DeFazio: 7 loopholes in the bailout's executive compensation limits

[Hannah Bell]

The Executive Compensation Limits have Major Loopholes:They are no Band-Aid for a Bailout
September 29, 2008


Dear Democratic Colleague:



If you are considering voting for the bailout because the bill requires the CEOs of Wall Street to take a pay cut, you will be sorely disappointed. I found seven loopholes that will protect their outrageous paychecks and golden parachutes. Imagine how many more loopholes the Wall Street lawyers will find to protect their CEOs pay check. Oppose the bailout.


1- Executive Compensation Loophole #1: Limits on incentives and bonuses can only be set on corporations that we directly purchased assets from and receive an equity stake from. (Sec. 111 (b)1)


2- Executive Compensation Loophole #2: Limits on golden parachutes are avoided if a corporation only sells the government under $300 million worth of bad assets through an auction. (Sec 111(c)


3- Executive Compensation Loophole #3: Limits on golden parachutes on current employees are avoided if a corporation only sells the government its bad assets through an auction. (Sec 111(c)


4- Executive Compensation Loophole #4: Limits on golden parachutes are not applied to any corporation that upon dumping is bad assets on the taxpayer returns to profitability. (Sec 111(c))


5- Executive Compensation Loophole #5: No limits on corporate deductions for executive salaries under $500,000. (Sec 302(d)1)


6- Executive Compensation Loophole #6: New limits on corporate deductions for executive salaries are waived if assets acquired from corporation are under $300 million. (Sec 302(a)


7- Executive Compensation Loophole #7: New limits on corporate deductions for executive salaries are waived if assets acquired from corporation are purchased directly. (Sec 302(a)


Sincerely,


Peter DeFazio

Member of Congress

http://www.defazio.house.gov/index.php?option=content&task=view&id=439

[Hannah Bell]

1. A Dozen Reasons to Vote No on the Bailout

The Democratic leadership has done everything they could to negotiate a responsible bill, but the Bush/Paulson bailout was based on a false premise. Paulson purports that a $700 billion injection of liquidity at the top by assuming “illiquid assets” will trickle down and shore up the underlying economic and housing woes. Furthermore, the Bush/Paulson/Republican Congress insisted that the conditions added to the bailout be riddled with loopholes.

1 - The Recoupment Clause Will Not Recover Any Lost Funds: It merely says a future President 5 years hence shall propose a plan to Congress to possibly recoup any losses. (Sec. 134) <1>

2 - Foreign Company Loophole: The bailout has been opened up to foreign companies with “significant operations in the United States”(Sec. 3 (5))


3 - Foreign Central Bank Loophole: The bailout has been opened up to foreign central banks that hold bad assets from failed or defaulted financial institutions. (Sec. 112)


4 - Taxpayers Can be Saddled with Assets of Any Type: The bailout has been expanded to include car loans, auto loans and any other financial instrument as determined by the Secretary. (Sec 3 (9)(B)

5 - Severely Limited Judicial Review: Courts are prohibited from issuing any injunctions or relief on the basic premise of the legislation and the conflict of interest rules. (Sec. 119(a)2(A))

6 - Executive Compensation Loopholes: Multiple loopholes for corporations to escape the limitations on golden parachutes, incentives, bonuses, and corporate deductions for executive salaries. (Sec. 111 and Sec. 302)


7 - No Fix of the Underlying Regulatory Failures: The next administration is required to send numerous reports to Congress. Unfortunately, Wall Street will have already received its bailout and have no incentive to support new reforms. (Sec. 105

8 - $700 Billion Cap Loophole: The Secretary can sell assets and continue to buy more assets as long as the total purchase value remains under $700 billion. Any losses during the sale of assets are not considered. (Sec 115(b))

9 - Foreclosure Mitigation is Voluntary: The taxpayers are being saddled with all the risk, but the lender is “encouraged” to minimize foreclosures (Sec. 109(a))


10 - Full Authority to Spend $700 Billion: Congress has a mere 15 calendar days to object to the Secretary spending the second half of the $700 billion bailout. The President can veto the measure requiring the customary 2/3 to override. Besides this bailout, when is the last time we passed anything that fast? (Sec. 115(a))


