House Fails To Pass Financial Rescue Bill

(RTTNews) – After more than a week of tough negotiations, the House of Representatives failed to pass a $700-billion financial rescue plan put forward by the Bush administration in its initial vote.

Lawmakers from both sides of the political aisle rose to declare their dissatisfaction with the measure, but Congressional leaders urged passage of the bill.

The bill would have allowed the government to purchase mortgage-backed assets from financial institutions. These assets, which have become nearly impossible to sell since the slump in the U.S. housing market, are blamed for the problems in the financial markets.

The measure was proposed after the government was forced to take a number of ad-hoc measures to keep the financial system from falling into crisis. This included a government takeover of mortgage giants Fannie Mae (FNM | Quote | Chart | News | PowerRating) and Freddie Mac (FRE | Quote | Chart | News | PowerRating), as well as an $85 billion loan from the Federal Reserve to insurer AIG (AIG | Quote | Chart | News | PowerRating).

The rescue proposal also followed the bankruptcy of investment bank Lehman Brothers, which the government refused to prop up. The collapse of the financial institution sparked a wave of unrest in the credit markets and intensified the crisis.

Most lawmakers have complained about the rescue bill for one reason or another. Congressional leaders have pushed for oversight of the program, which was excluded from the Bush administration’s original proposal.

The text of the draft bill showed that the measure authorizes the Secretary of the Treasury to establish a troubled asset relief program, or TARP, to purchase and fund commitments to buy troubled assets from any financial firm on terms and conditions as determined by the Secretary.

The bill would provide the government the power to facilitate modifications for the mortgages.

The legislation gives the Treasury 45 days to issue guidelines as to how the U.S. government should decide which assets to buy and what to pay for those assets. The proposed $700 billion would be disbursed in stages to the Treasury.

The first $250 billion would be issued when the legislation is enacted, while another $100 billion could be spent if the president decided it was required. The remaining $350 billion would be subject to congressional review.

The bill calls for the establishment of a Financial Stability Oversight Board that would ensure that the policies implemented protect taxpayers and are in the economic interests of the U.S.

The Financial Stability Oversight Board, in turn, may appoint a credit review committee for the purpose of evaluating the exercise of the purchase authority provided under the Act and the assets acquired through the exercise of such authority.

In the event of a net loss to taxpayers five years after the plan is enacted, the President will be required to submit legislative proposals to recoup funds from beneficiaries.

The bill also calls for new restrictions on CEO pay and executive compensation for participating companies. Members of both parties supported measures to prevent so-called golden parachutes, or multi-million dollar severance pay, in the event a Wall Street executive departs.

If a company has had government intervention, the five highest-ranking officials of the company would be denied bonuses.

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