September 28, 2008 7:44PM

Key Takeaways from the Proposed Bill

By Brian Sullivan

Having been in Washington since Thursday it’s been interesting watching the “rescue package” bill - now officially called the “Emergency Economic Stabilization Act of 2008” (full text of Act) - take shape. When not on-air, I’ve spent much of the weekend on Capitol Hill and trolling Congressional offices. Having obtained a copy of the proposed bill, a few things stick out:

1. Power of SEC to suspect “mark-to-market” accounting. If SEC acts on this power, it would be very good for banks. Under “mark-to-market” rules banks must value assets on their balance sheets based on current market price. This is part of the problem. The market price is very, very low (if it exists at all) for many of the worst subprime-related mortgage assets. This forces banks to write them down and then raise capital if the cutting the price on these assets drops the banks below the minimum acceptable capital levels.

2. Private money would be allowed to bid on assets. Under the proposed bill, private firms such as hedge funds, investment companies and other potential buyers would be allowed to bid on distressed assets. This means that the Treasury and taxpayer may not be on the hook for some of the bad debts in question. The issues with this are that 1) private money has been able to buy these already (it’s called “the market”) and buyers haven’t wanted to touch this stuff, and 2) private buyers could come in, buy the “best of the worst,” and leave the nastiest goods for the Treasury to buy.

3. Direct mortgage purchasing. The government could become the “bad neighbor next door.” The Washington Post reported (password required) this morning that Fannie Mae currently owns more than 54,000 actual mortgages. The Democrats have been pushing for more direct mortgage relief in the bill and it looks like they are getting it. This means that the empty foreclosed house on the street could become owned by the Government. In that case, basic questions arise. Who takes care of the home? Does the Federal Government call someone to come mow the overgrown lawn? One Congressman I spoke with today on Capitol Hill (who is against the bill) joked that he was waiting for phone calls from angry voters/neighbors asking him to come cut the grass and paint the house because it was bringing down values on the street. Banks who end up owning foreclosed properties have more incentive and local capability to manage those properties. Does the Government start bidding out on property management firms across the country?

4. European and Asian banks would be eligible for the bailout. Angry taxpayers are about to get angrier. The language of the bill allows for any firm ”licensed” or with “significant operations” in the United States to participate in asset sales. Legally those standards are very easy to meet. This means that European and other global banks who purchased some of the ”toxic” U.S. mortgage related assets may be able to sell them back to our Treasury. The concept of “caveat emptor” appears to be dying a fast, global death. Meantime, many European banks are facing their own crisis. There is chatter that European regulators may be discussing a similar plan to ours. If that happens, I hope our lobbyists in Europe are as active in getting into their plan as theirs have been in sliding into ours.

21 Responses to “Key Takeaways from the Proposed Bill”

Comment by charles davis

September 28th, 2008 at 8:39 pm

The new plan may give the Dems added incentive to raise taxes on the “rich.” On balance it appears that neither party can claim credit for the agreement although it appears that the Dems are making the most accusatory statements. There needs to be a complete sweep with investigations of those in Congress who have protected Fannie and Freddie.

It may take years before anyone knows how much this will cost taxpayers.
Comment by Jim

September 28th, 2008 at 8:40 pm

The original plan included many million $$ for organizations like ACORN

Have these $$$ been removed from the plan ?????

Thanks
Comment by R. Druschel

September 28th, 2008 at 9:10 pm

Takeaway No. 1 - Do you mean “suspend” instead of “suspect”?
Comment by Judy

September 28th, 2008 at 9:11 pm

Brian,
My concern is around the regulatory oversight of this massive amount of assets. Einstein’s definition of stupidity is playing out in front of our own eyes as Barney Frank and Chris Dodd look to be in position to oversee the regulation of this bailout. Yikes!! These were the guys taking lobbyist money and looking the other way on Fannie and Freddie and the guys that looked the other way when, over the past 7 years, Bush, McCain, Dole, and others have gone on record signaling the need for regulating Fannie/Freddie. It is the fox watching the henhouse. OMG. I’m sick.
Comment by c c hall

