Barney and the Belway Bailout Boys, the key members of the House and Senate lawmakers, met for more than two-hours this afternoon and have emerged with a bipartisan “fundamental agreement” on the $700 billion Hanke-Panke bailout plan. Unfortunately, they’re not exactly being forthcoming about what is included in the agreement.
We’re left to guesses and unattributed commentary. Earlier today a Congressman said that “most everything everyone is asking for as a condition to put this together has already been agreed to and is in the bill.” Which, frankly, sounds terrifying. The Wall Street Journal is reporting that the plan will dole the money out in installments, include limits on “golden parachutes” and provide for the government to receive warrants in some companies:
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 ‘golden parachute’ limits sound like a much-scaled back version of the executive compensation limits that some lawmakers had been demanding. Many of the problems with the broader pay cap—such as limiting the upside of executives who sell troubled assets to the government, which would guarantee that few (if any) executives would do that—would be greatly ameliorated by limiting the caps to exit bonuses.
It’s hardly surprisng they haven’t reached an agreement on adjustments to bankruptcy laws which would let judges modify mortgages in favour of borrowers. Democratic lawmakers want this provision as a way of showing this bailout isn’t just for Wall Street. But it poses serious risks to troubled financial institutions and taxpayers. Cramming down mortgages could trigger defaults under mortgage backed securities, which is like leeching the sick men of finance. And since the Treasury will likely end up the owner of many mortgage backed assets, it could wind up lowering the return on the $700 billion investment.
There are still obstacles that need to be overcome. In the first place, the lawmakers still have to meet with the White House. (Although it’s to imagine the White House rejecting the proposal at this stage.) Also, conservative Republican backbenchers put forth their own plan this afternoon. From the AP:
Under the proposal, the government would provide insurance to companies that agree to buy frozen assets, rather than purchase them directly as envisioned under the administration’s plan. The firms would have to pay insurance premiums to the Treasury Department for the coverage.
One Washington observer joked that lawmakers had scrambled to reach a deal before John McCain and Barack Obama could reach the capital and bring presidential politics into the mix.
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