Bailout Passes - What Exactly Is In It?

The guts of the bank bailout bill is the same as the three page document submitted by Treasury Secretary Henry Paulson on September 21, 2008. Paulson had asked Congress to approve a $700 billion bailout to buy mortgage-backed securities that are in danger of defaulting. By doing so, Paulson wants to take these debts off the books of banks, hedge funds and pension funds that hold them.

The bill establishes the Troubled Assets Recovery Program (TARP) which will give troubled banks the right to submit a bid price to sell their assets to TARP as part of a reverse auction. Each auction will be for a certain asset class. TARP administrators will select the lowest price for each asset class, which will help assure that the government doesn't pay too much for distressed assets. (Source: WSJ, Historic Bailout Passes as Economy Slips Further October 4, 2008)

The bill also also includes much-needed oversights attached by Congress:

• It provides help for homeowners facing foreclosure by requiring Treasury to both guarantee their loans and help them adjust terms through HOPE NOW.
• It increases FDIC insurance for bank deposits to $250,000.
• It allows the SEC to suspend the mark-to-market rule.
• It contains an additional $150 billion in tax breaks, including an extension of the AMT patch, tax credits for research and development, and relief for hurricane survivors

The bill also keeps the provisions added by the House, including an oversight committee, a government equity stake in troubled companies, and limits on executive compensation of rescued firms.

For more on the bill, read What Exactly IS the Bank Bailout Bill?

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