It's a Deal? (Update 4)
by Jane Sasseen and Theo Francis
Democrats and Republicans on Capitol Hill said earlier today that they’ve got a agreement “in principle” on the Treasury’s $700 billion bailout package. And while details are still sketchy, a tentative picture is emerging; most details subject to change.
5:04 p.m. Or maybe not. Sen. Richard Shelby, ranking minority leader on the Senate Banking Committee, just said the “agreement is obviously no agreement.” Chatter on the Hill has suggested that Republicans, in particular in the House, may be balking at what senators earlier described as agreement on principles.
Earlier posts follow:
*** 4:36 p.m. This just in: A one-page “Agreement on Principles,” which appears to summarize the deal between congressional Democrats and Republicans. Our source says “final details” still being worked out; someone else, on Capitol Hill, confirms it’s a current draft, though there seem to be multiple versions of the document and “things will likely change from this.”
1. $700 billion authorized, with $250 billion available immediately and the rest in $100 billion increments on Treasury secretary’s “certification that funds are needed.” However, Congress can shut off the tap after $350 billion with a “joint resolution of disapproval.”
2. The Treasury must “set standards to prevent excessive or inappropriate executive compensation for participating companies.” That suggests that Congress is punting on just how to limit executive pay, though deliberations could leave a sense-of-Congress record to shape regulations.
3. “To minimize risk to the American taxpayer, requires that any transaction include equity sharing.” Details still unclear, including whether Treasury will get to decide how it works.
4. “Most profits” must go to reducing the national debt.
5. A variety of oversight rules would establish a board “with cease and desist authority,” bar Treasury from acting arbitrarily or capriciously “or in any way that is inconsistent with existing law,” establish an inspector general’s office, and mandate audits by the GAO.
6. Several provisions to aid homeowners, but details are lacking: “Requires loan modifications for mortgages owned or controlled by the Federal Government” and sends some of any future profits to two funds for aiding affordable housing. The bill must also “maximize and coordinate efforts to modify mortgages for homeowners at risk of foreclosure,” though it’s far from clear what that means.
Separately, another congressional staffer says rumors that bankruptcy rule changes are dead may have been premature. This person says the measure is still on the table, but may prove to be a bargaining chip.
*** 3:30 PM: This has yet to be confirmed, but the lobbyist closely following the negotiations is also hearing that several measures backed by the Democrats intended to open up proxy access are also out of the final bill. A draft circulating late Wednesday night would have required any institution from which the government directly purchased assets to provide access to shareholders to nominate board members and allow shareholders to hold an annual nonbinding vote on the company's executive compensation plan. The draft would also have prohibited the institutions from paying severance during the period that the government holds warrants or any other stakes in the company; the severance prohibition proposed was for a minimum of two years.
Such measures have been controversial, and earlier attempts to get them through Congress have gone nowhere. They have long faced huge opposition from much of Corporate America. As the negotiations proceeded in recent days, Democrats did not appear to be fighting hard for them. Now, they may be on the cutting room floor.
Another issue still being worked out: Congressional negotiators have agreed to the principle that executive compensation should be limited at companies that receive government help. But there is not yet agreement on exactly what that limit should be. $400,000 -- the amount the president makes? $500,000? $1 million? That is still being hammered out. But any one of those would be a huge come-down in pay for the top finance executives--according to this story on BusinessWeek.com, top execs at AIG, Goldman Sachs, Fannie Mae, Freddie Mac and Lehman pulled down $2 billion over the last five years.
*** 2:21 PM: Many of the demands Democrats have made in recent days appear to make it into the final bill, including executive pay restrictions, a government stake in companies selling assets to the Treasury and stronger oversight of the Treasury as it buys and sells the assets.
More surprising: One Hill staffer says Congress wants to hand the $700 billion out in installments. Sen. Charles Schumer and others have tossed around the idea at least since Tuesday, when Sen. Christopher Dodd (D-Ct.) said it might be possible to appropriate the full amount but only give Treasury access to a portion until Congress can see how the plan is working. But at mid-day on Wednesday, the idea apparently hadn't really taken root yet.
- It sounds like Congress may implement a tax on securities transactions -- perhaps to help pay the cost of the bailout.
- The staffer says the bill contains a "commitment to more foreclosure prevention," but it's not clear if this means in future legislation, or whether there will be a mechanism for helping homeowners in the bill itself.
- One of the more draconian -- and legally difficult -- executive-pay proposals is rumored to be dead, reports a lobbyist following the negotiations closely. That's the idea that the government could require companies seeking Treasury aid to "claw back" pay from current or former executives. But limits on "golden parachute" severance payments may remain, the lobbyist says. Other executive-pay proposals floating around the Hill lately include limits on how much compensation companies can deduct from their taxes for top executives.
- Conflicting reports on mortgage-bankruptcy reform. The staffer says it's in, in some form; the lobbyist says a provision letting judges modify mortgage terms in bankruptcy -- dubbed a "cram-down" by the industry -- is rumored to be dead. Our guess: Some measure of bankruptcy reform that stops short of giving judges a free hand to modify loans.