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House Passes TARP Oversight, Senate Sends Mixed Signals

January 21, 2009 - by Donny Shaw

There may be some hope for increased oversight and accountability of the Troubled Assets Relief Program (TARP) after all. This afternoon, The House passed Barney Frank’s TARP oversight legislation, the details of which I spelled out in a previous post, and now there is a glimmer of hope from the Senate that Democrats may push to pass similar legislation.

Last week, Chris Bowers of OpenLeft reported that Senate Banking Chairman Chris Dodd would not be introducing a Senate version of Frank’s bill, nor would he be bringing Frank’s bill to the Senate floor as it is. Of course, both the Senate and the House to have to approve legislation before it becomes law, so this seemed to meant that, regardless of whatever happens in the House, there would not be any new TARP oversight legislation.

But Bowers spoke with another Banking Committee member this afternoon and received assurances that he would push to pass S. 195, a separate bailout oversight bill that has been introduced by Senator Dorgan:

>About an hour ago I had a chance to speak with Senator Sherrod Brown of Ohio [pictured], who sits in the Banking committee. I asked Senator Brown that, in light of HR 384 ready to pass the House, would he help push Senator Dorgan’s S 195, which has been referred to the banking committee and which places similar oversight and transparency requirements on the Wall Street bailout money. His response was both clear and positive: yes, he would try to push S 195 out of committee, and that “we” (I assume he meant himself and other banking committee Senators) would speak to, and work with, Chairman Dodd in an attempt order to make it happen.

So, this is a way forward, but there are important differences between the two bills that would have to be worked out in a conference committee if the Dorgan bill is passed.

Here’s the key difference: Dorgan’s bill seeks to apply new oversight and accountability mechanisms to all money that the government has committed to the financial system, including TARP (this is the $7.8 trillion figure), while Frank’s bill is aimed only at the $700 billion in TARP money. That said, here’s a quick compare-and-contrast of the bills:

Same in both bills (basically):

  • New requirements that all firms that receive financial assistance from the government (only TARP recipients in the Frank bill) report quarterly on how they have used the money. Frank’s bill specifies reporting to include any amount of increased lending that the money has made possible.
  • Applying the stricter executive compensation limits from the auto bailout bill to all firms receiving government assistance (again, only TARP funds in Frank’s bill). These 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.
  • Gives the government more access to data from financial firms that receive government money. Dorgan’s bill mentions “access to personnel and any books, papers, records, or other data,” while Frank’s bill mention’s access to board meeting, which I believe would be covered under “personnel.”

Only in Dorgan’s bill (besides applying generally to all government financial assistance):

  • Extends the original TARP oversight provisions (sections 104, 105 108, 116, 121 and 125 of the bailout bill) to all funds that the government has committed to the financial system.
  • The creation of a Taxpayer Protection Prosecution Task Force 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.”
  • The establishment of a Financial Market Investigation and Reform Commission, modeled after the 9/11 Commission, to examine how the financial crisis happened and report back to Congress on how similar crises can be prevented in the future.

Only in Frank’s bill (besides only applying to TARP):

  • 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.
  • 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.
  • Expands the Financial Stability Oversight Board that was set up by the original bailout bill and gives the board new powers to overturn TARP policy decisions from the Treasury Secretary by a 2/3rds vote.
  • Several changes to the Hope for Homeowners program, including elimination of the 3 percent upfront premium requirement, reducing the 1.5% annual premium and eliminating government profit sharing of any appreciation of home values above what they were at the time of refinancing.
  • Requiring the Treasury to carry out a program “to stimulate demand for home purchases and reduce unsold inventories of residential properties.
  • Non-binding language “clarifying” that TARP can be used for bailing out auto companies, supporting the availability of consumer loans, and supporting issuers of tax-exempt municipal bonds.
  • Making permanent the increase in deposit insurance coverage for banks to $250,000, which was part of the original bailout bill.

So, if Dorgan’s bill were to pass in the Senate, many of these things would still need to be worked out by a conference committee before a final piece of legislation could be sent to President Obama to be signed into law. There would be several options for a compromise – add Dorgan’s task force and commission to Frank’s bill, change Frank’s bill to apply to all firms receiving government assistance (not just TARP funds), add Frank’s housing provisions to Dorgan’s bill, etc.

The conventional wisdom still is that bailout oversight legislation will not pass the Senate. Bloomberg notes that Barney Frank said on the House floor today that he had been "given indications that the Senate does not plan to act on this,” and that the vote is meant “to strengthen our hand in making sure the Treasury does what we think is necessary even if it doesn’t become law.”

If this is an issue you care about, be sure to follow Bowers’ work at Open Left. He’ll undoubtedly be following up with Senator Brown on his promise today to push for Dorgan’s bill and perhaps there will be a larger community effort to lobby on the bill’s behalf.

UPDATE: Some very related thoughts up on Open Left.

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