Deal reached on financial markets bailout

[leobold1]

Deal reached on financial markets bailout

Sep 28 03:17 AM US/Eastern
By CHARLES BABINGTON and ALAN FRAM
Associated Press Writers

WASHINGTON (AP) - Congressional leaders and the Bush administration reached a tentative deal early Sunday on a landmark bailout of imperiled financial markets whose collapse could plunge the nation into a deep recession.
House Speaker Nancy Pelosi announced the $700 billion accord just after midnight but said it still has to be put on paper.

"We've still got more to do to finalize it, but I think we're there," said Treasury Secretary Henry Paulson, who also participated in the negotiations in the Capitol.

"We worked out everything," said Sen. Judd Gregg, R-N.H., the chief Senate Republican in the talks.

Congressional leaders hope to have the House vote on the measure Monday. A Senate vote would come later.

The plan calls for the Treasury Department to buy deeply distressed mortgage-backed securities and other bad debts held by banks and other investors. The money should help troubled lenders make new loans and keep credit lines open. The government would later try to sell the discounted loan packages at the best possible price.

At the insistence of House Republicans, some of the program's $700 billion would be devoted to a program that would encourage holders of distressed mortgage-backed securities to keep them and buy government insurance to cover defaults.

The legislation would place "reasonable" limits on severance packages for executives of companies that benefit from the rescue plan, said a senior administration official who was authorized to speak only on background. It would affect fired executives of financial firms, and executives of firms that go bankrupt. Some of the provisions would be retroactive and some prospective, the official said.

The proposed legislation also calls for the financial sector to help make up the difference if the government does not recoup its investment in five years, the official said, but details were unclear.

Also, the government would receive stock warrants in return for the bailout relief, giving taxpayers a chance to share in financial companies' future profits.

To help struggling homeowners, the plan would require the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers' monthly payments so they can keep their homes.

The measure's main elements were proposed a week ago by the Bush administration, with Paulson heading efforts to push it through the Democratic-controlled Congress. Democrats insisted on greater congressional oversight, more taxpayer protections, help for homeowners facing possible foreclosure, and restrictions on executives' compensation.

To some degree, all those items were added.

At the insistence of House Republicans, who threatened to sidetrack negotiations at midweek, the insurance provision was added as an alternative to having the government buy distressed securities. House Republicans say it will require less taxpayer spending for the bailout.

But the Treasury Department has said the insurance provision would not pump enough money into the financial sector to make credit sufficiently available. The department would decide how to structure the insurance provisions, said Sen. Kent Conrad, D-N.D., one of the negotiators.

Money for the rescue plan would be phased in, he said. The first $350 billion would be available as soon as the president requested it. Congress could try to block later amounts if it believed the program was not working. The president could veto such a move, however, requiring extra large margins in the House and Senate to override.

Despite the changes made during an intense week of negotiations, the heart of the program remains Bush's original idea: To have the government spend billions of dollars to buy mortgage-backed securities whose value has plummeted as hundreds of thousands of Americans have defaulted on their home loans.

Senate Majority leader Harry Reid, D-Nev., said Saturday that the goal was to come up with a final agreement before the Asian markets open Sunday night. "Everybody is waiting for this thing to tip a little bit too far," he said, so "we may not have another day."

Hours later, when he and others told reporters of the plan in a post-midnight news conference, Reid referred to the sometimes testy nature of the negotiations.

"We've had a lot of pleasant words," he said, "and some that haven't always been pleasant."

"We're very pleased with the progress made tonight," said White House spokesman Tony Fratto. "We appreciate the bipartisan effort to deal with this urgent issue."

It was not immediately clear how many House Republicans might vote for the measure. With the election five weeks away, Democrats have said they would not push a plan that appeared sharply partisan in nature.

[leobold1]

I saw the press conference mentioned at the beginning of the article. Aside from saying that a deal is very close, there was nothing said for 15 minutes. This was at about midnight CDT.

Couple things that bother me, right off the bat.

The plan calls for the Treasury Department to buy deeply distressed mortgage-backed securities and other bad debts held by banks and other investors.

And how will the government collect on these? The same way the banks do now? People get calls from creditors all the time, and yet these loans and mortgages were defaulting at a record pace. Will there be any difference now that the government is doing the collecting?

The money should help troubled lenders make new loans and keep credit lines open.

Will there be the same rates or will there be actual checking into what can be afforded for these new loans and credit lines?

The government would later try to sell the discounted loan packages at the best possible price.

Isn't this how we got in this mess in the first place? Banks selling loans and mortgages that were never going to be repaid? And now the government is going to sell them back to the same places they came from in the first place?

How about a law that if you approve the loan or line of credit, you have to keep it for the life of the loan or credit limit?

To help struggling homeowners, the plan would require the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers' monthly payments so they can keep their homes.

