Congress, White House reach financial bailout deal
Do you support the plan?
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.
UPDATE
fyi
‘Verbal’ deal in place for bailout
House and Senate negotiators have reached tentative agreement on Treasury’s $700 billion rescue plan for the financial markets after a marathon Capitol negotiating session that started Saturday afternoon and stretched into early Sunday morning.
House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.) said the deal still had to be “committed to paper,” a process that will continue throughout the night, with an eye toward a formal announcement Sunday.
“We have something verbal,” said Rep. Rahm Emanuel (D-Ill.).
Republican Whip Roy Blunt (R-Mo.), the chief negotiator for the House GOP, said he was “looking forward to what we’re going to see on paper” but said he was optimistic that it would be something House Republicans could support.
“I’m not sure yet we can sell it to our conference but I’m 100% sure that this is the best deal we could get,” said a Republican aide.
Said Treasury Secretary Henry Paulson: “We’ve been working very hard on this and we’ve made great progress toward a deal which will work and will be effective in the marketplace and effective for all Americans . . . .We’ve still got a lot to do to finalize it, but I think we’re there.”
The draft agreement assures Paulson a relatively free hand in accessing the first $350 billion of the $700 billion he sought. The second $350 billion could be blocked by a future Congress through a joint resolution, which could be vetoed by the president. But lawmakers agreed to drop the requirement that these funds could not be available until three months after enactment of the bill.
Lawmakers won substantially greater oversight that Treasury had first proposed allowing in its legislation submitted to Congress last week. And limits would be imposed on the pay and severances packages for executives at companies helped by the plan.
Down the road, the measure also opens the door to allow the government—on behalf of taxpayers—to take an equity share in the companies it helps, either through warrants or options to buy stock.
On two key points, compromises had to be reached on competing priorities for the two parties.
In the first case, Democrats had proposed that the Treasury be required to impose a fee on Wall Street transactions to help cover the cost of any government losses as a result of the rescue plan. But Republicans and Treasury resisted, and the final compromise calls for the next president to submit a legislative proposal to Congress in four years, after some assessment can be made of the costs to the government.
The second compromise dealt with a Republican proposal that the government intervene in the markets, not by buying up bad assets but by providing a federally backed insurance program that might make the same mortgage-related securities more salable. The compromise reached would require Paulson to set up such an insurance alternative if he goes ahead with his plan, but he is not compelled to use the insurance option.
A vote in the House could come as early as Monday, Emanuel said.
House GOP leaders had warned Saturday evening that they would need to take any deal to their rank-and-file members before committing to back it.
Racing to reach a deal before the markets open Monday, lawmakers met late into the night in the Capitol office of Pelosi. Paulson set up a sort of command center in the office of Minority Leader John A. Boehner (R-Ohio), with legislators and staffers criss-crossing Statuary Hall as they shuttled back and forth.
As the talks neared 10 p.m., Paulson could be seen through the windows of Boehner’s second-floor office, sitting on a sofa flanked by aides in chairs around the room. Pelosi passed through a hallway with her son. Asked if a deal would come together before the night was over, she said, “I hope so.”
Just before 11 p.m., Paulson, the two principal GOP negotiators – Blunt and Sen. Judd Gregg (R-N.H.) – Emanuel, Pelosi chief of staff John Lawrence and White House legislative affairs aide Dan Meyer walked into Pelosi’s office.
In a sign that negotiations were growing serious earlier in the evening, a Pelosi aide collected BlackBerrys from the staffers meeting in her office so that no details would leak out.
Just after 8 p.m., pizzas arrived at Paulson’s HQ in Boehner’s office. Democratic staffers ordered in burgers from Five Guys.
“This is Saturday night,” said Senate Budget Committee Chairman Kent Conrad (D-N.D.) “You have the secretary of Treasury. You have congressional leaders. You have committee chairmen of all the committees of jurisdiction. And we are here. There’s a reason we’re here — because there’s a great feeling of responsibility to get a package as quickly as we can while doing it as well as we can.”
