TITLE I - Troubled Assets Relief Program
Sec. 113. MINIMIZATION OF LONG-TERM COSTS AND MAXIMIZATION OF BENEFITS FOR TAXPAYERS. (6 Comments)
-
LONG-TERM COSTS AND BENEFITS.
-
MINIMIZING NEGATIVE IMPACT.The Secretary shall use the authority under this Act in a manner that will minimize any potential long-term negative impact on the taxpayer, taking into account the direct outlays, potential long-term returns on assets purchased, and the overall economic benefits of the program, including economic benefits due to improvements in economic activity and the availability of credit, the impact on the savings and pensions of individuals, and reductions in losses to the Federal Government.
-
AUTHORITY.In carrying out paragraph
-
, the Secretary shall
-
hold the assets to maturity or for resale for and until such time as the Secretary determines that the market is optimal for selling such assets, in order to maximize the value for taxpayers; and
-
sell such assets at a price that the Secretary determines, based on available financial analysis, will maximize return on investment for the Federal Government.
-
-
PRIVATE SECTOR PARTICIPATION.The Secretary shall encourage the private sector to participate in purchases of troubled assets, and to invest in financial institutions, consistent with the provisions of this section.
-
-
USE OF MARKET MECHANISMS.In making purchases under this Act, the Secretary shall
-
make such purchases at the lowest price that the Secretary determines to be consistent with the purposes of this Act; and
-
maximize the efficiency of the use of taxpayer resources by using market mechanisms, including auctions or reverse auctions, where appropriate.
-
-
DIRECT PURCHASES.If the Secretary determines that use of a market mechanism under subsection
-
is not feasible or appropriate, and the purposes of the Act are best met through direct purchases from an individual financial institution, the Secretary shall pursue additional measures to ensure that prices paid for assets are reasonable and reflect the underlying value of the asset.
-
CONDITIONS ON PURCHASE AUTHORITY FOR WARRANTS AND DEBT INSTRUMENTS.
-
IN GENERAL.The Secretary may not purchase, or make any commitment to purchase, any troubled asset under the authority of this Act, unless the Secretary receives from the financial institution from which such assets are to be purchased
-
in the case of a financial institution, the securities of which are traded on a national securities exchange, a warrant giving the right to the Secretary to receive nonvoting common stock or preferred stock in such financial institution, or voting stock with respect to which, the Secretary agrees not to exercise voting power, as the Secretary determines appropriate; or
-
in the case of any financial institution other than one described in subparagraph (A), a warrant for common or preferred stock, or a senior debt instrument from such financial institution, as described in paragraph (2)(C).
-
-
TERMS AND CONDITIONS.The terms and conditions of any warrant or senior debt instrument required under paragraph (1) shall meet the following requirements:
-
PURPOSES.Such terms and conditions shall, at a minimum, be designed
-
to provide for reasonable participation by the Secretary, for the benefit of taxpayers, in equity appreciation in the case of a warrant or other equity security, or a reasonable interest rate premium, in the case of a debt instrument; and
-
to provide additional protection for the taxpayer against losses from sale of assets by the Secretary under this Act and the administrative expenses of the TARP.
-
-
AUTHORITY TO SELL, EXERCISE, OR SURRENDER.The Secretary may sell, exercise, or surrender a warrant or any senior debt instrument received under this subsection, based on the conditions established under subparagraph (A).
-
CONVERSION.The warrant shall provide that if, after the warrant is received by the Secretary under this subsection, the financial institution that issued the warrant is no longer listed or traded on a national securities exchange or securities association, as described in paragraph (1)(A), such warrants shall convert to senior debt, or contain appropriate protections for the Secretary to ensure that the Treasury is appropriately compensated for the value of the warrant, in an amount determined by the Secretary.
-
PROTECTIONS.Any warrant representing securities to be received by the Secretary under this subsection shall contain anti dilution provisions of the type employed in capital market transactions, as determined by the Secretary. Such provisions shall protect the value of the securities from market transactions such as stock splits, stock distributions, dividends, and other distributions, mergers, and other forms of reorganization or recapitalization.
-
EXERCISE PRICE.The exercise price for any warrant issued pursuant to this subsection shall be set by the Secretary, in the interest of the taxpayers.
-
SUFFICIENCY.The financial institution shall guarantee to the Secretary that it has authorized shares of nonvoting stock available to fulfill its obligations under this subsection. Should the financial institution not have sufficient authorized shares, including preferred shares that may carry dividend rights equal to a multiple number of common shares, the Secretary may, to the extent necessary, accept a senior debt note in an amount, and on such terms as will compensate the Secretary with equivalent value, in the event that a sufficient shareholder vote to authorize the necessary additional shares cannot be obtained.
-
-
EXCEPTIONS.
