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Frank Seeks New Conditions for Bailout Money

January 11, 2009 - by Donny Shaw

As leaders in Congress continue to work out the details of the economic stimulus package with President-elect Barack Obama, congressional Democrats are pushing to attach new strings to the second $350 billion of financial bailout money. This week, the TARP Reform and Accountability Act, which was introduced last Friday by Financial Services Committee Chairman Barney Frank (D-MA), will be the subject of a committee hearing and, if time allows, will be brought in front of the full House for debate and voting. It would add new oversight provisions to the financial bailout program and set aside a portion of the money to be used for foreclosure prevention.

Coincidentally, here’s what Elizabeth Warren, chair of the bipartisan congressional oversight panel charged with overseeing the financial bailout, said in a report issued on the same day that Frank introduced the bill:

>"We would urge Congress to consider the accountability and transparency questions, the question of whether money is going to be used for foreclosures, and the overall strategy issues as part of any additional requests made for more money."

That’s just about exactly what this bill aims to do. Here’s my rundown of what’s in the bill (more detail to be found in the text of the legislation and the Financial Service’s press-release):

1) Modification to TARP and TARP Oversight

  • Requires all firms that receive money under the Troubled Assets Relief Program (TARP) to report quarterly on how they have used the TARP money, including any amount of increased lending that the money has made possible.

  • Directs the Treasury to reach an agreement with any new TARP recipients as to “the manner in which the funds are to be used and benchmarks that the institution is required to meet in using the funding so as to advance the purposes of this Act to strengthen the soundness of the financial system and the availability of credit to the economy.”

  • Restricts mergers and acquisitions involving TARP recipients unless the Treasury determines that they would reduce the risk to taxpayers or that the transaction could have been consummated without money from TARP.

  • Adds the stricter executive compensation limits from the auto bailout bill to firms that receive TARP money. The stricter limits include a ban on bonuses and incentives for to the 25 most highly compensated employees of a company, “any compensation plan that would encourage manipulation of such institution’s reported earnings to enhance the compensation of any of its employees,” and a mandate to divest in private airplanes. Notably, these stricter limits would apply retroactively to executives from companies that have already received TARP money.

  • Authorizes the Treasury to have an observer at board meetings of firms that have received TARP money.

  • Directs the Treasury to promptly make TARP funds available to smaller community financial institutions.

  • Expands the Financial Stability Oversight Board that was set up by the original bailout bill to include the Chairman of the FDIC and two new members from outside of government to be chosen by the President and confirmed by the Senate. It also gives the board new powers to overturn TARP policy decisions from the Treasury Secretary by a 2/3rds vote.

2) Foreclosure Mitigation Plan

  • Requires that at least $40 billion of the second $350 billion of the financial bailout money is used for a comprehensive foreclosure mitigation plan, which the Treasury must design by March 15, 2009. The plan is required to apply only to owner-occupied residential properties and to leverage private capital to the maximum extent possible.

3) Auto Industry Refinancing and Restructuring

  • Clarifies and confirms that the original financial bailout bill gave the Treasury the authority to give TARP money to automobile companies.

4) Other Uses of TARP

  • Clarifies that the bailout bill gave the Treasury authority “to establish or support facilities to support the availability of consumer loans, including loans for autos and other vehicles and student loans, including through purchase of asset-backed securities, directly or through the Board or any Federal reserve bank.”

  • Clarifies that the bailout bill gave the Treasury authority “to provide support to State and local governments, and other issuers of municipal securities, which are having difficulty accessing appropriate financing in the capital markets.” Municipal securities are tax-exempt.

5) Change to the Hope for Homeowners Program

  • Eliminates the 3 percent upfront premium requirement for homeowners that use the FHA “”http://portal.hud.gov/portal/page?pageid=73,7601299&_dad=portal&schema=PORTAL">Hope for Homeowners" program to refinance their mortgages.

  • Reduces the 1.5% annual premium by about two-thirds.

  • Eliminates government profit sharing of any appreciation of home values above what they were at the time of refinancing.

6) Home Buyer Stimulus

  • Require the Treasury to carry out a program “to stimulate demand for home purchases and reduce unsold inventories of residential properties, which shall include ensuring the availability of affordable interest rates on mortgages made for the purchase, by qualified home buyers, of 1- to 4-family residential properties.” The program is to be run under the Treasury’s authority to buy up loans from the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and any Federal Home Loan Bank.

  • Suggests to the Treasury that, in designing the program, they take into consideration its impact on geographical areas that have the highest number of foreclosed properties.

7) Permanent Increase in Deposit Insurance Limits

  • Makes permanent the increase in deposit insurance coverage for banks to $250,000, which was part of the original bailout bill.