While the meeting in Pelosi’s office was supposed to include just Paulson and the principal negotiators – Blunt, Rep. Barney Frank (D-Mass.) and Sens. Chris Dodd (D-Conn.) and Judd Gregg (R-N.H.) — a substantial number of Senate Democrats were there as well.
Republicans complained that the presence of the additional Democrats was making the process more difficult; by setting up shop in Boehner’s office, Paulson was able to get some breathing room after spending hours in close quarters, where at times he was hectored by some of the Senate Democrats.
Earlier in the day Saturday, Boehner had gone before the TV cameras to say that House Republicans would not agree to a bill “that bails out Wall Street at the expense of American taxpayers.”
“Somebody, maybe it was Einstein, said things should be done as quickly as possible, but no quicker than possible,” said Blunt, who added: “We’re not moving on any kind of artificial timeline. We’re moving toward the very best solution in the shortest period of time.”
But there was also a new sense of urgency to the negotiations Saturday – and increasing pressure on the House GOP.
President Bush pushed for a deal in his weekly radio address. The editorial page of the Wall Street Journal — influential with conservative Republicans — said a bailout was needed “to avoid a deeper downturn.”
Sen. Bob Bennett (R-Utah) warned publicly that another major U.S. bank was “teetering” on the edge of failure, and Republican Senate leaders — plus GOP Sens. Pete Domenici (N.M.), John Sununu (N.H.) and Gregg — laid out doomsday scenarios in a Republican Senate Conference meeting.
Sources said Saturday afternoon that as many as 40 Republican senators were prepared to vote for the emerging bailout deal if bankruptcy and social spending provisions are dropped. And while McConnell was not yet ready to abandon House Republicans — or John McCain — sources said his views might change if there were still no deal by Sunday evening.
For his part, McCain – fresh off his debate with Barack Obama in Mississippi – spent Saturday calling House Republicans to test support for the rescue plan, according to one lawmaker who was contacted. In addition to President Bush and Paulson, the McCain campaign said the Arizona senator had been in touch with McConnell, Gregg, Sen. Jon Kyl, Boehner, Blunt and nine other House Republicans.
As his colleagues worked on the deal at the Capitol Saturday night, McCain and his wife, Cindy, dined with Sen. Joe Lieberman and his wife, Hadassah, at CityZen, one of Washington’s best restaurants.
Barack Obama was at a dinner in Washington for the Congressional Black Caucus. Earlier in the day, his campaign said, he had talked by phone four times with Paulson and had made calls to Pelosi, Senate Majority Leader Harry Reid (D-Nev.), Sen. Chuck Schumer (D-N.Y.) and others involved in the negotiations.
it’s too soon to know how the tentative deal will play for either of the presidential candidates.
Republicans had been clearly worried that McCain’s first effort to engage in the bailout negotiations didn’t come off as well as they might have hoped — that in the public’s mind, a deal was close until McCain parachuted in to save the economy and, by turns, his presidential campaign, only to have a White House meeting collapse and the candidate leave town for the debate with the various factions farther from a deal than they’d been before he’d arrived.
House Republicans had worked hard to recast those events.
What actually happened, they said: By not taking a stand on the modified version of the Treasury plan that Democrats, Senate Republicans and the White House seemed nearly ready to support Thursday, McCain gave House Republicans the time they needed to force a better deal for taxpayers and homeowners alike.
During a brief session in the Capitol on Friday, McCain reminded a small band of Republican leaders that he had given them a political opening in the landmark legislative fight.
According to people present, McCain then told his congressional colleagues, “Now, go get something.”
As McCain greeted his top allies on Capitol Hill Thursday, lawmakers were working toward a compromise deal in a bipartisan, bicameral meeting. When that meeting ended, both Dodd, the Democratic chairman of the Senate Banking Committee, and Bennett said that negotiators had agreed on a plan that could pass both houses of Congress and be signed by the president.
Gregg told Politico Friday that the Thursday compromise wouldn’t have come together so quickly if Democrats hadn’t known that McCain was on his way. “We wouldn’t have had as much movement] as we did have, if he hadn’t come to town and some of our colleagues on the other side of the aisle wanted to upstage him,” Gregg said.