September 28th, 2008 at 10:02 pm

what about those in congress who have received $$$KK from these institutions. legalized corruption!! greed has overtaken our ability to keep our integrity in positions of authority. they run like cockroaches when the light of truth comes around. shameful, shameful.
Comment by Acor

September 28th, 2008 at 10:05 pm

Point number three is tough to accept but this is a reasonable compromise…………………”direct mortgage purchasing” or putting ACORN into the game. Republicans will regret letting the 400 lb. gorilla into the room. Point 4 is weak too……………but all in all a fair compromise if we’re dealing with fair people. Unfortunately we’re dealing with Democrats!!! The liberals conceded 1/2. Conservatives acquiesced on 3/4.

Pelosi’s spin was an absolute lie……………….but what can you expect when dealing with the Democratic Machine in an election year!!!
Comment by Dan Henson

September 28th, 2008 at 10:38 pm

Didn’t you fail to mention something???

A “magnet” is an “acorn” by another name and they are back in for 35% of the profit (if any)

They can dress it up to take it to town but it’s still a pig. ((PETA objects to putting make-up on animals)even pit-bulls)
Comment by Steve Brown

September 28th, 2008 at 10:42 pm

I think that the market bailout is wrong. Let the market fall and rebound without government intervention. I am outraged at this scam. From what I hear, the guys who oversaw and are responsible for this are not being indicted or questioned, instead it seems that they are getting their money anyway even though they are responsible for the mess. Chris Dodd is in the middle of this and he should be held responsible for it as well as the Democratic controlled congress lead by Nancy Pelosi and Harry Reid
It seems that they are hiding something with all the talk of a crisis if we don’t bail them out. Probably the only crisis is the one that effects their retirement plans Then to see that we are also going to bail out banks from other countries too. My God what is wrong with this picture, let the other countries bail out their own banks etc. I work hard for my money, if I make a financial mistake who’s going to bail me out. I AM OUTRAGED I will not vote for any one who votes for this bail out, and actually I wish all the politicians would be kicked out and new guys voted in. Every seat If there was a way to get this as a law, I would be for it. I would even campaign in my part of the world for it. they should have a limit to two terms, no more, that would definitely cut down on corruption in government. I am also outraged at the ACORN thing regarding voter fraud. I think this organization should be closed down, And if there are any attachments to this bill giving money to pet projects solely because the bill is going to be passed that doesn’t have anything to do with the bail out then the person who attached it to the bill needs to be investigated and booted out of government.
Comment by Melinda Brown

September 28th, 2008 at 11:04 pm

I am really concerned since I saw a report in a town in Michigan at a county seat fox news reporter interviewed a lady who works in the voters registration office. She said she is putting out 600-700 voters registration cards a day, why so many? We are really concerned about voter fraud, in many swing states especially. After what happened in Florida in the last election. We are also concerned about this ACORN organization being involved with voter fraud already and being directly related to the Democratic party trying to get this group included in the bailout also throws up of RED Flags. It looks like it is directly related to Obama’s Campaign,funds,voter fraud and alot of corruption. How come nobody is reporting on this. This needs to be made public.
Comment by MHennessy

September 29th, 2008 at 7:23 am

Regarding Assistance To Homeowners - Modifications include reduction of interest rate and/or principal with out any reference to limits (floor). And Conflicts of Interest do not include government employees, … This ‘loophole’ could benefit politicians or friends holding personal mortgages.
Comment by Steve S.

