U.S. PIRG Consumer Blog: Bailout deal close, no Main Street protection

According to a summary (below the "continue reading" jump) from the Speaker's office, final bi-partisan Wall Street rescue and bailout legislation will not include the consumer, civil rights, community, labor coalition's priority ask: giving bankruptcy judges the ability to prevent foreclosures to keep people in their homes and help taxpayers by reducing the cost of the bailout. The modest foreclosure prevention proposals remaining in the plan are expected to be inadequate. A deal on the unprecedented Wall Street bailout will likely be voted on today Sunday or tomorrow Monday. So, the foreclosure crisis will continue as homes, and entire neighborhoods, will continue to be boarded up. The question now is -- will the $700 billion dollars of market confidence money at the core of the bailout work? The taxpayers who will pay for it -- both in dollars and the opportunity cost of other programs that won't go forward -- are eager to know.

We can only hope that the Congress takes the few months before the new 2009 Congress to conduct vigilant oversight of what went wrong so it can conduct a more thoughtful implementation of additional reforms next year. Already this week, SEC Chairman Chris Cox has admitted the accuracy of a two-part SEC inspector general's report on its Bear, Stearns oversight failures (New York Times). We fully expect and will demand that Congressional hearings making plans for major financial reforms in 2009 include more than the usual suspects from the financial industry as witnesses. Those prudential reforms must put a higher priority on protecting taxpayers, homeowners, depositors and small investors and holding the financial regulatory system and its players accountable. After all, we taxpayers now own some of its former biggest players. Here is the Speaker's press release. Bailout summary follows.

Office of Speaker Nancy Pelosi -- Sept. 28, 2008

REINVEST, REIMBURSE, REFORM

IMPROVING THE FINANCIAL RESCUE LEGISLATION

Significant bipartisan work has built consensus around dramatic improvements to the original Bush-Paulson plan to stabilize American financial markets -- including cutting in half the Administration's initial request for $700 billion and requiring Congressional review for any future commitment of taxpayers' funds. If the government loses money, the financial industry will pay back the taxpayers.

3 Phases of a Financial Rescue with Strong Taxpayer Protections

* Reinvest in the troubled financial markets … to stabilize our economy and insulate Main Street from Wall Street
* Reimburse the taxpayer … through ownership of shares and appreciation in the value of purchased assets
* Reform business-as-usual on Wall Street … strong Congressional oversight and no golden parachutes

CRITICAL IMPROVEMENTS TO THE RESCUE PLAN

Democrats have insisted from day one on substantial changes to make the Bush-Paulson plan acceptable -- protecting American taxpayers and Main Street -- and these elements will be included in the legislation

Protection for taxpayers, ensuring THEY share IN ANY profits

* Cuts the payment of $700 billion in half and conditions future payments on Congressional review
* Gives taxpayers an ownership stake and profit-making opportunities with participating companies
* Puts taxpayers first in line to recover assets if participating company fails
* Guarantees taxpayers are repaid in full -- if other protections have not actually produced a profit
* Allows the government to purchase troubled assets from pension plans, local governments, and small banks that serve low- and middle-income families

Limits on excessive compensation for CEOs and executives

New restrictions on CEO and executive compensation for participating companies:

* No multi-million dollar golden parachutes
* Limits CEO compensation that encourages unnecessary risk-taking
* Recovers bonuses paid based on promised gains that later turn out to be false or inaccurate

Strong independent oversight and transparency

Four separate independent oversight entities or processes to protect the taxpayer

* A strong oversight board appointed by bipartisan leaders of Congress
* A GAO presence at Treasury to oversee the program and conduct audits to ensure strong internal controls, and to prevent waste, fraud, and abuse
* An independent Inspector General to monitor the Treasury Secretary's decisions
* Transparency -- requiring posting of transactions online -- to help jumpstart private sector demand

Meaningful judicial review of the Treasury Secretary's actions

Help to prevent home foreclosures crippling the American economy

* The government can use its power as the owner of mortgages and mortgage backed securities to facilitate loan modifications (such as, reduced principal or interest rate, lengthened time to pay back the mortgage) to help reduce the 2 million projected foreclosures in the next year
* Extends provision (passed earlier in this Congress) to stop tax liability on mortgage foreclosures
* Helps save small businesses that need credit by aiding small community banks hurt by the mortgage crisis—allowing these banks to deduct losses from investments in Fannie Mae and Freddie Mac stocks