Mary Jo Kilroy’s Committee Assignment Puts Her in Center of Economic Recovery Efforts

Freshman U.S. Rep. Mary Jo Kilroy has gotten a seat on the high profile House Committee on Financial Services chaired by Massachussetts Rep. Barney Frank.

Frank’s committee has taken center stage in combating the U.S. financial crisis.  The much and rightfully maligned Troubled Assets Relief Program, aka, $700 billion bailout, originated in Financial Services.  Frank also pushed for a bailout of the U.S. auto industry, but Senate Republicans killed that effort until the Bush Administration stepped in with $17 billion for GM and Chrysler late last month.

Kilroy and her fellow Congressional Democrats will be in a unique position very soon after President-elect Barack Obama takes office in a couple of weeks.  The original bailout bill called for $350 billion of the $700 billion total to be disbursed by the U.S. Department of the Treasury, led by Treasury Secretary Henry Paulson.  Paulson has been roundly criticized for the money not serving the purpose for which Congress intended – unlocking frozen capital markets.  The Government Accountability Office and an oversight arm of the committee which Kilroy now serves found several problems with how the money has been disbursed, chief among them accountability.  Bailout dollars have been used to pay out executive bonuses, sit as cash holdings and used by some banks to acquire others.

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What Happened to the Automakers Bailout?

Remember when the U.S. financial services sector was in its darkest hour?  My Lord, Congress, the President, Hank Paulson, Ben Bernanke and candidates for county commissioner all called for a bailout – nearly a trillion dollars worth.  Inside of a week Barney Frank and Chris Dodd marshalled the troops on Capitol Hill and we had ourselves a big bill.  Even being defeated in the House on its first go-round couldn’t stop the $700 billion love offering to the likes of Bank of America, JP Morgan Chase, Goldman Sachs and Wells Fargo.

Our government – Democrats, Republicans – executive and legislative branch – fell over themselves to deliver for Wall Street.  John McCain even suspended his presidential campaign for about 12 hours.

The Wall Street/Main Street construct has been used so much as to become trite.  Well, here goes another one.  Washington, Main Street needs some help now.  It’s called keeping the Big Three U.S. automakers solvent in the worst economy since the 1930s. 

Forget about the entitled UAW-represented autoworker for a moment and think about that machine shop you drive by on your way to work every day.  Think for a moment about the truck driver living next door.  Ask yourself what’s going to happen to your cousin Bob who works at the Chevy dealership and his 75 co-workers. Read more

Full Text: Auto Industry Bailout Bill | Auto Industry Financing and Restructuring Act – HR 7321 | House Version

Click Here for PDF of Entire Bill HR 7321

Text: Summary of Auto Industry Rescue Bill – U.S. House Financial Services Committee

(Source: U.S. House Financial Services Committee)

Summary of Draft Auto Rescue Bill

Adds Title IV to the Emergency Economic Stability Act (EESA):

Emergency Direct Loan Program – Directs Treasury to make no greater than $25 billion total in loans to eligible automobile manufacturers no earlier than December 1, 2008. These funds will be drawn from the third tranche of the $700 billion provided under EESA without triggering the reporting and procedural requirements. Treasury will designate a portion of these funds as needed to meet applicants’ short-term liquidity requirements while they develop the long-term restructuring plan due on 3/31/09, and reserve the balance for long-term needs and implementation of restructuring plan.

Eligible Applicants

• Domestic automobile manufacturers producing in the U.S. continuously for 25 years or more.
• Treasury, in consultation with the Oversight Board described below, must make a determination that the failure of the applicant would have “systemic adverse effect on the overall United States economy.”
• Applicant must provide financial and other information as Treasury may require.
• Applicant must submit a short-term operating plan that describes planned use of the loan proceeds, including commitment of resources to develop long-term restructuring plan and reasonable prospects for repayment.•

Long-Term Restructuring Plan – Not later than 3/31/09, loan recipients must submit to Treasury acceptable restructuring plan for long-term viability and international competitiveness, including fuel efficiency standards and advanced technology vehicle manufacturing, rationalization of costs, and proposals for restructuring existing debt.

Oversight Board

• The Financial Stability Oversight Board (Oversight Board) established under EESA will provide oversight of the loan program, and will have four additional members for purposes of the loan program (Secretaries of Energy, Labor and Transportation and the EPA Administrator) in addition to the five existing members (Fed Chairman, Treasury Secretary, FHFA Director, SEC Chairman, and HUD Secretary).

Oversight of the Loan Program – Existing oversight provisions of EESA apply to the loan program, including GAO, Special IG, and Congressional Oversight Panel.

Allocation of Funds – Treasury, in consultation with the Oversight Board, will prioritize applications based on the magnitude of the impact of the applicant’s U.S. manufacturing operations on the overall U.S. economy.

Terms of Loans

• Term: 7 years (or longer as may be determined by the Oversight Board), subject to immediate acceleration if the recipient fails to submit an acceptable long-term restructuring plan.
• Interest Rate: 5% for first 5 years and 9% thereafter.
• Super Seniority: All other obligations and liabilities of a recipient will be subordinate to the loan.
• No prepayment penalty.

Warrants – Treasury must obtain warrants from each loan recipient (or economic equivalent in the case of a privately held firm) equal to 20% of the loan or such greater percentage as may be determined by Treasury in consultation with the Oversight Board.

Executive Compensation and Corporate Governance – All executive compensation restrictions from EESA apply to loan recipients for the duration of the loan plus the following additional restrictions:

• No bonuses to employees making more than $200,000 (which Treasury will adjust for inflation).
• No golden parachutes under any circumstances.
• No compensation plan that could encourage manipulation of reported earnings to enhance compensation.