-
DE MINIMIS.The Secretary shall establish de minimis exceptions to the requirements of this subsection, based on the size of the cumulative transactions of troubled assets purchased from any one financial institution for the duration of the program, at not more than $100,000,000.
-
OTHER EXCEPTIONS.The Secretary shall establish an exception to the requirements of this subsection and appropriate alternative requirements for any participating financial institution that is legally prohibited from issuing securities and debt instruments, so as not to allow circumvention of the requirements of this section.
-
-
6 comments on Sec. 113. MINIMIZATION OF LONG-TERM COSTS AND MAXIMIZATION OF BENEFITS FOR TAXPAYERS.
-
"De minimis" means items too small or trivial to concern the law.
posted by Peter Van at October 2, 2008
So, as long as the individual asset is under 100 million dollars the sec can claim that he's got no legal obligation to sell it at a "good" price.
Would you put your money in an investment fund that considered anything under 100,000,000 too small to keep track of? -
I'm with Peter Van. My governor would sure like that de minimus $100,000,000 in our state's rainy day fund.
posted by Thalia's Bark at October 2, 2008
I have my problems with unregulated capitalism, but I am very nervous about this new paternalism of having one person, the Secretary of the Treasury, having all this work bringing the country's bacon home all by himself. How can any one person control that much money and be expected to be any good at it? I still like Congress arguing over the purse strings. My representatives know what my northwest state needs better than one bean counter 3000 miles away in Washington DC ever could. -
This is so hastily put together parts of it do not even parse properly:
posted by Barbara B. from Winchester, MA at October 2, 2008
c. DIRECT PURCHASES.If the Secretary determines that use of a market mechanism under subsection
d. is not feasible or appropriate, and the purposes of the Act are best met through direct purchases from an individual financial...
Is this 113(d) self-referential or what?
So section 113 tells us we are acquiring stakes in companies with known bad lending practices, and we don't even get voting stock to get rid of the bad executives? We should get voting stock and systematically vote out the executives associated with the high risk lending.
Where do the dividends go? It should specify whether the dividends go back to the Fund or to paying off the debt.
Not that I think this bill can be fixed. I still think this whole Act is an act of treason against the lower and middle class. -
This leaves room for a simpler way of bailing out the loan market. As quoted on http://www.npr.org/blogs/money/
posted by chris d at October 4, 2008
-----
NPR's Chris Arnold sends this, which he titles "A back door in the plan for an alternative bailout approach: Lawmakers leave room for a simpler way to prop up banks."
That simpler way is known as "stock injection." Arnold writes:
Treasury Secretary Paulson seems convinced that the best way to solve the immediate financial crisis is to buy up hundreds of billions of dollars worth of bad debt on the books of financial firms. Others disagree. They ask, why not just give cash to the banks to prop them up without buying their toxic mortgage-related securities?
Some say, given capital requirements for banks, you get $12 dollars in debt assistance for every $1 of cash you directly pump into a bank. So why not just do that? And take stock in return so the government gets paid back? Basically, they say the government should do what Warren Buffet did when he invested in Goldman Sachs. Give them some cash, take some stock. This is along the lines of what Sweden did to prop up its banks during a banking and real estate crisis in the early 1990's.
This is not the approach Paulson has been pushing for. But it's becoming clear that the legislation left room for this approach to be applied in some cases as the Treasury Secretary sees fit. Which leaves the door open down the road, if Paulson has a change of heart, or if the nation has a different Treasury Secretary. -
After listening to NPR last evening, and researching this morning, I definitely prefer a Stock Injection option as outlined here in e 1, where the govt receives stock shares in return for the bailout money, instead of receiving bad debts in return for the bailout money as I had understood was the only option.
posted by Nancy N at October 4, 2008
This American Life summed it up something like this - on the one hand, you offer to pay someone money, and as payment, you will take the junk out of their basement. On the other hand, you offer to pay someone money, and move into their house until they can pay you back.
Adam Davidson said he was very surprised to hear that this wording had actually gotten into the passed bill, and that this would now be an option for the Treasury Secretary. He said half of the economists he had interviewed, from all over the board, preferred the stock injection option.
If you are interested in more details, you can listen to the radio show on www.thislife.org, "Another Frightening Show About the Economy", with Alex Blumberg & Adam Davidson. -
Now that the government amazingly is using the stock injection possibility, which Paulson certainly did not recommend in any hearings, does anyone know how that one sentence (Sec. 113 (e)(1)(B) got into the bill?
posted by Roberta McNair, Gig Harbor, WA at October 14, 2008
This was something This American Life's Adam Davidson couldn't find out, at least not by the time of their broadcast. But he was amazed that it got in there at all, and the first people he spoke with couldn't believe it was there.
How did it get in there? Who put it in at the last minute? This is the mystery I want solved, if only to send a thank-you note to whoever slipped it in there. Without this one sentence, I'd be in way more despair about this whole situation.