Senator Dodd Revamps Paulson’s Bailout Plan 23 comments
Michael Steinberg
About this author:
-
Font Size:
-
Print
- TweetThis
The New York Times columnist Floyd Norris provided the best critique of Treasury Secretary Paulson’s mortgage related security bailout plan: "Will a Crisis Create a Scandal?" Some of Floyd Norris’ issues are being addressed by the team of Senator Dodd and Congressman Frank. Bloomberg’s "Dodd Proposes Giving U.S. Equity Stake for Bad Debt" reports that the Democrats are insisting on creating a controlled framework around 'bazooka II'.
It appears that unlimited authority is a non-starter this time around. Dodd wants a five member oversight board consisting of the chairpersons of the Federal Reserve, FDIC and the SEC, as well as two financial industry representatives designated by Congress. This should not be much of a problem since Paulson already controls Bernanke, and the FDIC and SEC have not acted independently, despite their rhetoric. Dodd also wants weekly reporting of the amount of purchases and sales. How much detail to be revealed is not clear.
Here’s the real kicker: Dodd is totally redefining the structure and objective of Paulson’s plan. Instead of selling toxic waste for cash, the banks (and almost anyone else) would be selling equity and giving the Treasury toxic waste for free as the transaction fee. Dodd wants the Treasury to receive an equity stake equal to the value of its toxic purchase, or senior debt in the case of non-public companies. This amounts to nothing more than the sale of equity to the government.
Adding to the punishment, Senator McCain wants executive compensation limited to the President’s salary ($400K) for firms that participate. I’m sure Paulson is worried that if the punishment is too tough, no banks will participate. My, how Paulson’s concern for moral hazard has changed since Morgan Stanley (MS) and Goldman Sachs (GS) began being targeted by the wolves.
I fully agree with Dodd’s call for tight oversight and frequent reporting, and McCain’s salary cap. I would like the reporting by type of asset and counter party. The context of selling equity to the government could work if the toxic waste transaction fee is lowered to 20% to 50% of the deal.
In "Can Paulson Add $700B Worth of Value to the Mortgage Market?", I discussed the need for mortgage modifications to be an integral part of the Treasury adding value to the toxic waste it acquires. I hope the Democrats do not cave in on this.
Updates:
Since I originally posted, I obtained a link to Dodd’s “Discussion Draft” through Politico. The equity that the government would receive is in the form of contingent shares. The contingent shares vest when the government sells a bank’s mortgages or related securities at a loss. The vesting rate is 125% of the dollar value of the loss.
The contingent shares could present an accounting and legal nightmare. The vesting period is indefinite, so companies would have to estimate dilution, vesting and retirement. The Treasury would also have quite a job of tracking individual lots back to sources, and insuring fair treatment.
The draft also states the securitization pools shall be purchased with sufficient ownership to modify the underlying mortgages (to the extent practical).
Disclosure: None
Related Articles
|
Find People on SA
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largest
increase in followers
in the last 7 days-
1
David Fry
-
2
Philip Davis
-
3
Bill Gross
-
4
TraderMark
-
5
Tyler Durden
Fastest Climbers » -
1
-
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most activeSee all
Instabloggers.
Top Instabloggers » -
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 23 comments:
(Tune of Beverly Hillbillies)
Come and listen to a story about a fine komrad named Hank
A szwanky Goldman banker, who ably kept his partners fed,
Then one day he was laughin at some AIG fools,
And up through the ground came a toxic derivative krude.
CDSs that is, fools gold, Wall Street tea.
Well the first thing you know ol Hank buys billionz of CDOz n szhares,
Taxpayers said "Hank move away from here"
Said Zheleznodorozhny is the place you ought to be"
So he loaded up the junk and shipped it overseas (to Moscow that is).
Szwimming pools, Oligarchs , and everything.
Well now its time to say good by to Hank and all his bailout kin.
And they would like to thank you kapitalist fools fer kindly droppin in.
You're all invited back again to this socialist locality
To have a heapin helpin of state hospitality
Set a spell, Take your white shoes off.
Do swidania, y'hear?.
williambanzai7.blogspo.../
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
Yes, we have to have lots of confusion , cover up so that in the end no one knows what in hell is going on , especially red necks that might have the propensity to become violent and take matters in their own hands.
Yes cut executive pay if they have to come begging for my tax dollar. If they don't join because of cut pay ,good fricking deal .
One pissed off American.
Way to go Sen. Dodd plesae keep an eye on these Turkeys and keep an eye on those who are supposed to watch the Turkeys.
Hurry up elections. We can't get rid of Bush and his Cronies soon enough.
I have one question for you and everyone else. Is your life better and is the state of this Country better for having G Bush at the helm for seven+ years?
