In our ongoing effort to provide our clients and friends of the firm with updated information and insight on developments related to legislation to support the financial markets, the Foley & Lardner LLP Financial Crisis Response Team is pleased to provide the following summary of today’s events in Washington. We have also set forth below a side-by-side comparison of the Senate Banking Committee Chairman Chris Dodd’s (D. CT) and House Financial Services Committee Chairman Barney Frank’s (D. MA) bills to bailout the financial markets. On Wednesday Frank plans to unveil a revised version of his legislation that he says incorporates some changes agreed to by the Bush Administration.
Most members of the House and Senate on both sides of the aisle continue to agree that a version of the Administration bailout proposal will ultimately pass, assuming it contains an oversight board, limitation on executive compensation of companies that participate in the program and government participation in any profits that accrue to participants. Although during the Senate Banking Committee hearing this morning Treasury Secretary Henry Paulson closed the door on a Democratic proposal to change bankruptcy law to allow judges to reduce the principal of mortgages to current market value, he appeared to leave the door open to expanding current anti-foreclosure programs to permit at-risk borrowers to refinance into fixed rate mortgages guaranteed by the Federal Housing Administration.
Administration officials spent all day Tuesday trying to shore up support for the bailout among increasingly wavering Republicans. Vice President Cheney and White House Chief of Staff Josh Bolton held several closed-door sessions with House and Senate Republicans, including members of the conservative Republican Study Committee (RSC), which offered its own “free market proposal.” The RSC’s proposal, which rejects direct government intervention in the markets, would suspend capital gains taxes for two years and privatize Fannie Mae and Freddie Mac, as well as suspend “mark-to-market” regulatory rules that require banks to set assets at market prices. Reportedly Cheney and Bolton told the RSC that its proposal is not a viable option and Democrats immediately dismissed the RSC’s ideas.
Given the lack of unity in the Republican ranks, the Congressional Democratic Leadership believes it has more leverage over the Bush Administration to obtain concessions on the bailout package, as well as other legislation such as the Continuing Resolution (CR) to fund the government after the fiscal year begins on October 1. For example, the CR that is currently pending in the House contains a $25 billion loan guarantee for the U.S. auto industry to start building hybrid and other energy efficient vehicles. On the other hand, many Democrats disagree with their leadership feeling that the longer the bailout legislation is pending and the longer the Democrats work on it, the greater their ownership of the issue will be.
Side-by-Side of Senate and House Financial Bail-Out Bills
Created September 23, 2008 (House Bill as of September 22, 2008)
Authority to Purchase Troubled Assets
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Considerations
Oversight
Rights; Management; Sale of Troubled Assets
Maximum Amount of Authorized Purchases
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Funding
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Limits on Review
Assistant to Homeowners and Localities/Foreclosure Mitigation Efforts
Executive Compensation
Insurance Parity
Termination of Authority
Increase in Statutory Limit on Public Debt
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Annual Financial Reports and Audits
Conflicts of Interest
Special IG for Troubled Asset Program
Coordination with Foreign Authorities and Central Banks
Congressional Oversight Panel