Senator Chris Dodd, through whom any bailout proposal from the Treasury must go, has offered an alternative to the Paulson plan:
The legislation requires Treasury to take an equity stake equal to the purchase price of the assets being bought. If the company isn’t publicly traded, the government would take senior debt instead, placing it in the front of the line of debt holders for repayment in the event of a bankruptcy.
Dodd’s proposal also would create a five-member oversight board to supervise the Treasury secretary’s purchase and sale of distressed mortgage debt.
It would consist of the chairmen of the Federal Reserve, Federal Deposit Insurance Corp. and the Securities and Exchange Commission as well as two members from the financial industry designated by congressional leaders.
The board would be authorized to set up a so-called credit review company consisting of Treasury employees to study the soundness of the purchases. Under the plan, the government would be required to obtain an equity stake equal to the value of the debt that is purchased from the companies, including those whose shares are not publicly traded. The Treasury secretary would also be required to issue weekly public reports on the amount of assets bought and sold by the U.S.
There are some other provisions, too, but this seems to be the bulk of it. I’m a bit leery of the US government obtaining equity stakes in private industry, but I’m totally on board with making the Federal government “first in line” in the case of bankruptcy for firms that accept a bailout. I am also on board with an oversight board (though not so much with the “two members from the financial industry”) and am 100% in favor of requiring weekly reports showing the valuation of any debts purchased.
My gut check is that this seems like a step in the right direction. I’ll probably post some more commentary later after I’ve had time to digest.
UPDATE (James Joyner): Blake Houshell observes,
You’d have to think that even President George W. Bush and Treasury Secretary Hank Paulson, who sent Congress a bare-bones bill with zero oversight provisions, had to see this coming. In fact, I think they want Democrats to take this legislation and run with it. Why? Because once the Democrats put their stamp on the bill, they’ll no longer be able to hang any failure around Bush’s neck. It’ll be their failure, too.
Could be. Certainly, it’s a bipartisan mess, reflecting decades-only policy consensus. Mostly, though, people blame presidents for the economy unless they’re very clever at shifting the blame or, as was the case with Clinton and Newt Gingrich, their foes are particularly inept.
