George Bush and the Bailout Loophole

A looming question has busied the minds of the general public regarding initial funds given from the $700 billion bailout account. We observed that several financial institutions received unconditional aid. There were seemingly absolutely no strings attached in Paulson’s plan. As the situation unfolded, criticism led a few CEO’s to cut their pay and benefits.

Many of us have wondered, ‘how can this be’? Why, for example, were The Big Three hit with harsh criticism and clear demands for a plan, while those first institutions basically received an easy check? Stating that it made little sense to many of us, is an understatement.

There was, however, a key piece of information in The Washington Post (December 15th) that escaped my attention at the time. I’ll put it to you as cited by secondary source, The Center for Media and Democracy.

When Congress drafted the $700 billion financial bailout bill, they intended to limit Wall Street executives’ sky-high pay. To do this, they included a process for reviewing executive pay, recovering bonuses based on unrealized earnings, prohibiting “golden parachutes” and punishing firms that break the rules.

But just before the bill passed, the Bush administration insisted Congress make one little change in the bill’s wording that pertained to that provision.

The change said that penalties would only apply to firms that sold their troubled assets at an auction, since that was how the Treasury Department originally said it planned to use the money. But auctions have not been used to dispose of bad assets after all, and Bush’s change effectively created a loophole allowing companies that take bailout money to circumvent restrictions on top executives’ lavish pay.

Senators on the Finance Committee are considering whether they should amend the law to assure the enforcement mechanism applies to firms that participate in the bailout.

Senators should get a move on to rectify the situation.
For the public observing inconsistencies in payouts, this seems to be a ‘key event’ in loss of confidence.

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