Blog - Articles Tagged 'Bailout'

This morning, I wrote about a bill from Rep. Barney Frank (D-MA) designed to improve accountability of the remaining $350 billion of the financial bailout program known as TARP. Frank’s bill would require bailed out firms to report how they have spent the taxpayer money,strengthen restrictions on executive pay, require the Treasury to use some of the money for foreclosure prevention, and much more.

But now Barney Frank seems to be backing away from passing his bill and, instead, is trusting that President-elect Obama will follow it even though it isn’t required by law:

>Frank introduced legislation at the end of last week that would have tied a number of strings to the second $350 billion in financial-industry bailout funds. But on Monday, he told fellow Democrats that he wouldn’t push for passage of his bill if President-elect Obama would give “his word” that he would implement major portions of his legislation, according to a House Democratic aide.
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>The agreement would give Obama freedom to spend the TARP funds – confined by whatever promises he makes to Congress – and side-steps what could be a difficult fight in both the Senate and the House.

I’m interested to hear what people think about this. I mean, that’s a lot of trust to instill in an administration that hasn’t even come into power yet. Apparently this is Frank’s reasoning:

>Reaching an agreement with Obama, rather than forcing his hand with legislation, could circumvent a balance-of-powers conundrum Frank laid out on Friday. “The problem that we have is that in the legislative branch, it’s easier to prevent people from doing bad things than make them do good things,” he said. By coming to terms, he could get assurance that Obama would do those good things — but at the same time would be giving up a measure of congressional authority.

This morning, at Barack Obama’s request, President Bush formally notified Congress of his intent to use the last $350 billion of the financial bailout money.

Yesterday in the Senate, 6 Republicans joined 44 Democrats and one Independent-Democrat in voting to release the second $350 billion tranche of financial bailout money to be used by the incoming Obama Administration. They did so without attaching any new requirements as to how the money is to be spent or how information about the government’s bailout activities are shared with the public.

A week ago, House Financial Services Committee Chairman Barney Frank (D-MA) was spearheading an effort to pass legislation that would mandate stricter oversight and transparency of the bailout, and require at least $40 billion of the money to be spent on foreclosure prevention, among other changes. But after receiving assurances, in the form of a letter, that Obama would do many of these things with the second tranche voluntarily (without being mandated by law), Frank backed off from passing the bill and decided to take Obama at his word. As Chris Bowers at Open Left put it, “HOPE has moved from a campaign slogan to a system of governance.”

Besides being just an informal agreement and not a legal mandate, the Obama Administration’s letter leaves out several of the requirements that were a part of Frank’s bill. Among them are:

• Applying the stricter executive compensation limits from the auto bailout bill to firms receiving TARP money, including firms that received money from the first tranche. The stricter limits would include a ban on bonuses and incentives for to the 25 most highly compensated employees of a company (instead of just the top 5), a ban on “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.

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

• Expanding the Financial Stability Oversight Board that was set up by the original bailout bill and giving it new powers to overturn TARP policy decisions from the Treasury Secretary by a 2/3rds vote.

• A pending amendment by Rep. Tim Walz to require that the quarterly reports from TARP recipients, detailing how they have spent the taxpayer money, are posted online. This one isn’t actually in Frank’s bill, but if they had continued with the debate, it almost certainly would have been added.
  
  

Any of these could end up being included in the Obama administration’s own TARP policy (not that they’ll have to follow it…) or be passed by Congress as separate legislation.

In the Senate, there is a related bill introduced by Byron Dorgan (D-ND) – the Taxpayer Protection Act – that would, among other things, add the CEO pay limits that were included in the auto bailout bill to the TARP funds. Additionally, Dorgan’s bill would create a Taxpayer Protection Prosecution Task Force designed specifically to “investigate and prosecute financial fraud cases or any other violation of law that contributed to the collapse of our financial markets,” and “seek to claw back any ill-gotten gains, particularly by those who received billions of dollars in compensation creating the real estate and financial bubble.” It would also set up a Financial Market Investigation and Reform Commission to examine how the crisis happened and report back to Congress on how it can be prevented.

Switching gears a bit, both David Sirota at Open Left and Glenn Thrush at Politico have good analysis of the Senate vote yesterday to release the rest of the TARP funds, looking at those who switched their positions on the bailout.

