The Wall Street bailout explained

29 Sep 2008, 11:47 am   -   Source: AP, other agencies
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The New York stock exchange (AAP)

The New York stock exchange (AAP)

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The so-called 'Wall Street bail-out', as outlined in the Emergency Economic Stabilization Act of 2008 (EESA) provides up to $US700 billion to the Secretary of the Treasury to buy mortgages and other assets that are clogging the balance sheets of financial institutions, which is making it hard for families, businesses, and other companies to access credit.

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What does the bailout involve?

The ESSA addresses the following areas of the current financial crisis:

Preserving Home Ownership

The Treasury is required to modify as many troubled loans as possible so families can keep their homes.

Other federal agencies are expected to modify loans that they own or control.

The legislation also plans to expand eligibility and increasing the tools available to the Department of Housing and Urban Development to help more families keep their homes.

Taxpayer Protection

Companies that sell some of their bad assets to the government must provide warrants.

This way taxpayers will benefit from any future growth these companies may experience as a result of the program.

The President is also required to submit legislation that would cover any losses to taxpayers from financial institutions as a result of the program.

No Windfalls for Executives

The act targets executives who have made "bad decisions" who "should not be allowed to dump their bad assets on the government, and then walk away with millions of dollars in bonuses."

In order to participate in the program, companies will lose certain tax benefits and must limit executive pay in some cases.

In addition, the bill limits “golden parachutes” and requires that unearned bonuses be returned.

Strong Oversight

The legislation gives the Treasury $250 billion immediately rather than all the funds at once.

The President must later decide if additional funds ($100 billion, then $350 billion subject to Congressional disapproval) are required.

The Treasury must report on the use of the funds and the progress in addressing the crisis.

Additional services

The act will also establish an Oversight Board so that the Treasury cannot act in an arbitrary manner.

A special inspector general will also be assigned to protect against waste, fraud and abuse.

'The party is over'

House Speaker Nancy Pelosi has stressed the proposal was not a Wall Street bailout, but called it a buy -in to help turn the economy around.

The rescue is the largest government intervention in financial markets since the Great Depression.

House Republicans and Democrats met privately to review details and gauge support before releasing the final legislation.

"Again, working in a bipartisan way we sent a message to Wall Street: the party is over," Ms Pelosi said.

"The era of golden parachutes for high-flying Wall Street operators is over.

"No longer will the US taxpayer bail out the recklessness of Wall Street. And that's the news that this legislation brings.

"People have to know that this isn't about a bailout of Wall Street, it's a buy-in so that we can turn our economy around and we can help people who are saving for their pensions and retirement, for the education of their children, saving so that they can stay in their homes, small businesses can get credit so they can continue their transactions."

A House vote on the proposal is planned for Monday, followed by the Senate later in the week.

 

 

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