Economy
During the six years I have had the privilege of representing Alaskans in the United States Senate, I have had to cast many tough votes, but few as complex or far-reaching as the vote on an economic rescue plan. Over the past week, hundreds of Alaskans contacted my offices, and many of those calls, emails and letters encouraged me to vote against a bailout for Wall Street and reward the mismanagement of our financial institutions. After the Administration initially proposed a package that failed to include adequate oversight, the Senate and House negotiators significantly changed the bill. I have included a description of those changes below.
After many discussions with Alaska business and financial leaders, constituents and my Colleagues, I decided to vote for the revised package. I believe that inaction would cause far more damage to this country than we can sustain.
It became clear to me that all Americans are impacted by the crisis that has hit our financial system. From Maine, where state transportation bonds have no market, to Ohio, where a children’s hospital can’t get construction financing, this is a crisis of national and international proportions.
There is also much at risk in Alaska. Not only our multi-billion dollar Permanent Fund but our retirement funds, pensions, 529 savings accounts for our children’s education and Alaska Native corporations’ investments are all impacted by the turbulence in our financial markets. Congress needed to enact legislation that would stabilize the economy, get credit moving in the markets, provide greater oversight and not reward the reckless behavior of some corporate CEOs. I believe this bill puts us on the right track but will require vigilant oversight and significant accountability.
Secretary Paulson’s original plan would have:
authorized the Secretary of the Treasury to purchase, manage, and sell $700 billion in mortgage-related assets from any financial institution having its headquarters in the United States, on the Secretary’s terms and conditions; and
not have to report to Congress, with respect to his actions, until three months after the bill’s passage and every six months thereafter.
Listed below are seven significant provisions in the Senate passed bill that differ from the original request to Congress;
Price Tag: Secretary Paulson’s proposal would have granted the Treasury an immediate $700 billion to use as the Secretary saw fit to purchase bad assets from financial institutions. The legislation passed by the Senate provides an initial installment of $250 billion with the ability to access an additional $100 billion upon certification of need by the President. To access the final $350 billion that is authorized, the President must provide a written report detailing the need for and plan to use the additional funds. Congress would then have the opportunity to enact a resolution of disapproval, denying the funds to the Administration.
Oversight: Under Secretary Paulson’s plan, there would have been minimal oversight with limited reporting on how the Treasury used the $700 billion and how they determined the value of bad assets purchased through a Troubled Asset Relief Program (TARP). Under the Senate-passed bill, a report must be submitted to Congress every month on the activities of the program to buy bad assets from financial institutions, including a description of the transactions, the pricing mechanisms used, and justifications for making the purchase. In addition, the Treasury shall make available to the public, in electronic form, a description, amounts, and pricing of assets acquired under TARP within two business days of purchase, trade, or disposition.
Beyond public disclosure and reports to Congress by the Administration, the Comptroller General of the Currency is directed to conduct ongoing oversight of the program to purchase bad assets and report to Congress every 60 days; and a Special Inspector General is established to conduct audits and investigate the actions of the TARP. The Special Inspector will be confirmed by the Senate.
CEO compensation: The issue of limiting CEO compensation and golden parachutes was not a part of Secretary Paulson’s plan. Under the Senate-passed bill, when the Treasury takes on a significant role in a company, it can require limits on compensation that exclude incentives for executive officers, recover any bonus or incentive compensation paid to a senior executive officer based on statements of earnings or other criteria that are later proven to be materially inaccurate and prohibit any golden parachute payment to senior executive officers during the period which the government is assisting the company.
When the Treasury buys assets at an auction and the financial institution has sold more than $300 million in assets, the Secretary shall prohibit any new employment contract with a senior executive officer that provides a golden parachute in the event of an involuntary termination, bankruptcy filing, insolvency, or receivership. A 20% excise tax is imposed on golden parachute payments triggered by events other than retirement.
Alternative program: In addition to the TARP, the Secretary must also establish an alternative program that would provide a guarantee of troubled assets, rather than an outright purchase of the assets. The Secretary would collect a premium from financial institutions that ask Treasury to guarantee their assets to pay for the costs and potential exposure to claims of the program. This insurance-backed program was not part of Secretary Paulson’s original plan.
Taxpayers may benefit from purchases of low-priced stocks or bonds by the Government: Another provision not included in Secretary Paulson’s original plan that provides additional protections for the taxpayer allows the Federal government to receive “equity warrants” or the right to buy stock or debt security at a low price in companies seeking financial assistance from the Federal government. If there is equity appreciation of the company, the government and taxpayer will enjoy the benefit. This is similar to the arrangement with Chrysler in 1980 that resulted in a profit for the Federal government and taxpayers.
Recoupment by the Federal Government: If taxpayers are not made whole after five years, the President is required to submit a legislative proposal requiring the financial industry to repay wherever there is a shortfall to ensure that the TARP does not add to the national deficit or national debt. This could be achieved through a tax solely on the financial industry. Recoupment was also not included in Secretary Paulson’s financial rescue plan.
Profits will be used to pay down the National Debt: Any recognized profits would not be sent back to the U.S. Treasury for further spending by the Federal Government; rather profits will be used to pay down the national debt.
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October 2008 |
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02th - |
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September 2008 |
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25th - |
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