UPDATE: Just thought it’s also worth noting here that Timothy Geithner, who looks on track to be confirmed as Obama’s Treasury secretary, has been a key player in the first tranche of TARP funds. From a November WaPo article:

>President-elect Barack Obama has selected New York Federal Reserve Bank President Timothy F. Geithner as Treasury secretary, handing the post to a primary architect of the Bush administration’s response to the financial crisis, according to Democratic and industry officials yesterday.
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>[…]
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>A Democrat and a relative unknown outside the world of high finance, Geithner has worked closely with Treasury Secretary Henry M. Paulson Jr. to devise responses to the most critical events of the market turmoil, including the bailouts of the investment bank Bear Stearns and the insurance giant American International Group. Like Paulson, Geithner believes that the Treasury should be given vast powers to develop experimental strategies for responding to the crisis and the flexibility to abandon them if they don’t work.

In a symbolic vote yesterday afternoon, the House of Representatives voted against releasing the second $350 billion of financial bailout money for use by the Obama administration.

The vote was symbolic-only for two reasons: (1) The Senate already voted last week to give Obama the funds, making it impossible for Congress to present Obama with a joint resolution of disapproval as spelled out in section 115 of the Emergency Economic Stabilization Act, and (2) even if they could jointly approve such a resolution, there’s no way they could overcome Obama’s threatened veto. I should note that Kagro X at CongressMatters has some doubts about point (1) above and will be examining the issue some more tomorrow.

For now, assuming that the Senate is not going to try again to pass this, it seems worthwhile to look at the symbolic function of the individual votes yesterday in the House.

Just to be clear, the vote was held on a resolution in a disapproval of releasing the second $350 billion tranche of the bailout; so an “aye” vote was a vote against the second tranche of the bailout, while a “nay” vote was a vote in favor of the second tranche. Ninety-nine Democrats joined 171 Republicans in voting against the second tranche. Only four Republicans voted “nay” (in favor of the second tranche).

Here’s a look at the Democrats who switched their votes yesterday from when the House approved the bailout bill (and the first $350 billion for the Bush administration to spend) in October:

Democrats who voted in favor of the bailout in October, but against releasing the second tranche to Obama yesterday:

Rep. Michael Arcuri [D, NY-24]

Rep. Shelley Berkley [D, NV-1]

Rep. Robert Berry [D, AR-1]

Rep. Dan Boren [D, OK-2]

Rep. F. Boyd [D, FL-2]

Rep. Dennis Cardoza [D, CA-18]

Rep. Henry Cuellar [D, TX-28]

Rep. Artur Davis [D, AL-7]

Rep. Brad Ellsworth [D, IN-8]

Rep. Phil Hare [D, IL-17]

Rep. Jane Harman [D, CA-36]

Rep. Ronald Kind [D, WI-3]

Rep. Betty McCollum [D, MN-4]

Rep. Jerry McNerney [D, CA-11]

Rep. Kendrick Meek [D, FL-17]

Rep. Charles Melancon [D, LA-3]

Rep. Harry Mitchell [D, AZ-5]

Rep. Charles Rangel [D, NY-15]

Rep. Laura Richardson [D, CA-37]

Rep. Mike Ross [D, AR-4]

Rep. C.A. Ruppersberger [D, MD-2]

Rep. Louise Slaughter [D, NY-28]

Rep. Zachary Space [D, OH-18]

Rep. Jackie Speier [D, CA-12]

Rep. Peter Welch [D, VT-0]

I suppose the above vote switches could be chalked up to massive outrage from constituents over the first vote, the fact that this vote had no real chance of affecting anything, disappointment with the results from the first $350 billion tranche, no longer being under threat of martial law, or the fact that, so far, Congress has not attached any new strings to how the second tranche is to be used by the new Administration.

Democrats who voted against the original bailout bill (and the first $350 billion tranche) in October, but voted yesterday in favor of releasing the second tranche to Obama:

Rep. Xavier Becerra [D, CA-31]

Rep. Earl Blumenauer [D, OR-3]

Rep. George Butterfield [D, NC-1]

Rep. Kathy Castor [D, FL-11]

Rep. William Clay [D, MO-1]

Rep. Raul Grijalva [D, AZ-7]

Rep. Maurice Hinchey [D, NY-22]

Rep. Donald Payne [D, NJ-10]

Rep. Steven Rothman [D, NJ-9]

Rep. Lucille Roybal-Allard [D, CA-34]

Rep. Brad Sherman [D, CA-27]

Rep. Bennie Thompson [D, MS-2]

The votes are a bit stranger to me. Perhaps these Democrats were never ideologically opposed to the bailout; they just trust Obama with the money more than they trust Bush. Maybe they are convinced by the letter from Larry Summers explaining Obama’s intention to use the money differently. Maybe they just don’t want to vote against a powerful and popular new President.

