x Abu Dhabi, UAEWednesday 26 July 2017

Key elements of the US bailout blueprint

The US$700 billion (Dh2.57 trillion) in buying power would be doled out by Congress in stages.

The US$700 billion (Dh2.57 trillion) in buying power would be doled out by Congress in stages. After the first $250bn is authorised, the president could request another $100bn. The final $350bn could be cleared by a further act of Congress. Eligible assets include residential or commercial mortgages and related instruments which were originated or issued on or before March 14, 2008. Other financial instruments can be included in consultation with the Federal Reserve if Congress is notified.

Treasury secretary given broad discretion to determine the methods for buying assets. Foreign central banks, or institutions owned by a foreign government, cannot take part. If a company receives aid but fails, the government will be one of the last investors to see a loss. A new congressional panel would have oversight power and the Treasury secretary would report regularly to lawmakers in two elements of a multilevel oversight apparatus.

If the Treasury takes a stake in a company, the top five executives would be subject to limits on their salaries. Executives hired after a financial company offloads more than $300m in assets via auction to the government will not be eligible for "golden parachutes". The federal government may stall foreclosure proceedings on home loans purchased under the plan. Alongside the plan to buy securities outright, the Treasury Department will conceive an alternative insurance programme that would underwrite troubled loans and would be paid for by participating companies.

If the government has taken losses five years into the programme, the Treasury Department will draft a plan to tax the companies that took part to recoup taxpayer losses. Would permit the Federal Reserve to begin paying interest on bank reserves from Oct 1, giving it another tool for easing credit strains. Mandates a study on the impact of mark-to-market accounting standards, which critics blame for a downwards spiral in the valuation of assets on corporate balance sheets.

The government will take a stake in companies that tap federal aid so that taxpayers can share in the profits if those companies get back on their feet. An exception applies to financial firms that offload less than $100 million of soured investments. * Reuters