Bailout Deal Reached

Late Sunday, Congress and the Bush Administration agreed on the $700 billion financial bailout plan which gives the U.S. Treasury the power to buy troubled mortgages and like-securities from financial institutions in an effort to free them up to start lending again to avoid a financial catastrophe. It will go down as the largest financial rescue package in history and the greatest government financial intervention since the Great Depression. The official plan is entitled the "Emergency Economic Stabilization Act of 2008" and President Bush will address the nation on the plan at 7:35AM ET Monday, ahead of the open of U.S. markets.

At first, the Congress is granting Treasury the authority to hold $250 billion outstanding assets at any one time, which can go up to $350 billion upon written certification from the President. The amount can then be raised to $700 billion, unless Congress holds the remaining $350 billion back.

As part of the plan, the government will establish a Financial Stability Oversight Board which will be responsible for keeping tabs on the progress of the plan and reporting the progress to the appropriate committees of Congress. The Board shall be comprised of Chairman of the Board of Governors of the Federal Reserve System Ben Bernanke, Treasury Secretary Henry Paulson, the Director of the Federal Home Finance Agency, the Chairman of the SEC Christopher Cox, and the Secretary of Housing and Urban Development.

The plan also seeks to minimize housing foreclosures. The plan gives the Secretary the power to use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures.

Another part of the plan deals with executive compensation which applies to any financial institution that sells troubled assets under the Act. The plan will limit compensation on financial companies that take unnecessary and excessive risks that threaten the value of the financial institution during the period that the government holds an equity or debt position in the financial institution. It will also have a provision for the recovery of any bonus or incentive compensation paid to a senior executive officer based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate. In addition, the plan will prohibit companies from making a golden parachute payment to its senior executive officer during the period that the Secretary holds an equity or debt position in the financial institution.

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