Rewrite Section 8 to ensure Mr. Paulson or his succeeding Treasury Secretaries or FED Chairmen understand that any taxpayer money is not up for grabs:
Sec. 8. Review.
The Secretary and the Board Members of the Federal Reserve shall be personally liable to the the taxpayers for all looses incurred pursuant to the authority of this Act. Any taxpayer may bring judicial actioin in any court of law to recover said losses with the burden of proof falling on the defendents. Judgements incurred under this section which cannot be paid by the defendents from personal funds shall result in the defendent's forfeiture of all personal property and permanent loss of US citizenship.
That oughta get their attention.
Johnson and Raines, both former CEOs of FNM just happen to be the top 2 financial advisors for Obama. Obama actually received the 2nd most $$$ (Dodd being 1st) from FRE and FNM.
And you wonder why they are his top 2 advisors...
If only we could change the whole system.
This was crafted friday night, and they expect it to pass it
in 5 days.
This is absolute insanity....
The treasury dept wants full cooperation or else...no courts to
be able to review.
This is like a gun to the head asking for compliance.
Mien Fuhr Paulson knows whats best.....
-Paulson looks and acts like Colonel Klink....
www.nndb.com/people/30...
When their stock hits 2cents the fund can buy them out, dumpsterize the CEO and the whole top gang and re-cycle the garbage into viable housing mortgages
And there's always the originators of these things to consider. No down payment--No job--No interest?? Sure stinks of conspiracy to defraud to me!! Maybe a lot of little area Banks can be "talked" into.co-operating in the recycle process.
What's that thief Dodd still doing on the scene??? He was caught on the take from Countrywide, plain and simple!!! Get rid of the corrupt Bum!!!
Fire all of the CEO's & CFO's who come begging for our tax money, seize all of their assets, sell them off on Ebay, and use the money as a down payment for the troubles we face. (I know it's just a drop in the bucket, but hey - TFB).
Next....black list these executives from ever holding a management job in the future, and black list them from doing any financial or stock trades. (No more Wall Street, no more stocks - nothing for these guys)
Let them get to work on cleaning up the trash on our roadways & waterways. A pole with a nail on the end & a trash bag is a good way for them to start contributing to America.
Outrageous over site to Wall Street from now on. We can't trust these people with our money.
Politicians???
We can control them, but it will take everyone (all of us who are able to vote) to take the time to send them an email on a weekly basis. Let them know who you are. Let them know they work for us. Keep up on their voting record - if you don't like it - let them know.
VOTE, every election, know the topics. After all this is Our Country and Our Future....Don't sit on the bench...it's free to participate.
Then there are the lucky ones who are now teetering on a financial cliff that if they can only hang on for 3 or 4 months, can have their "new" mortgage refinanced using today's more reasonalbe market value of their homes - not the inflated prices they paid in '06 or '07 -- which they should be able to afford.
Why are the not at the Congressman's and Senator's door with tar and pitchforks???
Bail out the bank and leave 'em swinging in the wind?
SHAME!
U.S. Treasury
Office of Sekretary Henry (Hank) Paulson
LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY
TO PURCHASE TOXIC FINANCIAL ASSETS
Sec. 1. Short Title.
This Act may be cited as "Taxpayer networth annihilation and Investment banking wealth Recovery Plan" ("TwIRP") .
Sec. 2. Purchases of Toxic Assets.
(a) Authority to Purchase. – The Sekretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Sekretary in his sole, absolute, divine and knowing discretion, any and all manner of Toxic Assets from any Financial Institution, as those terms are defined in section 13 of the Act.
(b) Necessary Actions. – The Sekretary is authorized to take such actions as the Sekretary deems necessary to carry out the authorities in this Act, including, without limitation:
(1) appointing such employees and hiring konsultants (da Konsultanz with a K), unemployed investment bankers and advisors as may be required to carry out the authorities in this Act and defining their duties;
(2) entering into contracts, MOUs, LOIs, including lucrative contracts for investment banking and financial advisory services for the management of Toxic Assets;
(3) designating Financial Institutions as financial agents, revenue collectors, purchasing agents and proxies of the Government, and they shall perform all such reasonable duties related to this Act as financial agents and proxies of the Government as they deem fit in their sole and absolute discretion;
(4) establishing vehicles, including offshore SPIVs and conduits, pyramids and highly leveraged PONZI structures that are authorized, subject to new ideas by the Secretaries quantitative engineer, to purchase Toxic Assets and issue open ended obligations;
(5) directly and indirectly, granting bonuses, equity kickers, management fees, performance fees, restructuring fees, brokerage commissions, finders fees, entertainment accounts, unemployment compensation and other compensation arrangements; and
(5) formulating such regulations, fine print, boilerplate, standard terms, ISDA riders and other terms as may be necessary or appropriate to define terms or carry out the authorities of this Act.
