Democrats got many concessions in bailout

updated 7:08 a.m. ET Sept. 29, 2008

WASHINGTON - Sold to American taxpayers for up to $700 billion: an unprecedented plan to buy distressed banks’ least desirable mortgage assets.

What started as a fairly simple three-page proposal giving the Treasury Secretary unchecked power to orchestrate a bailout of the country’s financial system ended up as a complex rescue package, with enhanced congressional oversight, some added protections for taxpayers and a slap on the wrist to highly paid, underperforming executives.

The ultimate goal of the plan remains the same: buy bad mortgage-related bets from weakened financial companies so they can raise fresh capital and resume normal lending operations to businesses, municipalities and consumers.

Under the Emergency Economic Stabilization Act of 2008, which is expected to come to a vote in the House on Monday, the Treasury Department gets $250 billion immediately to start buying up banks’ and other financial institutions’ least valuable mortgages and complex financial instruments backed by those mortgages.

If needed, an additional $100 billion is available at the discretion of the president, and a final $350 billion is on the table, unless Congress resolves to take it back. The president has the authority to veto such a resolution.

The measure also proposes limited caps on the pay and benefit packages of companies who receive the government rescue, strengthens government oversight of the program and adds an insurance program for financial companies’ bad assets.

While Democratic negotiators made significant changes to the plan Paulson sent Congress a week ago, they did not get everything they had sought, particularly more help for troubled homeowners.

House Republicans, meanwhile, fought hard for — and won — a provision that would establish a program whereby banks could buy government insurance to back the principal and interest on certain troubled assets, rather than selling them outright. They argued this was a better deal for taxpayers, and would reduce the overall cost of the rescue package.

At a glance Following are the major details of the $700 billion rescue package that congressional negotiators approved on Sunday: — Provides up to $700 billion, starting with an initial $250 billion, to allow the Treasury Department to purchase troubled assets, mainly in the area of mortgages, that are weighing down the U.S. financial system. — Gives the Treasury Department, working with experts chosen by the government, the authority to fashion the asset purchase program. Treasury officials have suggested that a key approach will be the use of "reverse auctions" in which financial firms who succeed in selling their assets to the government will be the ones willing to take a lower price than other bidders. — Restrictions will be imposed on the pay and benefits received by executives whose companies are selling some of their bad assets through the government's purchase program. — The Treasury would be required to provide details of its purchases within two days of the transactions and various oversight boards would be created to monitor the operation of the program. — Taxpayers would be given ownership stakes in companies whose bad assets are purchased. After five years, if the government is facing a loss in the program, the president will be required to submit a plan recommending how the money can be recouped from financial companies. — Establishes a program whereby banks could buy government insurance that would cover the principal and interest on certain troubled assets, rather than selling them outright. Premiums will vary depending on the assets' risk profile. Associated Press

Treasury Secretary Henry Paulson told negotiators that he believed the insurance plan would have only limited benefits.

While the plan broadly aims to prevent banks from profiting on the sale of troubled assets to the government, there is an exception made for assets acquired in a merger or buyout, or from companies that have filed for bankruptcy.

This detail could allow JPMorgan Chase & Co. to sell toxic mortgages and other assets it gained control of last week when it purchased Washington Mutual Inc. for a higher price than the failed thrift paid for them.

The government will only buy mortgage investments originated on or before March 14, 2008.

Responding to the outcry of constituents, Congress structured the bailout in a way that sets limits on executive compensation at companies whose bad debt is purchased by the government. Lawmakers also established various oversight boards including one with members appointed by Congress and another whose members will include the Treasury secretary and the chairman of the Federal Reserve.

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