Analysis: Bailout Bill and a Report for Readers

I waded through the text of the federal bailout bill in an attempt to understand and ferret out the details that could be understood and passed on to interested readers.

The federal bailout bill is now in draft awaiting congressional approval on Monday. The bailout bill is in excess of 100 pages that will leave the casual reader wondering exactly what it will ultimately accomplish. Essentially it approves a federal bailout of $700 billion dollars, although congressional approval is needed to go beyond $350 billion dollars. The Secretary of the Treasury will establish and administer the provisions of the bailout bill under the auspices of the Troubled Asset Recovery Program (TARP).

The bailout bill states that under the TARP "the Secretary is authorized to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary, and in accordance with this Act and the policies and procedures developed and published by the Secretary."

It also states that troubled mortgages owned by foreign firms can be purchased. The Secretary of the Treasury seems to have substantial power although there are some checks and balances to insure oversight and accountability. Congressional legislation often seems to be affected by unintended consequences and it remains to be seen what those consequences, if any, might be.

The bailout bill is ostensibly designed to protect the US economy and includes wording to "protect home values, college funds, retirement accounts, and life savings as well as preserve home ownership, promote jobs and promote economic growth."

One would be hard pressed to disagree with those lofty goals except to point out that it will cost $700 billion to do that.

There bailout bill includes provisions for a multitude of reports and enables substantial oversight by congress as well as by the Government Accounting Office (GAO), the Office of Management and Budget (OMB), a special Inspector General (IG), the Congressional Budget Office (OMB) and a five member Congressional Oversight Committee that may or may not include elected representatives.

The bailout bill states that mortgages can be adjusted "including term extensions, rate reductions, principal write downs. . . " This means that interest rates can be adjusted, a home loan amount can be changed and the term of a loan can be modified. Obviously any changes will be made to make it easier for the homeowner to avoid foreclosure. This provision will probably be troubling to many Americans that have struggled to insure that they paid their mortgages on time and stayed within the provisions of the contract that was signed when they purchased their home.

There are provisions in the bailout bill that provide for the government to have an ownership stake in troubled financial institutions which may provide some income to the government and the taxpayer later. There are also provisions to limit executive income and limits have been place on "golden parachute" clauses that reward executives with substantial bonuses in the event they are terminated before the expiration of their employment contract.

It remains to be seen if the lofty goals and purposes of this congressional action will serve the best interests of America. Time will ultimately provide that information