Blog - Articles Tagged 'TARP'

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.

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.

Chris Bowers at Open Left posted this video of freshman Democrat Rep. Alan Grayson at yesterday’s Financial Services Committee hearing grilling Fed Vice-Chairman Donald Kohn on the lack of transparency in the financial bailout:

The related legislation here, as I’ve been writing about a lot this week, is the TARP Reform and Accountability Act. The bill is designed to require more accountability and transparency in how the second $350 billion tranche of the TARP money is spent. Rep. Barney Frank, the bill’s sponsor, is now backing away from passing his own bill, saying that he is willing to accept the Obama administration’s word that they will act as if it were the law.

A couple of weeks ago, Congress began working on legislation to put more restrictions on the Obama administration’s use of TARP funds. The bill, the TARP Reform and Accountability Act was passed by the House, but never taken up by the Senate because Rep. Barney Frank, Sen. Chris Dodd and others chose to trust in Obama’s assurances that TARP would be run differently and not to legislate.

The New York Times is reporting tonight that the Obama administration is about to announce the steps they are taking that correspond to one area that was in the legislation – stricter executive compensation limits:

>The Obama administration is expected to impose a cap of $500,000 for top executives at companies that receive large amounts of bailout money, according to people familiar with the plan.
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>Executives would also be prohibited from receiving any bonuses above their base pay, except for normal stock dividends.
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>Executives at companies that have already received money from the Treasury Department would not have to make any changes. But analysts and administration officials are bracing for a huge wave of new losses, largely because of the deepening recession, and many companies that have already received federal money may well be coming back.
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>Crucial details remained unclear on Tuesday night, including whether the restrictions would apply to all companies that receive money under the so-called Troubled Asset Relief Program, or TARP, or whether they would apply only to the “exceptional” companies that were being rescued from collapse.

This appears to be stronger in some ways – and weaker in others – than what the Administration would have been required to do had Congress proceeded with the legislation.

The TARP Reform and Accountability Act would not have required a strict cap on executive salaries. This is where the Obama plan seems to be stronger.

On the other hand, the legislation would have applied its strict limits on bonuses and incentives retroactively to executives in financial firms that received TARP money before the new policy was put in place. It also would have applied to the 25 most highly compensated employees of a company and required the executives to get rid of any private airplanes they own.

There are several other areas addressed by the legislation that the Obama administration has yet to act on – new reporting and disclosure requirements for TARP recipients, using some of the TARP money for foreclosure mitigation, etc… We’ll be watching to see what the Obama administration chooses to do in these areas in lieu of the legislation.

UPDATE:memeorandum has more commentary.

TARP Recipients Paid Out $114 Million for Politicking Last Year:

>Beneficiaries of the $700 billion bailout package in the finance and automotive industries have spent a total of $114.2 million on lobbying in the past year and contributions toward the 2008 election, the nonpartisan Center for Responsive Politics has found. The companies’ political activities have, in part, yielded them $295.2 billion from the federal government’s Troubled Asset Relief Program (TARP), an extraordinary return of 258,449 percent.
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>"Even in the best economic times, you won’t find an investment with a greater payoff than what these companies have been getting," said Sheila Krumholz, the Center’s executive director. “Some of the companies and industries that have received payments may now consider their contributions and lobbying to be the smartest investments they’ve made in years.”

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.

The big banks, like Bank of America, Citigroup and JP Morgan Chase, have been getting just about anything they want out of Washington these days. There is one thing, however, that so far they have been denied: the ability to get instant refunds on taxes paid on past profits up to five years back, or “carry-back” relief.

In the economic stimulus bill (H.R. 1) Congress extended carry-back relief to businesses with less than $15 million in annual revenues that have not taken TARP money. More recently, bipartisan legislation has been introduced in both the Senate and the House to extend carry-back relief to businesses of all sizes, except those that have taken TARP money.

Now the bailed-out banks have begun lobbying to get their fair share. Subscription-only Congress Daily reports:

The financial services industry has broken its silence on being excluded from a tax break for struggling businesses. In a recent letter to Treasury Secretary Geithner, trade groups including the American Bankers Association, the Financial Services Roundtable and the Securities Industry and Financial Markets Association urged him to endorse their eligibility for a five-year net operating loss “carry-back” period, which lawmakers have declined.

“We urge you to promote NOL carry-back relief for all industries, without exclusions. Making NOL carry-back relief available to all taxpayers represents sound policy and would best speed economic recovery,” the trade groups wrote in a letter dated May 20. Signatories include the Financial Services Forum, the Clearing House Association and Independent Community Bankers of America. The last could be crucial to the effort, as it represents smaller banks.

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In their letter last week, financial services firms said barring them from the NOL language could prolong the recession. “Such an exclusion would run directly counter to the goals of the administration and the TARP – e.g., facilitating the extension of credit by improving the capital position of lenders – and potentially would discourage future participation in the TARP and similar programs intended to help stabilize the economy,” they wrote.

Pictured above is Bank of America CEO Ken Lewis.

Mike Lillis points out a recently introduced bill designed to ensure that the public gets a fair return on the money they have put up to bail out the financial system.

H.R. 3232 – PROFIT Act of 2009 – To amend the Emergency Economic Stabilization Act of 2008 to require certain warrants held by the Secretary of the Treasury to be sold at public auction upon the repayment of the associated assistance provided under the Troubled Asset Relief Program.

So far, the Treasury has priced the warrants they have sold back to TARP banks privately and secretly at discounted rates that return only about 66 cents on the dollar to taxpayers, according to a recent Congressional Oversight Program report. These warrants were included in the TARP bailout in order to protect taxpayers, yet the way Treasury is handling their reselling amounts to another bank subsidy.

The PROFIT Act, which is sponsored by Rep. Mary Jo Kilroy [D, OH-15] and co-sponsored by six Democrats, would force the Treasury to sell the warrants back to the banks on an open market and, thus, at a fairer price. “The banks and Treasury are negotiating the repayment of this debt behind closed doors instead of allowing trading in the open market, Kilroy said in a statement. "We do not know if the current process is producing the benefits we are owed and a market-based approach would remove the secrecy and special interests and maximize the return on the taxpayers’ investment.”

The bill has been referred to the House Financial Services Committee, which is chaired by Rep. Barney Frank [D, MA-4]. No word yet on whether or not the bill will get a hearing or a vote.