With the deal struck, Republicans in the House believed that the trap was set, not so much for McCain as for their own leader, Boehner.
As House Republicans saw it, Democrats and the White House were close to a deal and just needed McCain to sign on so they could roll Boehner under the bus and claim a bipartisan victory.
Boehner himself had emerged from a brief meeting with McCain earlier that day in his Capitol office unsure what the presidential candidate would do.
But if the Democrats and the White House were ready for a game of “ganging up on Boehner” – as the minority leader would describe it later – McCain didn’t play along.
At the White House, Bush beseeched lawmakers to join him in announcing progress toward a deal. According to one report, the president asked, “Can’t we just all go out and say things are OK?”
But McCain said little during the White House meeting. And when it ended, neither he nor Bush nor Barack Obama said anything at all to the reporters waiting outside in the rain.
In a statement Friday morning, the McCain campaign said that the meeting “was spent fighting over who would get the credit for a deal and who would get the blame for failure.”
Most important: “There was no deal or offer yesterday that had a majority of support in Congress.”
That play gave Boehner, whose rank-and-file was in an open revolt against the Bush administration plan, more room and more time to operate.
It’s not what House Republicans were expecting. McCain has a strained relationship with many of his GOP colleagues, some of whom view him as a political opportunist who chooses personal glory over partisan loyalty.
Republicans acknowledge that McCain’s first trip back to Washington didn’t shift votes in either direction; even they acknowledge that they don’t know what, exactly, their presidential candidate thinks of the Treasury plan.
But they credit McCain with creating an opening they didn’t have before.
“(The trip) played a very important role in elevating this to a serious crisis for most voters,” said Rep. Adam Putnam (R-Fla.), the Republican Conference Chairman.
Gregg agreed, saying that the trip focused voters’ attention on the financial problem in a way that nothing else had: “People suddenly said, ‘Oh wow this must be really, really bad if you’ve got both presidential campaigns . . . coming to Washington,” Gregg said.
On Friday morning, McCain paid Boehner a follow-up visit in the leader’s large Capitol suite. They were joined by Putnam, Blunt and his chief deputy, Virginia Rep. Eric Cantor, who played a central role crafting the Republicans’ alternative.
The presidential candidate told the assembled congressional leaders that he was initially skeptical about Paulson’s grave economic warnings, but that he became convinced after a series of briefings that the need was very real. Congress had to pass something over the weekend, McCain said.
But he told the group that Pelosi had a choice: She could either allow her negotiators to craft a package that Republicans would accept, or she could make it a partisan vote by attaching the plan to a must-pass stop-gap funding bill that lawmakers from both parties would be compelled to support.
If she chose the latter category, McCain told the Republican leaders that they could vote against the hugely unpopular measure and he would help them make that vote a campaign issue on the trail.
Before he left, he told the group that he needed to fly to Mississippi for the first presidential debate, so he wouldn’t be sticking around either way.
But, he told them, “You guys need a negotiator.”
That same morning, Boehner tapped Blunt to fill the role, jump-starting a legislative conversation that had stalled; just the night before, House Republicans had refused to send a representative to a meeting with Paulson, the Democrats and Senate Republicans.
FYI
The Week America’s Economy Almost Died
by Adam Davidson and Alex Blumberg
NPR-The potential for disaster was horrifying. For people on Wall Street and in the inner circles of government, last Wednesday and Thursday will long be remembered as the time when the American economy survived a brush with death.
The nation’s entire financial system slid toward a terrifying abyss, they say — a landscape where no one would lend and no one could borrow, where no one could buy anything and no one could get paid. As Congress and the Bush administration continue debating a proposed $700 billion bailout of Wall Street, those with intimate knowledge of the crisis say that whatever solution emerges must avert future brushes with very real disaster.
The nightmare scenario rattled Mark Peterson, far from the halls of finance, in Memphis, Tenn. “For those of you who’ve experienced an earthquake, some say it’s a soul-wrenching experience, and it’s massively moving everything,” Peterson says. “And that’s last week. There was a monster unleashed. The commercial paper market, which is the most liquid market, probably in the world, basically froze up.”
