Showing posts with label Bailout Bill. Show all posts
Showing posts with label Bailout Bill. Show all posts

Tuesday, October 7, 2008

Stunned… again… and we’re not the only ones…(Deanne R. Upson)

We wrote on September 22, 2008 that we were stunned to learn that banking and financial market regulators were considering using taxpayer funds to finance the creation of a separate entity to hold "toxic" financial instruments. We thought this would be a dangerous suggestion that will not solve the problem.

We wrote on April 3rd : With the development of toxic (derivative and subprime lending) financial products, the relationship between investment banks and the economy has turned parasitic.

We wrote: "To protect the public and the markets, these newer derivative contracts should be extinguished. To put the fire out, put the fire out."

Apparently, we’re not the only ones who saw this coming, raised the alarm, and were ignored. In his Commentary in the New York Times on Sunday, September 28 Ben Stein notes similar concerns and the need to “annul” financial gambling run rampant by the financiers who peddle derivatives, including the impossible to value “credit-default swaps.” Stein notes, “These derivatives are “weapons of financial mass destruction,” in the prophetic words of Warren Buffett.” Stein questions, “Why is this [correction] causing so much anguish? It must be the side bets, the credit-default swap bets, multiplying the effect of the housing downturn many times over.”

Socially responsible investing principles require that the perspectives of high, low- and moderate-income people are taken into account. We noted that on Friday, September 26, House Financial Services Committee held a public hearing titled, “The Future of Financial Services: Exploring Solutions for the Market Crisis” on Wednesday, September 24th. At the hearing one member noted her worries concerning the adverse impact of the current situation on women and minority owned businesses. Mr. Paulson replied that he got her message but would work through the Treasury plan first.

Right. It may be that impacts on owners of minority and women owned businesses – let alone homeowners and small businesses – are of little concern, since these are not people that members of the Wall Street Buddy System know, and therefore come after the people and financial markets they do know.

We noted in our posting Wednesday October 1, SRI Provisions of the Bailout Bill, that SRI principles are included in Sec 103 Consideration (of social issues):
(1) Protect the interest of taxpayers
(2) Protect American jobs, savings, and retirement securities
(3) Keep their homes and to stabilize communities
(4) Providing financial assistance to financial institutions, including those serving low and moderate-income populations and other underserved communities.

SRI Principles are also considered in Sec. 107 Contracting (social issues):
The Secretary shall develop and implement standards and procedures to ensure the inclusion and utilization of minorities and women, and minority- and women-owned business, in that solicitation or contract, including contracts to asset managers, servicers, property managers, and other service providers or expert consultants.

We urge Secretary Paulson and Mr. Kashkari to heavily utilize SRI principles and MWBEs considerations in the implementation of the Bailout Plan. There needs to be a bottom up approach to augment the top-down approach. This, hopefully, will create a path to new prosperity.

Deanne R. Upson
Sustainability Advisor

Wednesday, October 1, 2008

Social Investing Provisions of the Bailout Bill

Emergency Economic Stabilization Act of 2008

Purpose: To provide authority for the Federal Government to purchase and insure certain types of troubled assets for the purposes of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers, and for other purposes.

Title I-Troubled Assets Relief Program

Sec.101 Purchases of troubled assets:

Secretary (of the Treasury) shall publish program guidelines, including the following:
(1) Mechanisms for purchasing troubled assets
(2) Methods for pricing and valuing troubled assets
(3) Procedures for selecting asset managers
(4) Criteria for identifying troubled assets for purchase

Sec.102 Insurance of troubled assets.

Sec 103 Consideration (of social issues):
(1) Protect the interest of taxpayers
(2) Protect American jobs, savings, and retirement securities
(3) Keep their homes and to stabilize communities
(4) Providing financial assistance to financial institutions, including those serving low and moderate-income populations and other underserved communities.

Sec 104 Financial Stability Oversight Board(FSOB) (governance issue):

(1) FSOB shall responsible for reviewing the exercise of authority, making recommendations, and reporting any suspected fraud, misrepresentation.
(2) FSOB shall meet monthly and may appoint a credit review committee for the purpose of evaluating the exercise of the purchase.

Sec 105 Reports:

(1) Monthly basis. Must provide detailed financial statement
(2) Provide Regulatory Modernization Report no latter than April 30, 2009.

Sec. 106 Rights; management; sales of troubled assets; revenues and sale proceeds
All the proceeds shall be paid into the general fund of the Treasury for reduction of the public debt.

Sec. 107 Contracting(social issues):

The Secretary shall develop and implement standards and procedures to ensure the inclusion and utilization of minorities and women, and minority- and women-owned business, in that solicitation or contract, including contracts to asset managers, servicers, property managers, and other service providers or expert consultants.

