth in it, this is going to be a continuing fight," he said. "Next year is going to be an absolute hurricane. There is going to be so much legislation and its going to move extremely fast."
Scott Talbott, the senior vice president for government affairs with the Financial Services Roundtable, said the group is still hoping regulators will recognize how accounting rules can unfairly hurt banks' balance sheets.
The bill restates that the Securities and Exchange Commission has the authority to suspend mark-to-market accounting rules and orders a study on the potential impact of relaxing the standards.
"We will continue to work for a temporary change in the negative impact of the mark-to-market rule on balance sheets," Talbott said. "We are concerned that the intersection of the rule and the stabilization bill will artificially depress balance sheets. This will make it harder to restore liquidity."
Industry lobbyists said Sunday they could deal with the bill's restrictions on executive compensation and a provision that would allow the government to take equity stakes in companies it assists. For publicly traded companies, the government would get warrants for non-voting common or preferred shares, and for other companies, it would hold a senior-debt interest.
Other features of the bill include a provision that directs the government to maximize foreclosure prevention efforts and it sets up an optional insurance program, sought by Republicans, that would have industry participants pay premiums to insure mortgage-backed securities.
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