While there have been various reports during the day that a version 2.0 of the Treasury bailout bill was moving towards passage, the agreement in principle now appears to be official. From the Wall Street Journal:
A bipartisan group of House and Senate lawmakers left a two-hour-plus meeting in the U.S. Capitol on Thursday saying they have a “fundamental agreement” on a $700 billion plan to bail out U.S. financial markets.
The lawmakers didn’t offer details of the plan, but the proposed bill would approve the fund, but would pay the money out in installments, with $250 billion in bailout funds available immediately, people familiar with the matter said.
Lawmakers also agreed that limits on “golden parachutes” and use of warrants would apply to all companies, these people said. However, changes to bankruptcy laws still unresolved. The details still need to be ironed out with the White House.
Republican Sen. Robert Bennett of Utah expressed optimism that lawmakers have a “plan that will pass the House and Senate.”
“We came to agreements on a lot of the important issues,” House Financial Services Chairman Barney Frank (D., Mass.) said at a press conference featuring most of those who attended the meeting. Sen. Bob Corker (R., Tenn.) said: “I believe that we will pass this legislation before the markets open on Monday.”
Lordie, has working weekends become the new fashion in DC?
Reader Marshall made these comments:
But we don’t know what the “principles” are, do we? Is there an equity component for the taxpayer? All I keep hearing about is limits on executive pay which is a red herring as far as I’m concerned. I’m worried that the focus on executive pay is a big show to suggest that the Democrats actually won an important concession.
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Good. I prefer an orderly meltdown.
Executive pay is a complete red herring – it affects future leaders not the present ones. No equity stakes : bad deal.
(Well, not for me because I’m a European so my banks would benefit from the cash while I wouldn’t have to pay the extra taxes. But still, it’s the principle.)
Totally agree about the executive pay. The biggest issue for me is the pricing of these assets. It drives me bonkers when I read articles in MSM that discuss everything but the price.
You don’t need a Ph.D. in Econimics to realize that when you buy stuff you have to ask for the price.
There is a mention about warrants….no details though.
Nobody knows the price and that is the true beauty of the Paulson Plan.
Soros remarked in a FT 9/24/08 published article:
“The injection of government funds would be much less problematic if it were applied to the equity rather than the balance sheet. $700bn in preferred stock with warrants may be sufficient to make up the hole created by the bursting of the housing bubble. By contrast, the addition of $700bn on the demand side of an $11,000bn market may not be sufficient to arrest the decline of housing prices.
Something also needs to be done on the supply side. To prevent housing prices from overshooting on the downside, the number of foreclosures has to be kept to a minimum. The terms of mortgages need to be adjusted to the homeowners’ ability to pay.
The rescue package leaves this task undone. Making the necessary modifications is a delicate task rendered more difficult by the fact that many mortgages have been sliced up and repackaged in the form of collateralised debt obligations. The holders of the various slices have conflicting interests. It would take too long to work out the conflicts to include a mortgage modification scheme in the rescue package. The package can, however, prepare the ground by modifying bankruptcy law as it relates to principal residences.”
Matt Dubuque
Agreed. I prefer a hard landing to a crash landing.
HOWEVER, a key point is that bankruptcy judges should be allowed to change the terms of mortgages in bankruptcy. As previously noted, bankruptcy judges are biased to favor CREDITORS, not debtors, which provides a safeguard here.
Because Paulson will be buying these ABOVE MARKET, we need to preserve the CASH FLOWS from the mortgages as much as possible to MINIMIZE what will be large losses to the taxpayer.
That’s why we need this bankruptcy cram down provision.
Why warrants over equity right now? What are the chances that the government will exercise the warrants?
Who is going to manage this massive stock portfolio?
“the number of foreclosures has to be kept to a minimum.”
There have been over 1,000,000 home foreclosures. Some of these properties are in areas that are far from attractive. However fresh the icing on the cake might be today some of the more difficult problems have not been addressed but can be found in the Manana Market Section of the Paulson Plan.
Who will manage it? If Paulson got his way, the private sector would manage it, probably himself, once he leaves office that is, in January to be exact.
Who knows what our dear elected officials have gotten themselves (and us) into this time.
Will we ever really know? I keep envisioning the witch in the Wizard of Oz saying “soon enough my little pretties…”
If only we could write a nice Hollywood ending to this story…
RE Red Herring Executive Compensation Limitation Provision
Do people realize that we’re just getting a massive paycut in addition to the inflation sure to come with this bailout?
If executive pay is recalibrated, all corporate salaries will be impacted downward. Or did the mid=level financial associate think he’d be paid close to the same as the CEO?
‘Who is going to manage this massive stock portfolio?’
Manage!!!
Did you say manage?
This is politics at its very best what do you think this is all about?
I’m for it baby, go Paulson! Lot’s of great banks in America and we need to stay calm!!!!!!!!!!!
http://www.bauerfinancial.com/btc_ratings.asp
You want warrants too!!!
My guess is that much of it will look like the Dodd plan http://www.politico.com/static/PPM41_ayo08b28.html
Which I believe was drafted with Frank’s and also perhaps Schumer’s input.
Some items as reduction of mortgages by bankruptcy judge will be decided after the election.
You mean the Dud plan.
Now that the bill appears to be a certainty, what do you foresee as the likely consequences? Massive interest rate hikes to support the sale of T-bills? Inflation in dollar denominated commodities and stores of value (e.g. gold). Will this stop, have no effect, or accelerate deleveraging? What will happen to GDP? Will the next president share the fate of Jimmy Carter?
David-
That would be the facile approach, all due respected accorded to you.
By stark contrast to your view, I foresee the bull market in Treasuries continuing unabated as the smart money hedges against a DEFLATIONARY burst.
The Fed is NOT going to monetize this debt. YOU are going to pay the taxes.
This fiasco is on the Treasury’s book, NOT the Fed’s balance sheet.
The Fed is NOT the Treasury. Bone up on the vital distinction. The Fed is PARTIALLY privately owned, for starters.
See my other posts.
Respectfully yours,
Matt Dubuque
mdubuque@yahoo.com
David
Used to be that our trade deficit provided foreigners with the cash needed to fund the fiscal deficit… not in FY09 with deficit up 4x. I agree interest rates will rise, maybe 10%, maybe more, high enough that we will all want to park our savings there, maybe high enough that what is left of discretionary spending goes there, too.
If this is true the dollar will be strong. And, hard assets such as precious metals, commodities and real estate, plus leveraged companies and jobs, crash with high interest rates… highly deflationary. High interest rates low inflation, who will possibly want gold?
As per Senator Shelby (5pm-Marketwatch) — no deal yet after leaving the Whitehouse meeting this afternoon…..