Edging towards common sense. Bonds, yes, but purchased with private equity. Perhaps free markets can still play a significant role before taxpayers foot the entire bill….
Issa Offers Proposal for Guaranteed Recovery Bonds to Rescue Financial Markets –
Proposal Uses Private Equity to Keep Government from Buying Mortgage Assets, Assures Wall Street Won’t Get Rich While Taxpayers Get Stuck with Trillion Dollar Bill
Washington, DC – Rep. Darrell Issa, a businessman and entrepreneur before coming to Congress, today offered a new proposal to protect the economy without a taxpayer-funded bail out of Wall Street. Under Rep. Issa’s plan, private investors would provide the capital for a Rescue Fund through the purchase of government issued Guaranteed Recovery Bonds. The Rescue Fund would be managed by the Treasury Department and would offer troubled financial firms interest accruing loans based upon their holdings of at-risk mortgage assets.
“My plan uses private investment and gives Wall Street the same liquidity as the Paulson plan and guarantees that investment firms don’t just dump rotting assets on taxpayers and go on to reap huge profits,” said Issa.
Under the plan, Congress authorizes the Treasury to issue up to $700 billion dollars in unique callable T-Bills (Guaranteed Recovery Bonds) to be purchased by private investors to capitalize a Rescue Fund that will be managed by the Treasury Department. Financial institutions borrow from the fund at a rate that fully covers the interest paid to investors in the Recovery Bonds plus an insurance premium to protect taxpayers.
Under the Issa plan, Financial institutions holding at-risk mortgage-backed securities would be able to borrow from the $700 billion rescue fund established through the special Guaranteed Recovery Bonds. The amount each firm could borrow would be set by the Treasury Department using Secretary Paulson’s mark-to-market to maturity valuation of the mortgage backed securities they hold. Financial institutions would continue to hold their mortgage assets and be responsible for liquidating them over time, so taxpayers would not be saddled with the liability or cost of disposing of troubled assets. As firms pay-back loans to Treasury, the revenue is used to pay-off the Guaranteed Recovery Bonds. The insurance premium paid by borrowers will protect taxpayers from default.
A point by point summary of Rep. Issa’s proposal and a comparison with the Paulson plan is attached.
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September 27th, 2008 at 12:00 am
Issa is one of the saner voices on capital hill.
September 29th, 2008 at 12:00 am
When I posted this on Sat., I thought it would be moot by today. With the bailout rejected, perhaps more reasonable solutions like Issa’s are now in play. Here’s Issa’s response to the house vote today:
“This was a bad deal for taxpayers. Today’s rejection of the flawed Paulson Proposal opens the door for a process to examine better alternatives than a taxpayer bailout of Wall Street. The American people spoke clearly and forcefully against this bailout scheme, which was crafted by a privileged few meeting behind closed doors. During the last week, Members of Congress have been meeting with economic experts outside the government and have heard many alternatives that are less costly and worthy of consideration. It’s now time for Congress to open up the process and weigh other ideas for getting our economy on the right track. The real effort to fix our economy starts now.”