Emergency Economic Stabilization Act of 2008
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|In September 2008, several financial institutions faced failure and the U.S. stock market saw its biggest losses since the September 2001 terror attacks. Following the bankruptcy of Lehman Brothers and the sale of Merrill Lynch to Bank of America on September 15, the Federal Reserve offered an $85 billion loan to AIG, the world's largest insurer, in exchange for an 80-percent controlling stake in the company.
Several days later, on September 19, 2008, the Bush Administration sought congressional assistance with a $700 billion plan to purchase bad debt, in the form of mortgages and mortgage-back securities, from struggling banks and other institutions.
The Emergency Economic Stabilization Act of 2008 (H.R.3997) was introduced on September 29, 2008, and defeated in the House that same day. On October 1, the Senate approved a similar measure, H.R.1424. The House approved H.R. 1424 on October 3, 2008, and President Bush signed the bill that same day.
The Emergency Economic Stabilization Act, nicknamed the "Bailout Bill," created the Troubled Asset Relief Program. The statute allows TARP to purchase troubled assets from financial institutions.  Total Wall Street Bailout Cost provides a full accounting of TARP since its enactment. Additionally, the New York Times has also provided a tracking of the $700 Billion funds authorized by this legislation: 
Following a meeting with Treasury Secretary Henry M. Paulson, Jr. and Federal Reserve Chairman Ben S. Bernanke, House Speaker Nancy Pelosi (D-Calif) and Sen Majority Leader Harry Reid (D-Nev.) agreed to pursue the Administration's plan to bailout financial institutions.
The bill would allow the government to use up to $700 billion in taxpayer money - $350 billion initially, and the rest with Congress's approval - to buy troubled assets from struggling financial institutions. It would also establish a program whereby the government would offer insurance to companies for their assets rather than buying them. Additionally, the bill establishes "appropriate standards" for the compensation of executives at companies that sell assets to the government, creates a congressional oversight panel and requires the government take equity stakes in bailed out companies.
Additionally, the bill contains a one-year patch of the alternative minimum tax, a mental health parity provision requiring insures that offer mental health coverage to do so in parity with their medical and surgical coverage, a renewable energy tax credit, tax relief for disaster victims, and many other unrelated tax relief provisions.
Repayment and disbursal of funds
- Requiring Congressional review after the first $350 billion is disbursed
- Gives taxpayers a share of the profits of participating companies, or puts taxpayers first in line to recover assets if a company fails
- Requires a President five years from now to submit a plan to ensure taxpayers are repaid in full, with Wall Street making up any difference
- Allows the government to also purchase troubled assets from pension plans, local governments, and small banks that serve low- and middle-income families
Limits on CEO and executive compensation
For companies publicly auctioning over $300 million:
- No multi-million dollar "golden parachutes" for top 5 executives after auction
- No tax deduction for executive compensation over $500,000
- Penalizes golden parachutes for CEOs who are fired or have run the company into the ground
For companies from which the government makes direct purchases:
- No multi-million dollar golden parachutes
- Limits CEO compensation that encourages unnecessary risk-taking
- Recovers bonuses paid to executives who promise gains that later turn out to be false or inaccurate
Oversight and transparency
- Four separate independent oversight entities or processes to protect the taxpayer
- A strong oversight board appointed by bipartisan leaders of Congress
- GAO oversight and audits at Treasury to ensure strong controls; to prevent waste, fraud, and abuse 
- An independent Inspector General to monitor the Treasury Secretary’s decisions
- Transparency—requiring posting of transactions online 
- Meaningful judicial review of the Treasury Secretary’s actions
Aid for homeowners and small community banks