Sec. 3. Considerations.
In exercising the authorities granted in this Act, the Sekretary shall take into consideration means for –
(1) Reinstating Wall Street investment bankers into the financial pecking order of society;
(2) shafting the taxpayers; and
(3) appropriate steps to paper over any conflicts of interest in the hiring of Wall Street contractors or advisors. Any regulation issued under this authority shall not be subject to the rest of the United States Code.
Only to the extent reasonably feasible, the Secretary shall attempt to provide stability or prevent corruption in the financial markets or banking system;
Sec. 4. Reports to Congress.
Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Sekretary shall only if feasible, attempt to report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.
Sec. 5. Rights; Management; Sale of Troubled Assets.
(a) Exercise of Rights. – The Secretary may, at any time, in his sole, absulute, reasonable or unreasonable, divinely inspired discretion, exercise any rights received in connection with Toxic Assets purchased under this Act.
(b) Management of Toxic Assets. – The Secretary shall have authority to manage, securitize and repackage Toxic Assets purchased under this Act, including conjuring revenues and engineering away all portfolio risks therefrom.
(c) Sale of Toxic Assets. – The Sekretary may, at any time, any place, to anyone, upon terms and conditions and at prices determined by the Secretary in his sole and absolute divine discretion, sell, or enter into securitiised loans, CDOs, CDSs, kickers, participations, synthetic securities, repurchase transactions, black holes or other financial weapons of mass destruction in regard to, any asset purchased under this Act.
(d) Application of Sunset to Toxic Assets. – The authority of the Sekretary to hold any Toxic mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.
Sec. 6. Maximum Amount of Authorized Purchases.
The Sekretary's authority to purchase Troubled Assets under this Act shall be unlimited, but for optical puroses shall be expressed as $700,000,000,000,000,0... outstanding at any one time.
Sec. 7. Funding.
For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Sekretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are absolutely non-reviewable and committed to absolute agency discretion, and may not be reviewed by any court of law, any administrative agency, any Congressional Committee, media, newspaper or press or other divine authority.
Sec. 9. Termination of Authority.
The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall be in perpetuity.
Sec. 10. Increase in Statutory Limit on the Public Debt.
Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof "such amount as is determined under Section 6.
Sec. 11. Credit Reform.
The costs of purchases of Troubled Assets made under section 2(a) of this Act shall be determined only if feasible and if we have more time.
Sec. 12. Indemnification and Release.
No consultant, agent, employee or other firm engaged pursuant to this Act shall be held accountable for negligence or shabby performance, including in particular, service and performance
in a grossly negligent and reckless manner. Such parties shall be fully indemnified with the full faith and credit of the USA.
Section 13. Definitions.
For purposes of this Act, the following definitions shall apply:
(1) Financial Institution. – The term "Financial Institutions" means any institution including, but not limited to, banks, thrifts, credit unions, broker-dealers, and insurance companies, having significant operations in the United States; and, upon the Sekretary's determination perhaps in consultation with the Chairman of the Board of Governors of the Federal Reserve, any other institution he determines necessary to promote financial market stability. For the avoidance of doubt, the term shall include Goldman Sachs, Morgan Stanley and any spin off, successor or surviving entity.
(2) Secretary. – The term "Sekretary" means the "Hank" Paulson and his heirs and or Phil Gramm.
(3) Toxic Assets. – The term "Toxic Assets" means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008; and, upon the determination of the Sekretary perhaps in consultation with the Chairman of the Board of Governors of the Federal Reserve, any other financial WMD, as he determines necessary to promote the strength of Wall Street; including without limitation, leveraged buyout credits, prime brokerage margin credits and and all CDS counter party liability.
(4) Black Scholes Formula.-- A term utilized to convince the cynics and skeptics that we know what we are doing.
(5) LTCM. A previous financial disaster that would have led to financial meltdown. Discounted by the regulatory authorities as a 1000 year aberation.
(6) Alan Greenspan. A once in a 1000 year goofball.
(7) George Bush. A circus clown who lives in the White House.
(8) SEC. Somebody please Eject Cox.
(9) 2 Big 2 Fail. 2 Stupid 2 Survive.
(8) United States. – The term "United States and USA" means the United Socialistic American States, territories, and possessions of the United States, Wall Street, East Hampton, Nantucket and the District of Columbia.
HEAR YE, HEAR YE, HEAR YE, may it be known by all thee present, that this TwIRP is hereby declared the law of the land.
Of the Moon,
Down the Valley of the Shadow,
Ride, boldly ride,"
The shade replied -
"If you seek for Eldorado!"