September 29th, 2008 at 8:56 am

Brian,

Just these few points you raised are enough to keep the American people wary of this bailout of Wall Street at tax payer expense. I sincerely hope that the House Republicans who are opposed to this bill keep up their opposition and vote against the waste of tax payer money. I will be watching to see if my representatives in Congress vote for, against, or abstain. Their votes this week will determine which way I vote when they come up for re-election.
Comment by Clarence Smith

September 29th, 2008 at 9:40 am

Well, my question is how will U.S government structure Direct mortgage purchasing? Any ideas on where to look.
Comment by Felix

September 29th, 2008 at 10:23 am

Brian,
I think the Fox Business network has done a good job on covering the different aspects of the mortgage backed securities issues. Unfortunately, our Representatives in Washington don’t watch your network.
The current problem is certainly a very serious one, but, it is only the start of the problem. There will be more financial problems ahead for an untold number of homeowners who have not yet been caught up in the escalating terms of their mortgage. Why does Washington bypass giving them genuine assistance ? Could it be that many of the mortgage backed securities in the 9 Trillion dollar industry would lose value if a large number of mortgages are refinanced at more affordable rates ?
As far as the economy goes everyone with a bank account below 4 zeros knows it has been on a downhill run. Gas prices cause contractions in many businesses. Grocery costs continue to rise. Savings interest doesn’t keep up with inflation. Should I go on ?
The excuses given by the politicos are right for the above reasons. I also don’t think that the Washington crowd has the financial where-with-all to deal with the problem. Why not a equally sized group of experts from our leading universities discussing and voting on the issue ?
Comment by Ted Sherman

September 29th, 2008 at 10:58 am

Brian,

What about the dollar? If this 700bn dollar bailout passes and the dollar tanks, how will that help homeowners who are paying their mortgage. Gas prices will rise back to $4.50/gal, groceries will double, and energy costs will be astronomical. All of this will cause more forclosures not less.
Comment by Doug

September 29th, 2008 at 11:13 am

#4 is a poison pill, and completely unacceptable. Bad enough we have to bail out our own companies, but now we’re supposed to be suckers for the whole world?
Comment by chuck

September 29th, 2008 at 11:46 am

Alexis interviewed Steve Forbes about this and I watch it. He stated that the mark the market law should be quickly removed. Also on CNBC’S SQUAWK BOX this morning one to the Republican Reps she stated that some of this already being proposed in this act should be implimented right away. But she had resverations on this bill too.
Comment by Stevey35B

September 29th, 2008 at 11:59 am

so? what else is new? the taxpayer been getting the short end of the dirty stick for very long time. But no one will vote the current legislators out of office. It’s always someone else’s legislator needs replacing because “we, the voters of this district, will lose our position in the legislature”. Throw all the rascals out. have the opposing parties get enough intestinal fortitude to run a candidate against every existing candidate. A 9% approval rate means some of them are vulnerable.
Comment by Tim Humble

September 29th, 2008 at 2:26 pm

You have really good news…NOT only do we taxpayers have to buy these dogs we may have to pay for yard care too??? Why dont we send the bill to Iraq for bailing them out of their mess and they can pay the US taxpayers back in oil and related revenues. If this bailout bank deal is so good let Congress accept it in lieu of salary since they were paid to oversee this already.FIRE THEM ALL!!!!
Comment by same as it ever was

September 29th, 2008 at 2:42 pm

The Wall Street Bailout Bill:
Bush McCain Obama et al.

The Realignment Of American Politics:
Anderson Baldwin Carter Choate Clemente Gonzalez Gravel Kaptur Kucinich McKinney Nader Paul Perot Sheehan Ventura
Comment by Leo Gawroniak

September 29th, 2008 at 6:34 pm

Dear Folks, We are being told all sorts of dire things will happen if this bailout doesn’t occur. However, no one is commenting about the following: What will happen if we bail out the banks and the banks still don’t loosen credit for businesses and individuals? Also, isn’t all of this “urgency” a smoke screen to encourage the Communist Chinese to continue buying our almost worthless treasury notes?
Comment by Robbie

September 30th, 2008 at 12:07 pm

We can hear it now. Give them any sum now and they will come back in a few months and say, “Oh, we really needed more”.

No, No, NO, NO! What part of NO do you not understand Wall Street and Congress?