Emergency Economic Stabilization Act of 2008

Last week Nancy Pelosi announced that the completed version of the Economic Stabilization Act of 2008 is now available on the House of Representatives website. I spent a few hours reading through the bill and would like to highlight what I think are the most important parts. What was immediately clear from my review was that the bill sends us into a new period of financial regulation after a decade of deregulation and leverage. As most of you may already know, the bill was passed late last week in both houses and was signed into law by the President. At this point, considering the market turmoil is worse than it was before the bill passed, we wait to see if these new provisions will be successful in the way of instilling confidence to a market system which by most measures appears nearly broken.

Perhaps the most fundamental aspect of this bill is the establishment of the Troubled Assets Relief Program. This is the infamous ‘$700 billion dollars’ which may ultimately be used to buy distressed assets off the balance sheets of various financial institutions. It was released today that Neel Kashkari, a former Goldman executive will be heading up TARP. The bill contains three main provisions which I’ll dive into now:
Distribution of Funds: Congress doesn’t want Hank Paulson to have free reign over fund distributions as originally outlined in the ‘3-page’ version of this bill. The funds will be disbursed in traunches (first distribution will be $250,000,000,000) and Congress, by way of various reports and newly established agencies, will oversee the progress of their spending. Harry Reid talked on Sunday about the original document which gave Paulson unfettered authority over fund distributions. He spoke about halted student loan payments being an ominous sign of what could be a prolonged economic slowdown with far reaching effects. The original blank check format is now hundreds of pages and contains multiple supervision provisions.
Golden Parachutes and CEO Compensation: I’m sure many of you have heard this term ‘golden parachutes’ thrown around over the past few days. This basically refers to employment contract clauses which provide lucrative severance benefits to executives if and when they are asked to leave. This usually happens during management shifts. This piece of legislation really represents the first time the government will have the power to regulate the exorbitant compensation which CEO’s and other corporate executives have been accustomed to over the past few decades. Apparently the golden parachute clauses were met with a lot of resistance during hearings but Democrats wouldn’t consider the bill without it. Companies which use the TARP will obviously be subjected the most to new compensation guidelines.
Taxpayer Protection: Perhaps the most adamant point throughout the past week of negotiations has been that taxpayers will not pay the brunt of these costs, even if the program falls short of its goal. One interesting way of ensuring this is via the recoupment mechanism. Basically, if after a 5 year period the government hasn’t recovered the total amount of money which it laid out, corporations who participated in the program will have to issue a financial statement and a timeframe for paying back their portion of the difference. The goal, of course, is to ensure that this $700B is a loan aimed at restoring consumer faith and movement of the credit and lending industries–not bailing out Wall Street. Government leaders have agreed that this legislation is only permissible because it’ll ultimately help more ordinary people to pass this bill than to reject it. Nancy Pelosi on Sunday talked about job creation and children going to college and other important economic factors which could be at risk if this didn’t get passes. It sounded all around like a bi-partisan effort.
Raising FDIC Limits: The bill raises federal insurance on bank deposits up to $250,000 from $100,000. The idea here is to make consumers feel more comfortable that they won’t lose the money which they keep in checking and savings accounts. It probably also got a few people on board in terms of getting this bill through the House of Representatives. In reality, it will raise FDIC insurance premiums, which are paid by banks!
A major change in the way of transparency will be that updates and changes to the bill will be posted on the internet within 48 hours of occurring, the goal being that Americans can read and understand any legislative updates which may affect their tax bill or other effects which may trickle down. The Troubled Asset Relief Program (TARP) will also have a board of directors which joins up with Hank Paulson to oversee this $700 billion in asset purchases. Some find the planned purchase and re-sale of assets to be analogous to a hedge fund managed by Mr. Paulson, along with the team of private asset managers hired by Mr. Paulson. Fortunately for us, Paulson is the former CEO of Goldman Sachs, and a person very familiar with asset management.
This is what I’ve uncovered for now–feel free to chime in with any questions or comments. I’m sure we’ll be talking about these times for decades, hopefully as a rough economic patch which passed over.
Russell Bailyn

Wealth Manager
Premier Financial Advisors, Inc
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
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Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

2 thoughts on “Emergency Economic Stabilization Act of 2008”

  1. This idea sounds just crazy enough to possibly work, so naturally it won’t be given serious consideration. How great is our bureaucracy!!
    Hi Pals,
    I’m against the $85,000,000,000.00 bailout of AIG.
    Instead, I’m in favor of giving $85,000,000,000 to America in a We Deserve It Dividend.
    To make the math simple, let’s assume there are 200,000,000 bona fide U.S. Citizens 18+.
    Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up..
    So divide 200 million adults 18+ into $85 billion that equals $425,000.00.
    My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend.
    Of course, it would NOT be tax free.
    So let’s assume a tax rate of 30%.
    Every individual 18+ has to pay $127,500.00 in taxes.
    That sends $25,500,000,000 right back to Uncle Sam.
    But it means that every adult 18+ has $297,500.00 in their pocket.
    A husband and wife has $595,000.00.
    What would you do with $297,500.00 to $595,000.00 in your family?
    Pay off your mortgage – housing crisis solved.
    Repay college loans – what a great boost to new grads
    Put away money for college – it’ll be there
    Save in a bank – create money to loan to entrepreneurs.
    Buy a new car – create jobs
    Pay off credit cards – credit crises solved
    Invest in the market – capital drives growth
    Pay for your parent’s medical insurance – health care improves
    Enable Deadbeat Dads to come clean – or else
    Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces.
    If we’re going to re-distribute wealth let’s really do it…instead of trickling out a puny $1000.00 ( ‘vote buy’ ) economic incentive that is being proposed
    by one of our candidates for President.
    If we’re going to do an $85 billion bailout, let’s bail out every adult U S Citizen 18+!
    As for AIG – liquidate it.
    Sell off its parts.
    Let American General go back to being American General.
    Sell off the real estate.
    Let the private sector bargain hunters cut it up and clean it up.
    Here’s my rationale. We deserve it and AIG doesn’t.
    Sure it’s a crazy idea that can ‘never work.’
    But can you imagine the Coast-To-Coast Block Party!
    How do you spell Economic Boom?
    I trust my fellow adult Americans to know how to use the $85 Billion
    We Deserve It Dividend more than I do the geniuses at AIG or in Washington DC
    And remember, The Birk plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.
    Ahhh…I feel so much better getting that off my chest.

  2. I am writing to provide details regarding three tax provisions in the Emergency Economic Stabilization Act of 2008: which was enacted Oct. 3, 2008. Those provisions are: (1) an extension for home mortgage debt forgiveness relief, (2) tax relief for community banks that invested in Fannie Mae and Freddie Mac preferred stock, and (3) a tax crackdown on compensation and severance pay for certain financial executives. Thanks and best wishes.

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