Sec. 108 Conflicts of interest (governance issue):

The Secretary shall issue regulations or guidelines necessary to address and manage or to prohibit conflicts of interest.

Sec. 109 Foreclosure mitigation efforts (social issue):

The Secretary shall encourage servicers to or may take direct action to minimize foreclosures or facilitate loan modifications and restructuring.

Sec. 110 Assistance to homeowners:

(1) Use the HOPE for homeowners Program under section 257 of the National Housing Act or other available programs to minimize foreclosures
(2) Modifications
(3) Tenant protections

Sec. 111 Executive compensation and corporate governance (governance issue):

Any financial institution that sells troubled assets to the Secretary under this act shall be subject to the executive compensation and corporate governance requirement.

Sec. 112 Coordination with foreign authorities and central banks.

Sec. 113 Minimize of long-term costs and maximization of benefits for taxpayers.

(1) The Secretary shall minimize any potential long-term negative impact on the taxpayer.
(2) The Secretary can purchase the assets by using market mechanisms or through direct purchase depending on the market circumstances.
(3) Conditions on purchase authority for warrants and debt instruments to minimize the long-term costs or maximize the benefits for taxpayers.

Sec. 114 Market transparency (governance issue):

(1) The Secretary shall provide the description, amounts, and pricing of assets acquired under this act to the public.
(2) For each financial institution that sells troubled assets to the Secretary, the Secretary shall determine whether the public disclosure required for these transaction.

Sec. 115 Graduated authorization to purchase (governance issue):

(1) Effective upon the date of enactment of this act: $250B
(2) The President submits to the Congress a written certification: $350B
(3) The President provide written report detailing the plan: $700B

Sec. 116 Oversight and audits (governance issue):

(1) The performance of the TARP: foreclosure mitigation; cost reduction; provided stability to the financial markets; protect tax-payers.
(2) Reporting regularly no less frequently than once every 60 days.
(3) Annual audit.
(4) Internal control.
i. The effectiveness and efficiency of operations.
ii. The reliability of financial reporting.
iii. Compliance with applicable laws and regulations.

Sec. 117 Study and report on margin authority:

(1) An analysis of the roles of government institutions to monitoring leverage and acting to curtail excessive leveraging.
(2) No later than June 1, 2009.

Sec. 118 Funding.

Sec. 119 Judicial review and related matters (governance issue).

Sec. 120 Termination of authority.

Sec. 121 Special inspector general for the troubled asset relief program (governance issue):
(1) Conduct, supervise, and coordinate audits and investigations of the purchase, management, and sale of assets by the Secretary of the Treasury.
(2) Need to provide reports every calendar quarter.

Sec. 122 Increase in statutory limit on the republic's debt to:
(1) 11,315,000,000,000.

Sec. 123 Credit Reform:

The cost of troubled assets and guarantees of troubled assets shall be calculated by adjusting the discount rate for market risk.

Sec. 124 Hope for Homeowners amendments.

Sec. 125 Congressional Oversight Panel (governance issue):

(1) The oversight panel shall review the current state of the financial markets and the regulatory system and submit relevant reports to Congress.
(2) The oversight panel shall consist of 5 members:
i. One by the Speaker of the House of Representatives
ii. One by the majority leader of the House of Representatives
iii. One by the majority leader of the Senate
iv. One by the minority leader of the Senate
v. One by all of the above.

Sec. 126 FDIC authority.

Sec. 127 Cooperation with the FBI.

Sec. 128 Acceleration of effective date.

Sec. 129 Disclosures on exercise of loan authority
(1) Once every 60 days

Sec. 130 Technical corrections.

Sec. 131 Exchange stabilization fund reimbursement:
(1) The Secretary shall reimburse the Exchange Stabilization Fund for any funds used for the temporary guaranty program.
Sec. 132 Authority to suspend mark to market accounting
(1) The SEC shall have the authority to suspend, by rule, the application of statement number 157 of the financial accounting standard board for any issuers or with respect to any transaction if the commission determines that is necessary or appropriate in the public interest.

Sec. 133 Study on mark to market accounting:
(1) Conduct a study on mark to market accounting standards as provided in statement number 157 of the FASB
(2) Shall submit to Congress before the end of the 90 day period beginning on the date of the enactment of this act.

Sec. 134 Recoupment:

If these are any shortfalls after a 5 year period, the President shall submit a legislative proposal that recoups from the financial industry an amount equal to the shortfall in order to ensure that the TARP does not add to the deficit or national debt.

Title II-Budget-Related Provisions.

Title III-Tax Provisions.

Cheng-Chung Chang
George Washington University
Masters, Economics, December, 2008