By DemocracyRules
Congress and Bush's people claim they reached a tentative deal early Sunday.
"We've still got more to do to finalize it, but I think we're there," said Treasury Secretary Henry Paulson.
"We worked out everything," said Sen. Judd Gregg, R-N.H., the chief Senate Republican. He thought the House will vote Sunday, and the Senate on Monday.
Pelosi's office said the plan "gives taxpayers an ownership stake and profit-making opportunities with participating companies; puts taxpayers first in line to recover assets if a participating company fails; (and) guarantees taxpayers are repaid in full -- if other protections have not actually produced a profit."
The plan:
(1) The Treasury Department buys deeply distressed mortgage-backed securities (MBS's) and other bad debts held by banks and other investors. The feds will then sell the discounted MBS's at the best possible price.
A Mortgage-backed security is a package of a whole bunch of pieces of many different mortgages. They are broken up this way to average out the risk for each buyer. Most mortgages are broken up like this.
On the open market right now, these MBS's are deeply discounted, so the purchase is a good deal for the feds. MBS's have recently been trading at about 30 cents on the dollar. That means the feds can buy $100K worth of MBS's for $30K. Good deal.
(2) This item is the Republican's idea. It offers an alternate solution for the holders of shaky MBS's. The feds will set up an insurance fund to guarantee the value of the MBS's. This will be similar to how the feds insure people's bank deposits.
But in this case the MBS owners will have to buy the insurance for their MBS's. Some MBS owners might want this because they get to keep the MBS's. The MBS's WILL probably go up in the future. The Republicans like this because it's cheaper than buying up the MBS's themselves. If many MBS owners go for this option, then the feds have to ante up less to pay for option (1).
(3)There will be limits on the size of severance packages for executives of companies that are rescued. Two bucks may be about right.
(4) The feds would get stock warrants from the companies in return for the rescue. Stock warrants are like options to buy stocks at a certain pre-arranged price. If the stock goes up, the holder of the warrant makes money. Thus, taxpayers make money when the bailout causes the companies to stabilize, and their stock values rise again.
This report does not mention Chris Dodd's Commie-bailout boondoggle. I hope it's gone. [UPDATE -- It's gone.]
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