DEAL! (via Ari Mendelson):

Lawmakers Reach Accord on Huge Financial Rescue: Vote is Imminent on $700 Billion Bailout Plan (Lori Montgomery and Paul Kane, 9/28/08, Washington Post)

A senior administration official, who requested anonymity to speak freely about the plan, said both sides had made significant concessions to achieve compromise. The Bush administration has agreed to accept a number of Democratic demands, including:

· The money would be dispersed in segments, with Paulson receiving $250 billion immediately, $100 billion upon White House certification of its necessity and the final $350 billion only after Congress has been given 15 days to object.

· Firms participating in the bailout would be required to grant the government warrants to obtain nonvoting shares of stock, so taxpayers can benefit if the companies return to profitability.

· Firms taking advantage of the bailout would be required to limit compensation for senior executives, with especially severe limits on "golden parachutes" at failing firms. The compensation limits will be enacted primarily, but not solely, through the tax code by reducing tax deductions for firms that pay executives more than $400,000 a year.

The administration also agreed to Democratic demands that the financial services industry should help pay for the program. Under the agreement, the president would be required to propose a fee on the industry if the government has not recovered its money through sales of the assets within five years.

Democrats also made a number of concessions, abandoning demands that bankruptcy judges be empowered to modify home mortgages on primary residences for people in foreclosure. They also agreed not to dedicate a portion of any profits from the bailout program to an affordable housing fund that Republicans claimed would primarily assist social service organizations that support the Democratic Party, the official said.

Meanwhile, House Republicans won a major victory, persuading negotiators to include a provision that would require the Treasury Department to create a federal insurance program that would guarantee banks and other firms against loss from any troubled asset, the official said.

One nice thing about a measure where the details don't matter is that you can throw bones to the wingnuts.

MORE:
Could the bailout turn a profit for taxpayers?: Some economists say the mortgage-backed securities the Treasury wants to buy from crippled banks could rise in worth when market unfreezes. 'The devil is in the details,' says one expert. (Michael A. Hiltzik, 9/28/08, Los Angeles Times)

[S]ome economists say that the mortgage-backed securities the Treasury proposes to buy from crippled banks have been so beaten down in price that taxpayers could actually profit once the market for these securities -- now virtually nonexistent -- unfreezes.

"It's entirely within the realm of possibility that we'll make money on this deal," says J. Bradford DeLong, professor of economics at UC Berkeley.

DeLong observes that several government bailouts of the past have ended up in the black, including the 1994 rescue of the Mexican peso. The U.S. government eventually recorded a $500-million profit on its share of Mexico's $50-billion international loan package.

Of more immediate relevance, the government's takeover of stricken insurance company American International Group may have already produced a paper profit, and could produce more gains as AIG's asset portfolio is sold off or recovers its value.

"Very senior people in charge of asset portfolios on Wall Street have said they are envious of the terms the government imposed on AIG," DeLong says. "They think the Fed's going to make a fortune." He conjectures that the $700-billion bank bailout could yield somewhere between a $100-billion loss and a $100-billion gain.

Paulson has also endorsed requiring banks that sell troubled assets to the government to give some sort of equity warrant, so that taxpayers can share in profits once those institutions recover financially.

Posted by Orrin Judd at September 28, 2008 6:17 AM