Peterson is treasurer of Servicemaster, which owns, among other things, a lawn care company, Merry Maids and Terminix, which will get rid of your termites. By “commercial paper,” he means a specialized kind of short-term loan. It’s one of those obscure financial tools that help make the world go around.
“Let’s just say you have Terminix come out and treat your house, you write a check,” he explains. “Our billing department marks your account as having been paid. What’s our cash position? Do you have money or do you need money? Today, our company, we have money.’ ”
Peterson’s company might or might not have cash money the next night. It’s no big deal — maybe it needs to buy a lot of termite poison or upgrade its fleet of termite-fighting vans. All companies move between having cash on hand and not having it every day. Some days they have extra money. Some days they need to borrow.
If you’re an ordinary consumer, you might use a credit card to bridge the gap. If you’re a gigantic company, you use the commercial paper market, a way of borrowing a lot of money.
What Peterson witnessed that frightened him so badly was the sudden seizure of that market. After the failure of the investment bank Lehman Brothers and the near-collapse of insurer AIG, commercial paper suddenly became very difficult to get. On Sept. 17 and 18, the market came dangerously close to freezing entirely — an event that could have paralyzed the financial system.
All Locked Up
Tom Corona works with Tradition Financial in lower Manhattan in what he describes as a relatively boring business — at least under normal circumstances. He’s the guy companies call when they need to borrow short-term money. The numbers involved in his profession are large, but the processes are routine.
“We would say, ‘I’m going to give you a million dollars tomorrow, if you give me $999,000 today,’ ” he says. “It’s hundreds of billions of dollars — every day, every single day.” Corona is used to moving sums like that for relatively cheap interest rates.
Last week, Corona’s business suddenly stopped being so boring. The cost of borrowing money shot up, as nervous lenders pulled back the reins. The river of capital narrowed to a trickle. “Banks were forced to start paying usury rates to get money,” he says. “And even when they were paying usury rates, even if they could get money, they could get only $50 [million] or $100 million. In our market, it’s nothing. It’s so small. These banks normally could raise billions in an eye blink.”
This is what happened last week that terrified Treasury Secretary Henry Paulson, Fed Chief Ben Bernanke and President Bush. This was not a bunch of big investment banks getting their comeuppance for making bad loans.
This was the fundamental flow of the American economy breaking down. Money stopped moving. Big, safe, respected companies far away from all the subprime lending problems had trouble getting the short-term loans they needed to pay their bills.
‘Breaking The Buck’
“I don’t think I’ve ever been this nervous in my career,” says Paul Balika of Daiwa Securities, “because the financial system was so close to locking up. I think we were close to the abyss.”
Balika watched the meltdown from what he calls courtside seats — his chair in front of a computer screen filled with numbers. What happened that scared Balika so much was the realization of one of Wall Street’s most dreaded hypotheticals: a money market mutual fund “broke the buck.”
It sounds obscure, and probably bad, but just what does it mean? In normal times, money market funds have much in common with a savings account. They’re ordinary means of saving money for many, many Americans. In ordinary circumstances, people view money market funds as totally safe, nearly free of risk. Investors put $1,000 in and get at least $1,000 out — more with interest. But they never expect to lose money.
If a money market fund loses money, that’s called “breaking the buck.” It’s like a wrinkle in time or a tear in the space-time continuum. It’s simply not supposed to happen.
Except that it did, last week. On Monday, the Reserve Fund broke the buck. And people freaked out.
“Breaking the buck is sort of like having a serial killer in a high school — it causes a little bit of panic,” Balika says. Frightened investors raced to escape money market mutual funds.
It so happens that the main thing money market mutual funds own is commercial paper, the same financial short-term loans that make ordinary businesses like Peterson’s Servicemaster outlet possible.
The run on money market mutual funds is why, no matter how safe and trusted a company was, they couldn’t borrow money last Wednesday. The people who usually loaned those companies money — meaning the many ordinary people with money market mutual funds — had hauled too much of their money out of the system.
