(by Joseph Goldstein, NYSun.com) WASHINGTON – Congress will vote today on whether to give the Treasury secretary unprecedented power to purchase troubled assets from financial institutions. Advocates say the aim of the legislation is to precipitate an upturn in the nation’s economy and end Wall Street’s woes.
The bill would authorize the Treasury secretary to spend $700 billion to buy illiquid assets – mortgage-related and otherwise – off the books of banks and other financial firms. The treasury department has told lawmakers that [Treasury Secretary Henry Paulson] expects to spend the money at a pace of about $50 billion a month, Rep. Anthony Weiner told reporters yesterday. That would leave the bulk of the spending to the next administration.
The House is expected to vote on the legislation today, with the Senate to follow, possibly later in the week. The bill, a product of intense negotiations for more than a week, is expected to pass, even its critics say.
During negotiations over the weekend, lawmakers agreed to several provisions meant to address concerns that the spending would enrich the very bankers whose missteps contributed to the economic hard times.
For one, the legislation includes tax disincentives meant to discourage participating financial firms from paying their top five executives more than $500,000 apiece, a pittance by Wall Street standards. The bill also includes limits on severance pay to top executives at firms that receive large amounts of the bailout money.
Lawmakers say it is uncertain what effect, if any, the legislation will actually have on Wall Street salaries, which are increasingly a source of public resentment.
Mr. Weiner said the bill’s limits on executive compensation aren’t “air tight” and left much to the discretion of the secretary of the Treasury.
The legislation also carries a provision for recouping the cost of the bailout fund. The bill requires the president in 2013 to submit a plan to Congress to tax financial firms that participated in the bailout in the amount of any shortfall. The legislation doesn’t create such a tax: The president must simply offer a legislative proposal.
The exact cost of the bailout cannot yet be calculated. It is, however, projected to be less than $700 billion, because the government is expected to eventually sell assets that it purchases. Some lawmakers even talk optimistically of making money for taxpayers through the bailout. The government will also receive stock in companies from which it purchases assets.
Congress has a chance down the line to withhold half of the $700 billion from the Treasury secretary.
The support of House Republicans for the bailout is uncertain. Democrats in both the House and the Senate provided the core of support for the plan, which originated in the White House. By Sunday, the bill’s proponents said they believed they had achieved bipartisan support.
“On a political level, people wanted to have the sense we were all stepping off the cliff together,” Mr. Weiner, a Democrat, told reporters yesterday.
Senators McCain and Obama made tentative statements on Sunday in support of the bill.
“This is something all of us will swallow hard and go forward with,” Senator McCain told ABC’s “This Week.”
Mr. Obama, speaking from Detroit, said “it looks like we will pass that plan very soon.”
The day-to-day functioning of the bailout fund, which is being called the Troubled Assets Relief Program, would be left entirely to Mr. Paulson and his successors. The bill authorizes the secretary to purchase “troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary.”
An oversight board would have the authority to advise the Treasury secretary, but not to veto any of the secretary’s decisions.
The bill leaves it to Mr. Paulson to decide what to buy, and from whom to buy it. The bill would give him the authority to hire money managers to advise him on how to go about making purchases, and to manage the government’s portfolio as it grows. One of the trickiest challenges facing Mr. Paulson would be to decide what to pay for the assets that he buys. There is currently no market or pricing mechanism for many of the mortgage-backed assets that are expected to be the focus of the Treasury Department’s purchases.
That Congress might hand over a huge sum to the Treasury secretary with few, if any, strings attached, or much guidance on how it is to be spent, could give rise to legal challenges later. The bill might give the courts the opportunity to review the limits on how much power Congress can delegate to the executive branch.
“Someone might argue that it violates the delegation doctrine, which has been pretty much in mothballs,” a former solicitor general, Theodore Olson, now of the firm Gibson, Dunn & Crutcher, said of a bailout plan during an interview last week. “It would be an interesting question.”
Reprinted here with permission from The New York Sun. Visit the website at NYSun.com.
1. Define the following vocabulary words as used in the article:
2. What will the bailout bill being voted on in Congress this week authorize Treasury secretary Henry Paulson to do? Be specific. (see paragraphs 2, 16-18)
3. What is the purpose of the provisions that have been added to the bill?
4. Describe the provisions that have been added to the bill (as explained in paragraphs 5-8).
5. a) Under the proposed bill, how would limits on executive compensation be determined?
b) Do you agree with this method of limiting executive compensation? Explain your answer.
6. Why is the exact cost of the bailout estimated to be less than the $700 billion the bill would provide?
7. Democrats hold the majority of the seats in the House and the Senate. They could have passed this bill without the support of Republicans. What was Congressman Anthony Weiner, a Democrat, implying when he told reporters yesterday “On a political level, people wanted to have the sense we were all stepping off the cliff together.”?
8. Share this article and the questions with a parent. Ask his/her overall opinion on the bailout bill.
The Treasury Department is the executive agency responsible for promoting economic prosperity and ensuring the financial security of the United States. The Department is responsible for a wide range of activities such as:
Read about the purpose of the Treasury Department ustreas.gov/education/duties.
Read a brief biography of Treasury Secretary Henry Paulson at ustreas.gov.