Treasury Disputes Democrat On Changes in Bailout
TREASURY DISPUTES DEMOCRAT ON CHANGES IN BAILOUT
| 22 Sep 2008 | 09:48 AM ET
The negotiations over a $700 billion Wall Street bailout plan took a new turn when the Treasury disputed a claim by a key Democrat that it had agreed to changes in the rescue proposal.
Barney Frank, chairman of the House of Representatives Financial Services Committee, told CNBC that the Bush administration has accepted changes to its bailout plan that would give the government a stake in institutions unloading assets under the plan.
But the Treasury, responding to the Frank interview, told CNBC that there was no such deal on equity stakes.
Frank, a Massachusetts Democrat, also said the administration has agreed that the plan should include more efforts to prevent home foreclosures and that an oversight board should be created to monitor the bailout.
On reducing foreclosures, Frank said, "The foreclosure piece is agreed on. There was Republican congressional opposition but the administration accepted it. "They've accepted our views on oversight ... There is some contention now over compensation and corporate governance."
It was the latest step in fast-moving negotiations between Congress and the administration over a massive program designed to address the worst U.S. financial crisis since the Great Depression.
Financial markets remained volatile as investors waited to see the outcome of the bailout talks in Washington.
U.S. stocks were sharply lower, while European stocks edged higher. Asian stocks closed higher .
The US dollar fell and Treasury debt prices edged up. Oil prices soared.
"We need to see more details from the rescue package. What is missing is the price the U.S. authorities are going to pay for the toxic assets," said Heino Ruland, analyst at FrankfurtFinanz.
Meanwhile, the Federal Reserve agreed to let the investment banks Goldman Sach and Morgan Stanley convert into more conventional depositary institutions.
By agreeing to much tighter Fed regulation as bank holding companies, Goldman Sachs and Morgan Stanley moved to avoid the fate of rivals that either collapsed or were taken over in the worst financial crisis to sweep Wall Street since the Great Depression.
Morgan Stanley went a step further and struck a deal with Japan's largest bank, Mitsubishi UFJ Financial Group. MUFJ agreed to buy up to a 20 percent stake, sending Morgan Stanley shares up sharply.
For Investors
# Is It Time to Buy Stocks Now?
# Measuring Risk in Volatile Times
# What the Experts Think You Should Do
# Is Your Money-Market Fund Safe? Find Out
# Slideshow: Biggest Chapter 11 Cases in US History
# Eight Tips for Investing in Hard Times
# Need Safety? Take a Look at Bonds
# What If You're a Client of Lehman, Merrill or AIG?
# Have an AIG Insurance Policy? Don't Fret
# How You Can Protect Your Money
The Democratic counterproposal allows Treasury to buy troubled assets from any financial institution but requires Treasury to report regularly to Congress and disclose publicly each Friday the total assets held and total assets bought and sold that week.
Companies unloading troubled assets onto Treasury could not offer executives pay incentives deemed "inappropriate or excessive" by the Treasury secretary.
In addition, executive incentive pay based on profits or other benchmarks later proven to be inaccurate could be taken away, or clawed back, under the Democrats' language.
Democrats also want to create an oversight board to include the chairmen of the Federal Reserve, Federal Deposit Insurance Corp and Securities and Exchange Commission to limit the Treasury's broad powers under the plan.
The "Emergency Oversight Board" would monitor the bailout and make recommendations to the Treasury secretary.
In addition to the Fed, FDIC and SEC chairmen, the board would include one non-government member appointed by Congress' majority leadership, and one appointed by minority leadership.
A key Senate Republican has significant reservations about the plan, said his spokesman Monday.
Alabama Sen. Richard Shelby, top Republican on the banking committee, remains unconvinced that Treasury's proposal strikes a balance between the interests of the taxpayer and the economy, said spokesman Jonathan Graffeo.
Shelby is concerned that the plan "would reward Wall Street while doing nothing for homeowners or for local financial institutions ...
He will continue to work with Chairman Dodd to see whether there is a way forward," Graffeo said.
Under the Senate Democrats' proposal, Treasury could not buy, or commit to buy, any troubled assets unless it gets "contingent shares" in the asset-selling institution "equal in value to the purchase price of the assets to be purchased." The contingent shares could be shares in the financial institution, its parent or holding company, or a related institution, according to the draft language.
If shares in the asset-selling company were not publicly traded, Treasury could take senior debt instead of shares.
If Treasury later disposed of the troubled assets and got less money for them than it paid initially, the contingent shares would help cover the loss, the language said.
The Democrats' proposal calls for the entity that manages the troubled assets bought under the plan to work to prevent foreclosures and protect homeownership through loan modifications and use of related federal programs.
—Reuters contributed to this report.
© 2008 CNBC
Market Data 
Markets 
AI
