The bank bailout “Agreement on Principles” now circulating is, at best, a broad outline. It is easily foreseeable that a final agreement will yet fail over disagreements about detailed implementing language.
For example, the Agreement specifies that the “Treasury Secretary is prohibited from acting in an arbitrary or capricious manner or in any way that is inconsistent with existing law.” This statement is so broad that it could be used to nullify the entire deal since, as we all know, existing law does not allow the Treasury Secretary to do anything that this Agreement purports to allow him to do.
Another example of potentially deal-killing generality is the requirement that the “Treasury Secretary set standards to prevent excessive or inappropriate executive compensation for participating companies.” What language will satisfy the various constituencies on this contentious point?
The draft also opens up huge new opportunities for government spending and programs, ensuring full employment for at least hundreds, probably thousands of new federal government bureaucrats. For example, the agreement “directs a percentage of future profits to the Affordable Housing Fund and the Capital Magnet Fund to meet America’s housing needs.” For those who thought that housing needs were supposed to be met by the market, this may come as a surprise.
Suffice to say, this Agreement is a long way from a binding resolution. The full text of the Agreement appears below.
Agreement on Principles
1. Taxpayer Protection
a. Requires Treasury Secretary to set standards to prevent excessive or inappropriate executive compensation for participating companies.
b. To minimize risk to the American taxpayer, requires that any transaction include equity sharing
c. Requires most profits to be used to reduce the national debt
2. Oversight and Transparency
a. Treasury Secretary is prohibited from acting in an arbitrary or capricious manner or in any way that is inconsistent with existing law.
b. Establishes strong oversight board with cease and desist authority
c. Requires program transparency and public accountability through regular, detailed reports to Congress disclosing exercise of the Treasury Secretary’s authority
d. Establishes an independent Inspector General to monitor the use of the Treasury Secretary’s authority
e. Requires GAO audits to ensure proper use of funds, appropriate internal controls, and to prevent waste, fraud, and abuse
3. Homeownership Preservation
a. Maximize and coordinate efforts to modify mortgages for homeowners at risk of foreclosure
b. Requires loan modifications for mortgages owned or controlled by the Federal Government
c. Directs a percentage of future profits to the Affordable Housing Fund and the Capital Magnet Fund to meet America’s housing needs
4. Funding Authority
a. Treasury Secretary’s request for $700 billion is authorized, with $250 billion available immediately and an additional $100 billion released upon his or her certification that funds are needed
b. final $350 billion is subject to a Congressional joint resolution of disapproval