Does the Bailout Ignore Homeowners, Execs?

The compromise financial industry bailout bill -- like most things out of Washington -- has a little bit of everything for all parties but also falls short of what some had hoped to get out of the bill.

Nobody seems in love with it, but leaders from both parties called its passage essential to get the U.S. economy back on track.

There are limits to executive pay and requirements to help homeowners struggling with their mortgages, but neither of those sections of the bill are as strong as originally proposed.

"It's not a bill that any one of us would have written. It's a much better bill than we got. It's not as good as it should be," Rep. Barney Frank, D-Mass., the House Financial Services Committee chairman, said Sunday night.

CLICK HERE for the full text of the bailout legislation in PDF form.

"This agreement, while not perfect, will help stabilize the economy," added Senate Majority Leader Harry Reid during the same news conference.

The main thrust of the bill, called the Emergency Economic Stabilization Act of 2008, gives the Treasury Department $250 billion to immediately start buying up troubled assets -- such as mortgages -- from banks and other financial institutions. The president can spend an additional $100 billion if needed, and a final $350 billion is available unless Congress votes not to spend it.

Picture of Opening Bell at New York Stock Exchange.

Republicans also added in a provision to create a program that allows banks to buy government insurance to back their existing investments, rather than selling them outright to the government.

It's a way to protect any ultimate losses for the banks' current investments, and it's what Wall Street wanted.

President Bush said this morning that this is a "bold bill that will help keep the crisis in our financial system from spreading throughout our economy."

"Every member of Congress and every American should keep in mind.  A vote for this bill is a vote to prevent economic damage to you and your community," Bush said.

But Americans might be disappointed by a couple provisions. Main Street had called for limits on how many millions of dollars Wall Street executives could be paid and asked for help for homeowners struggling to pay their mortgages. The bill falls short of original expectations in both areas.

Executive Pay

There are pay caps written into the bill, but only for companies that sell more than $300 million in troubled assets to the government. Those companies will be prohibited from making any new employment contracts with their top five senior executives that provide a golden parachute in the event of "involuntary termination, bankruptcy filing, insolvency or receivership."

But that applies only to new contracts. Executives with such big payouts already written into their contracts would be exempt from the new restrictions. A senior treasury official, in a conference call with reporters Sunday night, was very clear that the government would not be breaking existing executive employment contracts.

"We are not abrogating contracts," he said. "Those are contractual obligations between the companies and their employees. This is on a go-forward basis."

Executives in participating companies would no longer be taxed at the normal personal income tax rate for stock options or severance, and would face an additional 20 percent tax on such payouts.

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