Ability to Prohibit Transactions, Oversight of Financial Condition – For duration of the loan, Treasury in consultation with the Oversight Board will have the authority to review and prohibit any asset sale, investment, contract, or commitment proposed to be entered into by the recipient valued in excess of $25 million.•

Dividends – Recipients may not pay any dividends for duration of the loan.•

Full Information Access – Recipients are required to provide Treasury and Oversight Board access to all information that may be relevant to the loan to monitor the interests of the government under this title.

Acceleration of Repayment for Failure to Comply – Treasury may require, in consultation with the Oversight Board, accelerated repayment if loan recipient fails to submit an acceptable long-term restructuring plan or fails comply with any other applicable condition or requirement of the loan program or CAFE

Treasury Bailing Out AIG Again

Will There Be Spa Trips and English Hunting Excursions This Time?

I sure hope the executive pigs at AIG get it this time.  After all, the last time our tax money was used to prop up their failing business, they spent hundreds of thousands on a West Coast spa and an English hunting trip.

This morning, the U.S. Dept. of Treasury announced the federal government was upping the AIG bailout ante by $40 billion — bringing the taxpayer funded tab to keep the company solvent to $150 billion.  Additionally, AIG is getting a better deal today on the interest it is paying the federal government for loans the public is backing.  As this once shining capitalist jewel becomes nationalized, that means the public accounts will reap less from the bad business decisions sown by AIG executives.

One must also remember that just weeks ago, New York Attorney General Andrew Cuomo told the insurance company that he was able and willing to ‘help’ them do away with golden parachutes, executive pleasure outings and huge bonuses.  Then, U.S. Rep. Henry Waxman found that former AIG exec Joseph Cassano, who ran the company’s financial products section into the ground and left AIG in February was being paid $1 million a month – for nothing – even as the company slurped up taxpayers’ money. Read more

Bank Failures Surging in 2008

The last couple of times I’ve noticed that banks are failing it’s always on Saturday, as the FDIC quietly swoops in and takes over on a Friday afternoon.  It seems like it’s happening more and more often so I took a look at the FDIC’s website.  There is a spike this year, we’ve had 19 FDIC insured banks fail this year.  The record I found only went back to 2000, there is a chart below.  41% of the bank failures in the last eight years have occurred this year.  33% of U.S. bank failures since 2000 have happened since July of this year. 

Security Pacific Bank of Los Angeles and Franklin Bank of Houston, Texas became casulties on Friday.  I’m looking at these numbers, the jobless rate, the housing bubble, Ford’s and GM’s woes – the list goes on – and I’m thinking that all Barney Frank, George Bush and Henry Paulson have done is throw $700 billion at Wall Street. 

Bailout Deal Bullet Points & Coverage – Sunday A.M.

Bush Administration and Congressional officials came to terms on the proposed $700 billion Wall Street bailout early Sunday morning reports the New York Times, Washington Post, and other media outlets. Find clips of the stories this morning after the bullet points of the deal’s terms. The media are reporting that Congressional staff worked through the early morning hours of Sunday and will continue to work until the deal is in bill form. Votes in both houses of Congress are expected late Sunday or early Monday.

Highpoints of Bailout Deal

• The $700 billion would not be released in its entirety at once. Funds would be made available to Treasury in a first installment of $250 billion, a second installment of $100 billion, and a final installment of $350 billion. Congress would have the right of refusal at each step of the process.
• Pay limits will be put in place for executives of companies who make use of the government bailout.
• A Congressional oversight panel will be empowered to oversee Administration and Treasury implementation of the bailout.
• In some cases, the federal government will receive an equity stake in companies participating in the bailout.
• Conflict-of-interest rules will be implemented for firms who contract to help Treasury run the bailout.

Bailout News

• Breakthrough reached in negotiations on bailout – New York Times
• Lawmakers reach tentative deal on bailout – Washington Post
• Lawmakers reach deal on bailout – Wall Street Journal
• U.S. reaches outline bailout deal – Financial Times
• U.S. Congress reaches tentative deal on bailout – Xinhua

Updated – News Coverage: Fannie Mae and Freddie Mac

U.S. Federal Government Takeover Imminent

Taxpayers Will Now Own the Billions of Dollars of Mistakes of Others

For an explanation of what are Fannie Mae and Freddie Mac see this post.

• Rescue Cost: The Big Unknown – CNN

News

• 8 p.m. Saturday: Government plan to hit shareholders – Reuters
• 6 p.m. Saturday: Bloomberg story updates with Barney Frank – Bloomberg

“This is no bailout, particularly for the shareholders,” Frank said. The federal government “will be senior to all shareholders, preferred and common.”

Holders of the companies’ corporate debt and preferred shares are “very unlikely to come out of this at all happy,” and the chief executive officers will be forced out, Frank said. Paulson met with Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron yesterday to tell them of the decision to put the companies into conservatorship, and remove the executives from their jobs, according to two people briefed on the discussions. – Bloomberg, Quotes from U.S. Rep. Barney Frank

• 6 p.m. Saturday: Loan Giant Overstated Size of Its Capital Base – New York Times
• Paulson readies the bazooka - CNN/Fortune
• U.S. to take control of Fannie, Freddie: Reports – Reuters
• U.S. rescue seen at hand for two mortgage giants – New York Times
• Questions, and hope, on plans for mortgage giants – New York Times
• Paulson Plans to take control of Fannie, Freddie – Bloomberg
• U.S. nears rescue plan for Fannie, Freddie – Washington Post
• U.S. nears deal on Fan-Fred – Wall Street Journal
• Obama says Fannie, Freddie too large to let fail – Bloomberg