What Rep. Sherman wants for the bailout

Discussion Points on Bailout Plan (hat tip to TPM)

1) Supervision. The Secretary of the Treasury shall not enter into
any contracts or purchase agreements unless such contract or purchase
agreement is approved by a bipartisan three member Board. Before we
pass the bill, Bush must unequivocally agree to appoint one person
selected by the Speaker and one selected by the Senate Majority Leader
to the Board. Asset purchase agreements of less than $1 billion and
service contracts providing for fees of less than $10 million are exempt
from this requirement.

2) Fast track for Regulatory & Corporate Governance Reform.
Throughout the 111th Congress, the Speaker of the House of
Representatives and the Majority Leader of the United States Senate,
shall have the following extraordinary power: to call up any bill
dealing with corporate governance and/or financial services reform under
the following rules: the bill shall be subject to limited debate,
followed by an up or down vote.

3) Tough Standards on Executive Compensation. Upon the sale of any
mortgage related asset to the United States Treasury by any corporation,
the following shall be applicable: any executive compensation contract
calling for compensation in excess of the amounts which are deductible
under Internal Revenue Code Section 162(m), is hereby void as against
public policy. No executive compensation agreement or practice shall be
engaged in by the selling entity, providing for compensation that is not
deductible under Internal Revenue Code 162(m). This provision is
applicable to the entity selling a mortgage related assets to the
Treasury and all affiliates of such entity. Affiliates is as defined in
Internal Revenue Code Section 1504.

4) US Investors Only: No mortgage related asset shall be purchased
under the bill unless it is established that such asset was owned on
September 20th, 2008, by an entity headquartered in the United States.

5) Obligation to invest in the United States. Any entity selling
assets under this bill to the United States must agree to invest the
proceeds of such sale in the United States for no less than 5 years.

6) Homeowner States Rights Not Preempted. The federal government
in its role as holder of any mortgage, shall have no greater rights via
the mortgagor than would a private entity owning said mortgage. The
federal government shall comply with all state and local laws which
protect such mortgagor, not withstanding any argument that the federal
government is exempt therefrom.

7) Reports to Congress. The reports to Congress required by
Section 4 of the Paulson Act shall be rendered every 2 weeks, for so
long as said act is effective.

8) Minority and small business contractors Buy American. At least
10% of the asset (in dollar volume) management contracts and advisor
contracts must be small enough that a firm of 100 or fewer staff could
perform the contract. Otherwise, minority and small business will be
effectively excluded. In contracting with private entities for services
regarding the acquisition and management of mortgage related assets, the
Secretary of the Treasury shall be bound by all applicable laws designed
to benefit minority-owned businesses, women-owned businesses, and small
businesses and shall be bound by all applicable "Buy American"
provisions.

9) Review. Section 8 of Secretary Paulson's proposal is deleted.
The actions by the Secretary shall be reviewable by administrative
agencies and courts of law as provided by existing law.

10) Homeowner protection/bankruptcy reform.

11) Economic Stimulus.

Why many Democrats opposed the bailout

Unvarnished, a memo by one of the rebellious Democratic House members on why he opposed the bailout plan as written.

TAXPAYERS HIGHLY UNLIKELY TO RECOUP ANY OF THE COSTS -- Brad Sherman 9/29/08

We know that the Bailout Bill allows million-dollar-a-month salaries to executives of bailed-out firms, and it allows hundreds of billions to be used to buy toxic assets currently held by foreign investors. But we are told: "don't worry, this $700 billion bill won't cost us anything. We will get it all back next decade through a revenue bill."

I. Section 134 of the Bailout Bill merely says that the President must submit a revenue bill to Congress in 2013 that recoups from the financial industry the taxpayers' net losses.

a. If the President has any revenue ideas he actually likes, he would submit them to us anyway.
b. If the President submits revenue ideas only because he is forced to by Section 134, he will send it to us with a note saying that he believes they are bad for the country, and reserves the right to veto.
c. The Bailout Bill does not automatically enact any revenue increases, nor protect a revenue bill from filibuster or veto.

II. Congress is unlikely to pass a tax increase bill of hundreds of billions of dollars in 2013.

a. Tax increase bills are anathema to many.
b. 41 Senators can block the plan. We're giving Wall Street enough money to hire 4100 lobbyists.
c. In recent years, Wall Street has easily defeated every attempt to close every loophole that they exploit, no matter how pernicious-even the abusive use of Cayman Island tax havens by hedge fund managers, who thereby pay zero tax.

III. Any tax on the financial industry would make the good banks pay a huge tax so we can recoup what we gave to the bad banks.

a. Section 134 says the tax will be on "the financial industry." It does not provide for a tax on just those firms that received bailout payments.
b. A bank that doesn't get a bailout payment still pays the tax.
c. Community banks and perhaps credit unions will also be subject to the tax, so we can recoup what we gave to Wall Street.

IV. It is impossible to draft a tax that hits only those firms that received bailout payments, and even more impossible to draft one that taxes each bank in proportion to how much money we lost on its toxic assets.

a. There are no provisions to even keep track of losses on each asset purchased as it is managed over the years. Assets purchased from several
banks will be pooled, managed, and sold together, and we can never know how much we lost on assets purchased from any one bank.
b. If three banks in the year 2013 have the same income and size and operations, they will all pay the same tax-even if one got no bailout payments, a second got a million dollars, and a third got a billion dollars.
c. Many bailed-out firms won't exist in 2013.

1. Some will go under.
2. Some bailed-out firms are only shell companies. Example: Assume the Bank of Shanghai has $30 billion in toxic assets. It will sell these to the tiny subsidiary it has incorporated in California. The subsidiary will then sell these to the Treasury in 2009, and will be dissolved long before 2013.
3. Many bailed-out firms will still be unprofitable in 2013.
4. Some bailed-out firms will move offshore before 2013.

d. The whole purpose of the bill is to improve the balance sheets of the bailed-out firms. If particular bailed-out firms owe us the money they receive, they would have to list this as a liability, and the bill would fail to improve their balance sheets.

In 2013 we will not pass a tax bill that imposes hundreds of billions of dollars of taxes on the financial services industry, including those banks that got no bailouts, community banks, and credit unions. A tax bill imposed only on those entities that got bailout payments is impossible to draft, and contrary to the purposes of the Bill.

If it were easy to pass a bill to recoup hundreds of billions of dollars through taxes to be imposed in 2013 and thereafter, then provisions imposing such taxes would be in today's bill.

Wall Street gets their money now, and we get it back never.