Momentum Building for Financial Rescue
Momentum continues to build for enactment of the $700 billion Administration plan to buy troubled assets from financial institutions. As an indicator of the increasingly upbeat mood around the package, the Dow Jones Industrial Average increased by over 200 points for the day.
As we write this, President Bush is meeting with Sens. McCain and Obama and Congressional leaders to discuss how to advance the plan. While this meeting is viewed by many as a sideshow, a forceful statement by the sitting president and the two men seeking to replace him will add to the overall sense that action on Capitol Hill is soon possible.
Earlier in the day, key members of the House and Senate met to hammer out details of a compromise package. Influential GOP Senators, previously silent or opposed to the plan, indicated the plan is likely to be approved. Most notably, the Senate Banking Committee's Ranking Republican Sen. Richard Shelby (R-AL) conceded that while he thinks it is the "wrong thing," Congress is likely to act on the package before the weekend. The ranking member of the House Financial Services Committee, Spencer Bachus (R-AL), also acknowledged progress.
House Financial Services Chairman Barney Frank (D-MA) offered a few details about the emerging plan, explaining "There will be some phasing in of the $700 billion. There will be some equity protection...with protection for the taxpayers. There will be restrictions on CEO compensation on those companies that choose to participate. There will be very strong oversight. There will be strong efforts to reduce mortgage foreclosure; whether or not that includes bankruptcy is the issue still under discussion."
We have since learned of additional elements leaders plan to include, such as applying profits from this to reducing the national debt; an independent Inspector General to monitor the Treasury Secretary’s use of this new authority; audits by the Government Accountability Office; applying a percentage of future profits from this to recently created affordable housing funds; and distributing the $700 billion of funding to the Treasury Secretary in tranches, with $250 billion available immediately and the remainder released subject to further Congressional approval.
The Senate Banking Committee’s lead negotiator, Robert Bennett (R-UT), said he has "warmed to the idea of warrants" (equity sharing) as a way to "guarantee taxpayer return and calm taxpayer concern." When asked about the Treasury Secretary’s concerns that warrants will diminish participation, Bennett responded that the "situation is sufficiently dire that if a bank needs to get rid of its toxic paper, I don’t believe the existence of warrants will cause it to stay away."
Possible remaining difficulties in enacting the plan include pockets of resistance among Republican House members and the potential that presidential politics may slow progress.
