23 September 2008

US Senate Banking Committee to amend Paulson Plan

The Chairman of the US Senate Banking Committee Chris Dodd, is concerned that the Treasury proposal is asking for $700 billion to purchase any asset without any transparency as to the process, and issued an alternative proposal.

The Chairman of the US Senate Banking Committee, Chris Dodd, offered an alternative to the Paulson plan. Dodd is concerned that the Treasury proposal is asking for $700 billion to purchase any asset without any transparency as to the process; without any oversight by any court or administrative agency; and without any commitment to helping homeowners with troubled mortgages.

 

In a draft proposal circulated in the Senate, Dodd proposed to establish an oversight board to make sure that the Treasury Secretary is not acting completely alone. “We would require the Treasury to lay out its program, policies and procedures to ensure that the new authority is not used on a completely ad hoc basis”, the proposal says.

 

Dodd also criticizes the Treasury to largely ignore the conflicts of interest in the Plan to hire large asset management firms to organize the purchases of the “toxic” assets as well as their sale. “Many of these firms, such as PIMCO and Blackrock, have large positions in the same assets. Those positions could be affected by the way they manage the federal government’s portfolio”, Dodd says. “We would add a provision to require the Secretary to issue rules on conflicts of interest that may arise in connection with the administration of the authorities provided in the Act.”

 

Furthermore, the temporary, unlimited deposit insurance for funds has caused considerable concern among banks, especially smaller banks. Dodd said. It will precipitate a run on the banks by large depositors, who can now access unlimited deposit insurance in money markets. “We add a provision to create parity between banks and money markets in terms of insured deposits during the period in which Treasury offers the insurance”, the draft says.

 

Finally, the proposal intends to add a provision to require the Secretary to have executive compensation standards for entities that seek to sell assets through the program. “Such standards shall include limits on incentives and severance and a requirement for a claw-back provision.”

 

Summary of the proposal

Full proposal

© US Banking Senate