Needless to say (and not very interesting), while many Republicans switched their vote in October for the bailout to a vote yesterday against it, all four of the Republicans that voted in favor of the second tranche yesterday also voted in favor of the bailout in October.

Jane Hamsher at FireDogLake uses OpenCongress’s legislative version tracking tool to research the Treasury Department’s claim that Sen. Christopher Dodd [D, CT] inserted a provision in the stimulus bill (H.R. 1) that allowed the A.I.G. bonuses to go forward.

By comparing the Senate version of the bill to the final conference version of the bill that was signed into law, she shows that a provision to block bonuses retroactively on TARP contracts, inserted by Dodd in the Senate bill, was actually taken out by the conference committee.

Here’s a link to that section of the bill. Right now it goes to a blank portion of the bill text (because it was removed), but click “show changes” at the top of the screen and you’ll see, in red, the retroactive bonus blocking provision, reportedly inserted by Dodd, that was taken out.

Hamsher: “who pushed back against Dodd, and told him to neuter the provision? The ”http://online.wsj.com/article/SB123457165806186405.html?mod=testMod">WSJ says Geithner and Summers:"

The administration is concerned the rules will prompt a wave of banks to return the government’s money and forgo future assistance, undermining the aid program’s effectiveness. Both Treasury Secretary Timothy Geithner and Lawrence Summers, who heads the National Economic Council, had called Sen. Dodd and asked him to reconsider, these people said.

As you have probably heard, the House this afternoon passed a bill (H.R. 1586) to impose a 90 percent tax on bonuses to employees at financial institutions that has received bailout money. The bill would levy the tax on any bonuses from bailed out firms paid out in 2009 to individuals with incomes over $250,000.

The final vote, which required a 2/3rds majority for passage because it was considered under suspension, was 328-93, with 10 not voting. (click here for full details, how each Rep. voted). Eighty-seven Republicans and six Democrats voted against it. The dissenting Democrats were:

Rep. Melissa Bean [D, IL-8]
Rep. Larry Kissell [D, NC-8]
Rep. Michael McMahon [D, NY-13]
Rep. Walter Minnick [D, ID-1]
Rep. Harry Mitchell [D, AZ-5]
Rep. Victor Snyder [D, AR-2]

It’s an interesting position, a couple of these Dems do a lot of aisle crossing (Bean, Minnick), but the others are generally more rank and file, though from not-solidly-Democratic districts. I’m looking for statements from them on their votes, I’ll update this post when/if I find them.

On a slightly different beat, Sunlight Foundation’s Paul Blumenthal has a good take on today’s vote:

But why such a rush? The bill, introduced by Rep. Charlie Rangel (D-NY), yesterday, was available less than a day before lawmakers voted on it. Shouldn’t Congress – and the public – get more time to read the bill? After all, it was because Congress was in a hurry before that it got itself into such a mess in the first place.

The language that was taken out of the stimulus during conference negotiations that would have blocked the AIG bonuses may not have been taken out if that bill wasn’t rushed through so quickly. If there was time to notice that a change had been made freeing up CEOs at bailed-out banks to get huge taxpayer-funded bonuses, public opposition would have kept Congress from passing the bill.

The Senate will be taking up their own version of the bonus tax in the next couple of weeks. Senate Majority Leader Harry Reid (D-NV) tried this afternoon to pass it quickly, but Sen. Jon Kyl (R-AZ) objected. Congress Matters has posted a summary of the Senate version.

President Obama says he’s looking forward to getting the final bill and, presumably, signing it into law.

UPDATE: Here’s the Senate version of the bill that will be voted on soon:

S. 651 – Compensation Fairness Act of 2009

The bill would tax companies giving out bonuses since the beginning of 2009 at 35 percent, plus individuals receiving the bonuses at 35 percent. Unlike the House bill, it has no minimum income threshold.