Caution Called For In $700 Billion Bailout Plan
Senate Banking Committee Chairman, Christopher Dodd, D-Conn, has, in effect, stressed the importance of acting urgently, yet responsibly. Dodd’s committee will be holding a hearing with regard to the bailout on Tuesday morning, while the House Financial Services Committee will be meeting on Wednesday. Both meetings will be addressed by Treasury Secretary, Henry Paulson, as well as the Federal Reserve’s Chairman, Ben Bernanke.
It would appear that lawmakers are in agreement with the bail out as such, with the Treasury running the show – although some have voiced concerns over handing what is being referred to as a “blank check” to Paulson – but want certain provisions to form part of the deal. Senate Democrats have proposed that the U.S. Government receive ownership stakes in the companies being offered assistance. The proposal, which was presented by Dodd, also requires that the government put in place a plan to stop the flood of foreclosures by means of loan modifications, such as offered by the “HOPE for Homeowners Program”. This program is aimed at assisting homeowners who are tied to mortgages they can no longer afford to pay, on homes which have drastically devalued, by refinancing through more affordable, fixed interest rate loans backed by the Federal Housing Administration. The proposal also calls for restrictions on executive compensation, as well as a change to federal law which would allow bankruptcy judges to modify the primary residence mortgage of bankruptcy filers. Moreover, the proposal calls for the termination of the Treasury’s bailout authority by 31 December 2009, as opposed to the Treasury proposal which is calling for a period of two years from the date of enactment. House Financial Service Committee Chairman, Barney Frank, D-Mass, noted that his proposal addressed similar concerns, calling for the protection of the American taxpayer and homeowner, among other issues.
On the other hand, financial institutions looking to benefit from the bailout have some conditions of their own, including that the plan should be broad enough to incorporate other types of troubled assets, and not purely mortgage-related assets. This is something which the Treasury seems willing to do – as stated on the Treasury website, “Removing troubled assets will begin to restore the strength of our financial system, so it can again finance economic growth.”