  • Increases the FDIC’s borrowing authority from $30 billion to $100 billion and allows them to borrow more by submitting a written request to the Treasury.

  • Allows the FDIC to charge insured banks a special systemic risk assessment in order to recover any losses.
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Comments

  • stonyeagle 01/12/2009 1:41am

    When will we the American People realize that the problem is government interference and regulations. It was the government that forced banks to make loans to people who couldn’t and shouldn’t have gotten a loan in the first place. And now those same politicians are bailing out those same banks with even more regulations attached. Wake up America and create a third party that will compete and represent your interests and not those of special interests and themselves.

  • Comm_reply
    Anonymous 01/23/2009 5:30am

    This is not true at all. It was the banks that wanted to make massive amounts of interest off people that couldnt afford homes. The government never forced any bank to give loans out to people that couldnt afford it. Fannie and Freddie did have some pressure on this matter but fannie and freddy are only 15% of the problem. You should do your research instead of listening to uneducated people aka people with only highschool diplomas such as Rush and Hannity.

  • Comm_reply
    Anonymous 07/04/2009 5:45pm

    You need to check your facts….stonyeagle is absolutely correct

  • Anonymous 01/12/2009 4:24am

    Many expect that Small Businesses will experience financial distress. Even in a good economy there are the stresses of Small Business Failure. Certainly, in a bad economy these stresses are exacerbated. My concern is that there is another stress that millions of small business owners will experience. A recent National Association for the Self-Employed (NASE) survey underscored the fact that millions of Self-Employed Small Business owners, employing from 1-10 employees, will be at-risk of default on their Alt-A , Option ARMs , Interest-Only, etc. These are referred to as the “Toxic” Mortgages that experts expect to “Reset” to higher monthly payments beginning in 2009 and continuing through 2012. This is considered the 2nd “Tsunami” Wave of Foreclosures that will not only take these small businesses, but will also result in Job Loss for their employees. See the NASE Survey at thsi link: http://advocacy.nase.org/research.asp

    Congress is now addressing Economic Stimulus legislation. Washington should recognize that these Self-Employed Small Business owners (16.2 Million according to the SBA in 2007) hold the key to a solution. By addressing these small business owners, we may be able to save jobs. “JOB RETENTION IS AS IMPORTANT AS JOB CREATION”.

    Prof. Samuel D. Bornstein
    bornsteinsong@aol.com

  • Anonymous 01/12/2009 9:24am

    What difference will adding oversight make? They were supposed to make reports to congress etc etc etc on the first 350 billion and havent and congress turned looked the other way and then they huff and puff and make alot of noise and pretend they care about this 350 billion.. it will get wasted as well and theyll pretend to be upset again..BIG JOKE ON US…..

  • Anonymous 01/12/2009 11:30am

    We had these same solemn assurances the first time around. What happened to the first 350 billion? Is this money just lost then? Obama’s first act was supposed to be rescinding the bush taxcuts. We get this instead? If there is an emergency and such funding is needed – why can’t he ask for then? This has all the hallmarks of another big ripoff. Let’s concentrate on finding out where the first money went – and determining when and how we’re going to get it back before doling out another big chunk. I don’t trust Barney Frank, Chris Dodd, Harry Reid or Nancy Pelosi. This is just madness.

  • Anonymous 01/12/2009 3:57pm

    Forget the executive legislation and caps on earnings for the top-25 paid employees. They are likely to be full of loop-holes, worked around by companies or simply bad economics (after all, there’s a reason most executive compensation is tied up in stock options).

    Instead, the CEO of a company taking bail-out money should simply be forced to resign. The government doesn’t get to pick their replacement, but if the person in the CEO spot has been there for more than a given period of time (say 6 months) then a condition of the bail-out money is their immediate resignation.

    Banks and VCs require management changes for funding opportunities all the time if they don’t think the team in place is effective. I’d say needing government bail-out funds is the definition of not effective, so make it a condition of the funds. Obviously, big business in the US needs a healthy dose of accountability and since bankruptcy is apparently no longer an option, job security for the CEO should replace it.

  • Anonymous 01/12/2009 7:32pm

    Foreign aid is the same, no accounting. So, why should we change the rules now? We need to see what happened to the other 350 billion before we throw more away. It’s easier to steal foreign aid.

  • wesbrent 01/15/2009 6:34am

    I sure wish that I, as a taxpayer could stick out my hand and ask for a chunk of money with no oversight attached. How about letting me have the same oversight of the monies that I pay the IRS so that I can dictate as to how I want it to be spent. So much for our geat system.
    As Obama says: CHANGE!! I hope that he can do it.. But with our politicians as they are I don’t think so…

  • Anonymous 04/28/2009 5:19pm

    just keep praying

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