"Emergency Economic Stabilization Act" of 2008 Highlights & what Day Traders Should Know
WASHINGTON (Dow Jones)--Here are highlights of the "Emergency Economic Stabilization Act" of 2008:
ASSET PURCHASES: The Treasury Department could purchase up to $700 billion in troubled mortgages and other assets through a "Troubled Asset Relief Program" or "TARP." The $700 billion would be available in phases. The first $250 billion will be immediately available to the Treasury secretary. The next $100 billion will be available if the president issues a certification of need. The final $350 billion would come if the president sends a written report to Congress seeking it; Congress could disapprove these additional funds. Treasury's authority to purchase troubled assets would initial ly expire on Dec. 31, 2009, but could be extended.
EXECUTIVE COMPENSATION LIMITS: If the Treasury purchases at least $300 million in mortgage-based assets from a financial institution, that company would lose the ability to take a tax deduction on the amount of salaries that exceed $500,000 for its top five individuals. It also includes a 20% excise tax on golden parachutes payments triggered by events other than retirement.
DEPOSIT INSURANCE: Would temporarily increase federal deposit insurance limits to $250,00 from $100,000 for most bank accounts. The increase on the deposit limits backed by the Federal Deposit Insurance Corp. and National Credit Union Share Insurance Fund would last through the end of 2009. Additionally, the FDIC would temporarily be allowed to borrow unlimited amounts of money from the Treasury.
WARRANTS, EQUITY STAKES: The bill requires the Treasury receive "non-voting warrants" from financial institutions participating in the program. This would be regardless of whether the government is purchasing troubled assets directly or through an auction process, a Treasury official said. That would give taxpayers an ownership stake and profit-making opportunities in participating companies. Foreign banks with a "sufficient U.S. presence" taking part in the program would also have to give up warrants to the U.S. government, Treasury said.
MARK-TO-MARKET ACCOUNTING: The bill restates the Securities and Exchange Commission's authority to suspend the application of the Financial Accounting Standards Board "Statement Number 157" - or mark-to-market accounting - if the SEC determines "that it is in the public interest and protects investors." A study on the same topic is also required.
TOXIC ASSET INSURANCE: The Treasury secretary is required to create a program "to guarantee troubled assets of financial institutions" purchased by the U.S. government. The Treasury is required to establish "risk-based premiums for such guarantees sufficient to cover anticipated claims." Financial firms can choose to unlo ad their troubled assets via U.S. government acquisition or by participating in the industry-funded insurance program, Treasury officials said. Companies that participate in that insurance program would have to pay premiums to insure those assets.
INTEREST ON RESERVES: Provides the Federal Reserve with the ability to pay interest on the regulatory reserves it requires financial firms to hold for capital adequacy reasons in 2008, rather than in three years' time, as it is currently scheduled to do.
FORECLOSURE RELIEF: For the mortgages acquired by TARP, the Treasury secretary is to implement a plan to "mitigate foreclosures and to encourage servicers of mortgages to modify loans through Hope for Homeowners and other programs." Hope For Homeowners was an anti-foreclosure program in the
housing bill passed earlier this year. It requires the Federal Reserve, FDIC and Federal Housing Finance Agency to develop plans to minimize foreclosures.
FANNIE, FREDDIE TAX BREAKS: A tax benefit is included to hel p, primarily, community banks that held Fannie Mae and Freddie Mac preferred stock. It allows them to treat their losses in preferred stock in Fannie and Freddie as ordinary tax losses, rather than capital losses. For individuals, the bill extends through 2012 a provision to minimize the tax hit on homeowners facing foreclosure. This item, passed as part of housing legislation this year, makes tax-free amounts that a bank forgives a homeowner as part of foreclosure or work-out proceedings. Those amounts would otherwise be taxed as income to the homeowner.
OVERSIGHT: Creates a "Financial Stability Oversight Board" to oversee the program, which includes the chairmen of the Federal Reserve Board, the Securities and Exchange Commission; the Federal Home Finance Agency director and the Housing and Urban Development secretary. Also requires the U.S. comptroller general to report to Congress every 60 days about the program. An independent inspector general will oversee the Treasury Department's decisions, which will be subject to judicial review. It also will require posting of transactions online for public view.
TAX EXTENDERS: Would extend roughly $150 billion in tax cuts that have expired or are set to expire at the end of this year, including a two-year extension of the business research tax credit. The tax provisions, which were added by the Senate this week, include a "patch" to protect 25 million taxpayers from the alternative minimum tax in 2008, and an extension of the state sales tax deduction. The latter is important for states that do not have a state income tax, such as Florida and Texas, where residents are allowed to deduct sales taxes in lieu of state income taxes.
RENEWABLE ENERGY: The bill provides a variety of tax incentives aimed at encouraging investments in renewable energy programs, including extending the 30% investment tax credit for solar energy and fuel cell properties through 2016. Tax credits for wind, refined coal and other renewable energy projects are also extended, and the bill adds new tax credits for homeowners who make their homes more energy efficient through the use of small wind or geothermal technology.
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posted by Richard Rizzo @ 11:04 AM
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