This chain of events is part of what convinced Paulson and Bernanke that the situation had gone too far. If the panic had continued for more than a day, they reasoned, the wider economy would start to shut down.
“What would happen is nobody would be able to borrow money,” says Balika. “And how does capitalism work if you can’t borrow money? You’re back to bartering, pretty much. The extension of capital almost came to a halt — just ended, period.”
They key word there is almost. Those short-term credit markets froze for around 12 hours. Then they thawed a bit. If they ever stayed stuck for days, or weeks, well, Bernanke said, the consequences would be worse than the Great Depression.
Other economists, respected ones, argue that’s not true. They say people with money will always start lending it, when the price is right. Eventually, the dissenters say, the problem would work itself out.
Right now, how quickly that would happen, if it happened at all, is the $700 billion question.
This segment was produced in collaboration with Chicago Public Radio’s This American Life.
Yeah, they are calling the plan “No Bank Left Behind”.
Sounds like a winner.
FYI
Bailout Legislation: Full Text
http://www.huffingtonpost.com/2008/09/28/bailout-legislation-full_n_130063.html
FYI
THEHILLLL-Several House Republicans announced opposition Sunday to a tentative agreement on a massive bailout for troubled banks that was reached by congressional leaders from both parties.
Rep. Pete Hoekstra (R-Mich.) wrote on Twitter.com, “Sunday morning. News channels reporting a deal has been reach. Funny, somebody forgot to tell Congress. No details. Arm breaking begins soon!”
read more
http://thehill.com/leading-the-news/rank-and-file-gopers-not-thrilled-by-deal-2008-09-28.html
FYI
The bailout: Will the center hold?
Proofreading and some heavy-duty political marketing are the next big steps for Treasury’s $700 billion rescue plan as House and Senate leaders take their agreement back to their restless caucuses — split on the left and right.
House Republicans are the biggest test, with conservatives still rebellious. But Democrats have their own problems and moved quickly to emphasize Wall Street reforms, new protections for homeowners and an elaborate financing scheme that would allow a future Congress to cut off the funding after the first $350 billion commitment.
“If we don’t pass it, we shouldn’t be in Congress,” snapped Sen. Judd Gregg (R-N.H.), the lead negotiator for Senate Republicans.
read more
http://www.politico.com/news/stories/0908/14015.html
FYI
Who wins, who loses under proposed bailout plan?
from The Associated Press
NPR-The proposal to bail out U.S. financial markets to the tune of up to $700 billion creates a lot of potential short-term winners, as well as some losers.
Wall Street and the banking industry are perhaps the biggest winners. Scores of banks and other financial institutions faced with going under stand to gain a lifeline that should allow them to start making loans again.
Under the plan that congressional aide sought to put into final form Sunday, the Treasury Department can start buying up troubled mortgage-related securities now held by these institutions.
read more
http://www.npr.org/templates/story/story.php?storyId=95148802
FYI
Myth vs Fact on bailout compromise
HOTAIR-A source close to House Republicans has put out a Myth vs Fact rundown of the bailout compromise, announced early this morning. This may answer some questions that have come up in the comments over the last few days:
Myth: Windfall for ACORN.
Fact: The Frank-Dodd proposal created an affordable housing slush fund and directed 20 percent of net benefits from the program to be directed to ACORN-type organizations. The proposed compromise does not include any affordable housing slush fund and directs all net benefits back to the Treasury to pay down the national debt.
Myth: Tax increase on financial industry.
Fact: The proposed compromise imposes NO tax on the financial services industry. The proposed compromise simply requires a proposal from the Administration to recoup any losses after five years.
Fact: The proposed compromise includes tax cuts for struggling community banks.
Myth: Blank check for $700 billion with little accountability.
Fact: In general, the Treasury Secretary is limited to purchasing up to $250 billion outstanding at any one time. If the Treasury needs to use another $100 billion, the President must certify this action and report to Congress. Further spending requires Congressional action.
Myth: Treasury plan is the only option available.
Fact: Treasury is given multiple options to deal with the current economic crisis, including insurance, public/private auctions, loan guarantees, and direct support to financial institutions.
