The House of Representatives on Monday, September 29, 2008 @ 2pm est., defeated a $700 billion emergency rescue package. As a result, stocks plummeted on Wall Street even before the 228-205 vote to reject the bill was announced on the House floor.

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Leaders in the U.S. Congress have agreed, as of Sunday September 28, 2008 —  to the details of a deal that will allow the Treasury Department to buy up to $700 billion in troubled securities to soothe global credit markets.

Here are a few of the central elements of the plan, as proposed:     

• The $700 billion in buying power would be parcelled out by Congress in stages (not all $700 Billion at once). 
•  Right out of the box Congress authorizes the use of the first $250 billion,
• The President then can request another $100 billion.      
• The final $350 billion could/would be authorized for us, but only by a further act of Congress.  
• And this Act is not just about residential loans, as widely reported: Eligible assets include residential or commercial mortgages and related instruments which were originated or issued on or before March 14, 2008. Other financial instruments can be included in consultation with the Federal Reserve if Congress is notified.
• BEWARE: The Treasury Secretary has been given broad discretion to determine the methods for buying assets. The Devils in the Detail, so watch out for this provision. Clearly there is a whole lot of money in the hands of a few.
• Foreign central banks, or institutions owned by a foreign government, cannot take part. This provision limits the market for buyers of these securities, but precludes foreign entities from enriching themselves.
• The government will take a stake in companies that tap federal aid so that taxpayers can share in the profits if those companies get back on their feet. An exception applies to financial firms that offload less than $100 million of bad investments.
• If a company receives aid but fails, the government will be one of the last investors to see a loss. This is a clear area of risk and the size of this item is yet to be determined.
• A New Bureaucracy has been born: A new congressional panel would have oversight power and the Treasury secretary would report regularly to lawmakers in two elements of a multi-level oversight apparatus.  
•  If the Treasury takes a stake in a company, the top five executives would be subject to limits on their compensation. 
•  Executives hired after a financial company offloads more than $300 million in assets via auction to the government will not be eligible for “golden parachutes.”  
• The deal would permit the Federal Reserve to begin paying interest on bank reserves from Oct. 1, giving it another tool for easing credit strains. 
• Mandates a study (not direct action) on the impact of mark-to-market accounting standards that critics blame for a downward spiral in the valuation of assets on corporate balance sheets.  
• The federal government may stall foreclosure proceedings on home loans purchased under the plan.  
• Alongside the plan to buy securities outright, the Treasury Department will conceive an alternative insurance program that would underwrite troubled loans and would be paid for by participating companies.  
• If the government has taken losses five years into the program, the Treasury Department will draft a plan to tax the companies that took part to recoup taxpayer losses.

Tags: Federal Rescue Plan

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