Banks are required to do this now. All you have to do is walk into your bank and say you can't afford the payments, and the bank, by law, has to renegotiate the loan.

At the insistence of House Republicans, some of the program's $700 billion would be devoted to a program that would encourage holders of distressed mortgage-backed securities to keep them and buy government insurance to cover defaults.

This I can go along with. The banks have to take the good with the bad for their loan giving. And having the banks pay for insurance will be like our auto insurance. Rarely used, but overfunded.

The legislation would place "reasonable" limits on severance packages for executives of companies that benefit from the rescue plan, said a senior administration official who was authorized to speak only on background. It would affect fired executives of financial firms, and executives of firms that go bankrupt. Some of the provisions would be retroactive and some prospective, the official said.

Describe "reasonable". I doubt you can. Unless there's a hard number, the packages will be right back where they were in five years.

And when's the last time you heard of an executive that was FIRED? Its like government service, you're forced to resign, but its still a resignation, not a firing.

I do like the retroactive side of it. These execs that think they got away with murder with a fatter bank account will have to give the money back, or have it seized.

Senate Majority leader Harry Reid, D-Nev., said Saturday that the goal was to come up with a final agreement before the Asian markets open Sunday night. "Everybody is waiting for this thing to tip a little bit too far," he said, so "we may not have another day."

This is my biggest problem with it. The foreign markets have survived for a week without imploding or wrecking the US firms on their sheets. What's a day or two more?

This isn't a "do it now or else".

I want to see the actual words, but I'll bet that they'll be out within a few hours of the actual vote, giving the people little time to digest it.

But, if it involves one dollar of my taxes going toward it, if my Rep or Sens vote for this, I'll come out against them, and hard.

The basis of this plan had a 28% (Zogby) and 24% (Rasmussen) approval. And, aside from more oversight and insurance, it doesn't look that much different.

[Shooterman]

Originally Posted by leobold1

I saw the press conference mentioned at the beginning of the article. Aside from saying that a deal is very close, there was nothing said for 15 minutes. This was at about midnight CDT.

Couple things that bother me, right off the bat.



And how will the government collect on these? The same way the banks do now? People get calls from creditors all the time, and yet these loans and mortgages were defaulting at a record pace. Will there be any difference now that the government is doing the collecting?



Will there be the same rates or will there be actual checking into what can be afforded for these new loans and credit lines?



Isn't this how we got in this mess in the first place? Banks selling loans and mortgages that were never going to be repaid? And now the government is going to sell them back to the same places they came from in the first place?

How about a law that if you approve the loan or line of credit, you have to keep it for the life of the loan or credit limit?



Banks are required to do this now. All you have to do is walk into your bank and say you can't afford the payments, and the bank, by law, has to renegotiate the loan.



This I can go along with. The banks have to take the good with the bad for their loan giving. And having the banks pay for insurance will be like our auto insurance. Rarely used, but overfunded.



Describe "reasonable". I doubt you can. Unless there's a hard number, the packages will be right back where they were in five years.

And when's the last time you heard of an executive that was FIRED? Its like government service, you're forced to resign, but its still a resignation, not a firing.

I do like the retroactive side of it. These execs that think they got away with murder with a fatter bank account will have to give the money back, or have it seized.



This is my biggest problem with it. The foreign markets have survived for a week without imploding or wrecking the US firms on their sheets. What's a day or two more?

This isn't a "do it now or else".

I want to see the actual words, but I'll bet that they'll be out within a few hours of the actual vote, giving the people little time to digest it.

But, if it involves one dollar of my taxes going toward it, if my Rep or Sens vote for this, I'll come out against them, and hard.

The basis of this plan had a 28% (Zogby) and 24% (Rasmussen) approval. And, aside from more oversight and insurance, it doesn't look that much different.

Bingo, Leo, you get it. The American Taxpayer, forever more known as The Patsy, will bend over, grab his/her ankles, and say 'sock it to me' ala Judy Carne from Laugh In. The government will not use KY jelly or even a condom, but we will still be screwed.

[BrianK]

Maybe the politicians should explain the concern for trying to get something accomplished ahead of the Asian markets opening.

I've only heard the mention of owing China 650 billion once since the rush to get something done began.

Could it be that covering that debt is impossible if China decided to collect?

As for collecting on bad mortgages with computers it shouldn't be to hard to identify those that are defaulting. Offering those in default a 5% fixed for the value of the home they bought might be a way to collect. If it took 40 or 50 years instead of 30 then so be it. If in the meantime property values climbed back to where that home owner could sell and pay off the debt then the plan might actually work to the tax payers benefit.

A lot of if's that will probably take another gov. agency to oversee.

[Woodmonkey]

A lot of if's that will probably take another gov. agency to oversee.

Oh great, more money out.