Last Friday Congress authorized a $700 bailout package in hopes to contain the overall economic turmoil from the meltdown of the financial industry, mainly centered around bad mortgage loans. A summary of the legislation is as follows:
The bill is divided in to three titles: The Troubled Assets Relief Program (TARP), Budget-Related Provisions, and Tax Provision. The core of economic rescue provisions is in the first title.
It authorizes the Secretary of the Treasury to purchase "troubled assets" from any financial institution, including the FDIC, and also from foreign financial authorities and central banks. It asks the Secretary to manage assets in a way that minimizes costs to the taxpayer, in terms of their purchase, holding, and sale. Purchase premiums should be in accordance with credit risk, and assets cannot be bought for more than their cost to the originating firm. For mortgages held by the Treasury Department it mandates they be managed in a way consistent with the Hope For Homeowners Act including reductions of loan principles and interest rates, and term extensions; as well as loan guarantees and credit enhancements to facilitate loan modifications. General limitations are advised for executive compensation and golden parachutes, and recovering bonuses and incentives from financial firms participating in the program. All transactions under the authority of this bill must be reported to Congress in a timely manner, and an oversight committee must be appointed.
$250 billion in funding is immediately available to the Treasury Department. An additional $100 billion can be authorized by the President, and an additional $350 billion can be authorized by Congress with fast tracking provisions.
The upper limit of federal debt is expanded to $11.3 trillion.