An Alternative

Senate Banking Committee Chair Chris Dodd (D-CT) has an alternative plan that is infinitely preferable to the Paulson UberBailout.

Senate Banking Committee Chairman Chris Dodd offered an alternative today to the Bush administration's financial rescue plan aimed at giving the U.S. Treasury an equity stake when it helps companies burdened by debt.

Dodd, a Connecticut Democrat, is circulating a draft of his bill as Congress seeks to deal with a financial crisis that has been called the U.S.'s worst since the Great Depression.

The Bush administration is proposing a $700 billion plan to buy devalued assets from investment firms to keep the financial system from coming to a halt. Democrats have pledged to act quickly on the measure, even as they seek to create an oversight structure, limit the compensation of executives at the companies benefiting from the rescue and provide mortgage relief for struggling borrowers.

``We cannot just turn over $700 billion in taxpayer money and not insist that that taxpayer is going to be protected in this,'' Dodd told reporters yesterday.

Full text of the bill in PDF format is here, courtesy Politico.com.

Among the major provisions Dodd is adding:

* Authority for bankruptcy judges to restructure mortgages for homeowners facing foreclosure. This was considered a poison pill in a housing bill that passed Congress earlier this summer, but it has gained much more currency now that Washington wants to bail out Wall Street.

* A provision that would require the Treasury to take a 65 percent portion of 20 percent any profits it makes from the newly purchased assets and put it into the federal government's HOPE program, an affordable housing program.

* An oversight board that not only includes the chairman of the Federal Reserve and the SEC, but congressionally appointed, non-governmental officials.

* Limits on executive compensation. This is a major stumbling point for Paulson in his negotiations with Congress, but cracking down on Wall Street executive salaries will be a major selling point for lawmakers. Dodd and Frank have put in place what's known as a "claw back" provision aimed at revoking compensation that executives received based on fraudulent claims.

* An independent inspector general to investigate the Treasury asset program, appointed by the president.

These all seem like much better ideas to me, particularly in the long run. This DOES at least begin to address the real problem which is the housing depression, and lack of regulation and oversight, restructuring mortgages to prevent foreclosure is an excellent idea.

It's a start. It's also as I said infinitely preferable to Paulson's bullshit.

[UPDATE]Over at Calculated Risk, it looks like Hank may have blinked first after today's freefall in the Dow and the dollar.

From Bloomberg: Paulson, Lawmakers Agree on Equity Stake for Debt, Frank Says (hat tip Bob_in_MA)

``We got a lot of advice from people in the financial community that they should also be able to take some equity, and we agreed and the secretary has agreed with that,'' Frank, a Democrat from Massachusetts, told reporters today in Washington.

Update: From the WSJ: Democrats Craft Bailout Plans To Include Compensation Limits

The Bush administration has conceded several changes to its rescue plan for the troubled banking industry, including agreeing to compensation limits for bank chief executives taking part in the plan and the need for more help for homeowners facing foreclosure, a leading House Democrat said Monday.

Chairman of the House Financial Services Committee Rep. Barney Frank said the Treasury also agreed to Democrats' idea that the federal government should receive warrants to take an equity stake in financial firms in exchange for the government purchasing toxic assets from them.

That was quick. I guess another 300+ points down day on the DOW is scaring a few people.

Yep. Funny how when you have nothing to stand on, you fall down.