Roger Biduk writes:

   Word came out Sunday from the Democrats that there’s been an agreement on the rescue package that the Bush administration has been proposing. A draft test was released that included maximums on executive compensation and guarantees to the taxpayer.

   They gave the draft bill a fancy name, “The Emergency Economic Stabilization Act of 2008″. Treasury Secretary Henry “Hank” Paulson first proposed the $700 billion idea about a week ago and the Democrats & Republicans have been arguing about it since. The stock markets had a volatile week while this was going on.

   The bill should be going to the Senate after being introduced tomorrow morning.

   Apparently there’s $250 billion available immediately and another $100 billion coming upon presidential certification. The other $350 billion comes with congressional approval.

   “This isn’t about a bailout of Wall Street, it’s a buy-in so we can turn our economy around,” House Speaker Nancy Pelosi, D-Calif., said at a press conference announcing the agreement.

   I agree with that statement. In fact, the Treasury could make a fortune on this.

   They’ll be investors in companies that will be receiving money from the Treasury and buy mortgages, mortgage-backed securities and bad loans at pennies on the dollar. This could be done by an auction proces or buying them directly. They may then be able to sell these at a tidy profit while helping out the economy at the same time. In fact, the taxpayer may not be on the hook at all.

   Looks like there’s a few good points in the proposed legislation.

   By way of an insurance program, companies would pay a premium and the Treasury would guarantee the assets.

   Also, there’s rules about executive compensation and golden parachutes to executives.

   The bill will be able to help out families avoid foreclosures by letting the Treasury guarantee loans and having mortgage lenders modify the loans.

   The program will be monitored by a congressional oversight panel and an inspector general. Congress will be kept up to date on all loan purchases by the Treasury Secretary.

   The president has to submit a proposal to Congress in five years “that recoups from the financial industry any projected losses to the taxpayer.” I don’t know exactly what that means.

 

   “This bill provides the necessary tools to deploy up to $700 billion to address the urgent needs in our financial system, whether that be by purchasing troubled assets broadly, insuring troubled assets, or averting the potential systemic risk from the disorderly failure of a large financial institution,” Treasury Secretary Henry Paulson said in a press release.

   “I am confident this legislation gives us the flexibility to unclog our financial markets [and] increase the ability of our financial institutions to deliver the credit that will help create jobs. We are taking the steps needed to be ready to begin implementing this legislation as soon as it is signed,” he said.

 

   Time will tell.

 

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Roger Biduk is an investment advisor and services clients in Montreal, Hudson, West Island and throughout the provinces of Quebec & Ontario.