11 - Insurance Rates are Not Required to Follow Risk: The Secretary “may” (as opposed to the mandatory “shall”) set insurance premiums based on risk. Not setting premiums based on risk could leave the insurance trust fund seriously underfunded and leave taxpayers liable. (Sec. 102 (c)2)


12 - Money-Making Mergers: A loophole allows corporations to use a merger or acquisition to buy up troubled debt at below market rates and sell to the taxpayer at the higher government rate. (Sec. 101(c))

Please oppose the bailout. There are many other less expensive alternatives that can restore liquidity to the market.

http://www.defazio.house.gov/index.php?option=content&task=view&id=440

[Hannah Bell]

4. No BAILOUTS Act

Bringing Accounting, Increased Liquidity, Oversight and Upholding Taxpayer Security

1) Require the Securities and Exchange Commission (SEC) to require an economic value standard to measure the capital of financial institutions.


This bill will require SEC to implement a rule to suspend the application of fair value accounting standards to financial institutions, which marks assets to the market value, no matter the conditions of the market. When no meaningful market exists, as is the current market for mortgage backed securities, this standard requires institutions to value assets at fire-sale prices. This creates a capital shortfall on paper. Using the economic value standard as bank examines have traditionally done will immediately correct the capital shortfalls experienced by many institutions.


2) Require the Securities and Exchange Commission to restrict naked short sells permanently


This bill will require SEC to implement a rule that blocks naked selling, selling a stock short without first borrowing the shares or ensuring the shares can be borrowed. Such practices many times harm the companies represented in the sales and hurt their efforts to raise capital. There is no economic value produced by naked short sales, but significant negative effects.


3) Require the Securities and Exchange Commission to restore the up-tick rule permanently.


This bill will require SEC to implement a rule that blocks short sales without an up-tick in the market. On September 19, 2008, the SEC approved a temporary pause of short selling in financial companies “to protect the integrity and quality of the securities market and strengthen investor confidence.” This rule prevents market crashes brought on by irrational short term market behavior.


4) “Net Worth Certificate Program”


This bill will require FDIC to implement a net worth certificate program. The FDIC would determine banks with short-term capital needs and the ability to financially recover in the foreseeable future. For those entities that qualify, the FDIC should purchase net worth certificates in these institutions. In exchange, these institutions issue promissory notes to repay the FDIC, counting the amount “borrowed” as capital on their balance sheets. This exchange provides short term capital, with not cash outlay. Interest rates on the certificates and the FDIC notes should be identical so no subsidy is necessary.


Participating banks must be subject to strict oversight by the FDIC including oversight of top executive compensation and if necessary the removal of poor management. Financial records and business plans should be subject to scrutiny while participating in the program.


In 1982, Congress approved a program, known as the Net Worth Certificate Program, that allowed banks and thrifts to apply for immediate capital assistance. From 1982 to 1993, banks with total assets of $40 billion participated in the program. The majority of these banks, 75%, required no further assistance beyond the certificate program.


5) Increase the FDIC Insurance limit from $100,000 to $250,000.


The bill will require the FDIC raise its limit to provide depositors confidence that their money is safe and help eliminate runs on banks which are destabilizing to the industry.


Sincerely


Peter DeFazio

Member of Congress

[sendero]

2. Folks need to think about this..

... if there was REALLY a crisis that only this bailout would resolve, would the PTB be so hell bent on not touching executive pay? If you were the CEO of a company and you needed this bailout to SURVIVE, would giving up some of your pay be too much to ask.

Of course not. This bill is a joke.

[polichick]

3. Thank you Peter DeFazio - I sure hope our Senators don't behave like lemmings AGAIN.

[pokercat999]

5. Time for a MAXIMUM WAGE LAW, say 10 times minimum. nt

[izzie]

6. I frankly do not like this bill. It is no good to rush into this.

Bush is not going to care a fig about the people who are in the place where they lose their retirement or house. He has his and so does Congress. I think it should be more detailed and into just what is wrong and not just bail out the big guys that made all these problems. Fact is Wall street should pay for this. They can be taxed with fees and all that stuff and not hand it over to my grandchildren. I am not sure if they have paid for the Saving and Loan yet. Forget the Iraq War and how we will pay for that. I just do not like it, it feels wrong to me. My retirement has lost over 3 percent the last few days but lost a good 8 percent in the two months before. Some thing was up and the big guys knew it. They had to if I did and could see it for the last few months in my retirement fund. I hated Ec.101 in college.