- The government can work with loan servicers to change the terms of mortgages (reduce principal or interest rate, lengthen time to pay back the mortgage) to reduce the 2 million projected foreclosures in the next year 
- Extends provision (enacted earlier in this Congress) to stop tax liability on mortgage foreclosures 
- Helps save small businesses that need credit by aiding small community banks hurt by the mortgage crisis - allowing these banks to deduct losses from investments in Fannie Mae and Freddie Mac stocks
First House vote
After a week of negotiations between the White House and congressional leaders from both parties, the House on September 29 defeated the proposal. Members of the House voting against the proposal cited several reasons for doing so. Some Republicans said Speaker Pelosi's speech on the House floor prior to the vote was partisan in nature. Other member cited the high cost to U.S. taxpayers, the weak provisions on oversight, or the precedent of government interference in financial markets. <USvoteinfo year="2008" chamber="house" rollcall="674" />
On October 1, the Senate introduced a substitute amendment to a prior bill, H.R.1424, inserting language authorizing a modified bailout package. The Senate legislation including a number of earmarks that appeared designed to sway some members' votes. It also included landmark mental-health parity legislation and a series of tax rebates for renewable energy development, as well as other tax-related extensions. The Senate voted 74-25 to approve the bill. <USvoteinfo year="2008" chamber="senate" rollcall="213" />
Second House vote
On October 3, the House once again considered the financial recovery package. By a 263-171 margin, the chamber approved the Senate's version of the bill, which was then signed into law that same day by President Bush. <USvoteinfo year="2008" chamber="house" rollcall="681" /> With the addition of the mental-health parity legislation and the tax-extenders package, a large number of House members switched their vote on October 3. Fifty-eight members shifted their vote, with one member, Rep. Jim McDermott, (D-Wash.), switching from "yes" to "no." Another member, Rep. Jerry Weller, (R-Ill). abstained during the first vote, but voted for the proposal on October 3. The remaining 56 member switched from "no" to "yes."
Articles and resources
Related SourceWatch articles
- Troubled Asset Relief Program
- Economic Stimulus Bill of 2008
- Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
- FHA Modernization Act of 2007
- FHA Housing Stabilization and Homeownership Retention Act of 2008
- Mortgage Cancellation Relief Act of 2007
- Mortgage Forgiveness Debt Relief Act of 2007
- ↑ OpenCongress’ info page on Emergency Economic Stabilization Act of 2008.
- ↑ 2.0 2.1 2.2 OpenCongress’ info page on Emergency Economic Stabilization Act of 2008.
- ↑ "Breakdown of the Final Bailout Bill,", "Washington Post," September 28, 2008.
- ↑ Binyamin Appelbaum and Lori Montgomery, "Citing Grave Financial Threats, Officials Ready Massive Rescue," The Washington Post, September 19, 2008
- ↑ 5.00 5.01 5.02 5.03 5.04 5.05 5.06 5.07 5.08 5.09 5.10 5.11 5.12 5.13 5.14 Speaker Nancy Pelosi’s page on The Emergency Economic Stabilization Act of 2008.
- ↑ By Benton Ives, Joseph J. Schatz and Jonathan Allen "Senate Leaders Vow to Try Again on Bailout," CQ Politics, September 30, 2008
- ↑ 7.0 7.1 By Benton Ives, Joseph J. Schatz, Alan K. Ota, Kathleen Hunter and Bart Jansen, "Rescue Plan’s Legislative Saga Ends, But Not Without Questions ," CQ Politics, October 3, 2008
- ↑ "Vote Switchers on Bailout Package," CQ Politics, October 3, 2008
- Public Markup version: "Emergency Economic Stabilization Act of 2008," PublicMarkup.org, September 28, 2008
- "Comparison of original Paulson bailout to compromise proposal," DC Examiner, September 28, 2008
- "Economic Stimulus Bill Text Tracker," GovTrack.us, September 25-28, 2008
- Wikipedia article on the subprime mortgage crisis
- Binyamin Appelbaum and Lori Montgomery, "Citing Grave Financial Threats, Officials Ready Massive Rescue," The Washington Post, September 19, 2008
- Dan Eggen, William Branigin and Paul Kane, "Bush Urges Congress to Enact Rescue Package," The Washington Post, September 19, 2008
- Manu Raju, "Dodd says bailout plan won’t be ‘Christmas tree’," The Hill, September 19, 2008
- Jared Allen and Jackie Kucinich, "Wall Street bailout could ‘cripple’ federal budget," The Hill, September 19, 2008