Fact: Further, Treasury is MANDATED to create an insurance program (Section 102) that protects the taxpayers and requires companies that wish to participate in this program to have some skin in the game by paying risk-based premiums.
Myth: The taxpayer is not adequately protected.
Fact: The proposed compromise includes strong taxpayer protections. Treasury’s proposal had minimal oversight to protect taxpayer dollars. The proposed compromise enhanced the oversight structure by creating a Financial Stability Oversight Board, a Special Inspector General, and a Congressional Oversight Panel.
All AIG-type deals require mandatory equity interest in order to provide taxpayers with potential future benefits. All auctions require a percentage of equity interest based on participation in the program.
Requires the Secretary to develop regulations/guidelines necessary to prohibit or, in specific cases, manage any conflicts of interest with respect to contractors, advisors, and asset managers.
Myth: The taxpayer does not benefit from Treasury bailouts.
Fact: The proposed compromise (Section 113) requires mandatory equity interest in scenarios like AIG. The proposed compromise also allows Treasury to take an equity interest in the program generally.
Myth: Treasury will never use the insurance option.
Fact: Treasury is mandated (Section 102) to establish an insurance program and set risk-based premiums. This will protect taxpayers by requiring the beneficiaries of the insurance program to pay risk-based premiums. Treasury further shall collect premiums mandatory equity interest in scenarios like AIG. The proposed compromise also allows Treasury to take an equity interest in the program generally.
Will this resolve all of the concerns conservatives have in this plan? No, but it does address some of the most contentious issues. It also shows how much influence that the House Republicans had on the final draft, and for that they can thank John McCain for his intervention.
http://hotair.com/archives/2008/09/28/myth-vs-fact-on-bailout-compromise/
You’d think with all the profit Treasury’s going to be raking in from all these equity stakes in these companies, they’ll be able to eliminate the income tax and capital gains taxes completely.
I might just change my mind and support it if that’s the case.
Of course, never trust a politician who dares promise such.
Profit my arse.
Look at home price trend over the last 100+ years.
Inflation-ajusted home prices: 1890-2005
The problem is that the recent valuations are coming back into alignment with the long term average. This means that the irrationally high home prices are gone, and will be for decades. The prices will correct themselves downward in line with the historical average (as it should be).
This means that home prices are not likely to bounce back up appreciably in most markets. So, for the Treasury Secretary to talk about profits being made from mortgages that are temporarily down (but will go back up) is an outright lie. And he knows this.
Besides, it’s not really the mortgage market that is the primary problem. The interbank lending and securitization of junk (such as mortgages) is the main culprit. And there’s nothing that can be done about it, except to let the institutions take it in the shorts… ahem, I mean let the taxpayers take it in the shorts.
FYI
NPR-U.S. Financial Crisis Has Global Fallout
Listen Now
http://www.npr.org/templates/story/story.php?storyId=95149054&ps=cprs
All Things Considered, September 28, 2008 · Sunday in Britain, a big mortgage lender is reportedly being taken over by the government. The BBC says the company, Bradford and Bingley, will be sold off in parts.
The U.S. financial drama is sending shock waves throughout the global economy. Brad Setser, an economist with the Council on Foreign Relations, talks to host Andrea Seabrook.
Read my lips – NO MORE BAILOUTS!
Wow. At least we can rest assured when a big time elite like Gingrich tells us all is well! I was getting worried there for a while.
Since we continue to vote for the same old people, you know, the lesser of two evils, we still get evil. So would that mean we are getting a less evil bill in all this?
The only problem I haven’t figured out yet is which party is the lesser of two evils in all this. Perhaps you die hard Democrats & Republicans can explain it.
John, I have to point out that Newt Gingrich doesn’t know what he’s talking about. If he was good at that game, he’d still be in it.
Don’t ever let yourself forget how stupid most of these people are. The ones on television just talk better than the ones who aren’t.
Al
Do you support the plan?
Its a great website of yours. I surfed by and found it very informative. Bookmarked and check you back in a while
I have to say, that I could not agree with you in 100%, but its just my opinion, which could be wrong.