Yesterday, the House declined to go forward with the $700 billion financial services bailout put together by House and Senate leaders working with the Administration. The vote was 205 in favor and 228 opposed.

This is not the end of the bailout idea. Though it appears to be widely unpopular among the American people, many leaders believe that it is necessary to avert a more serious financial crisis. Expect House and Senate leaders to come back with a revised proposal later this week, later this month, or sometime after the election, when the risk of voter retaliation is lower.

In the short “What Can You Do?” section of the WashingtonWatch.com email newsletter this week (subscribe here), I encouraged people to contact their representatives. I don’t care what people think (though I have my opinions): I just want people to get involved with an issue as important as this.

You still should contact your representative. The issue is going to come up again, and if you want to be heard, you’ll get in touch when the heat is off – like right now.

Call to tell your Member of Congress what you think of the way he or she voted, and that you will be following the issue in the future. (Then do that – here!)

The Capitol switchboard number is 202-225-3121. If you don’t know who your representative is, you can figure that out here. You can also contact him or her by email.

Now, be polite or chances are they will disregard what you have to say. Members of Congress and their staffs work for you, but they’re not all that obedient . . . .

Without further ado, here’s the vote on the bailout legislation. An “aye” vote favored the bailout. A “nay” vote opposed it.

(By the way, it was an amendment to H.R. 3997, the Heroes Earnings Assistance and Relief Tax Act of 2007. The old scoring of that bill of under a dollar does not reflect the bailout package.)

[Update: A list of representative who switched their votes is here. A list of all representatives' votes in that second vote is here.]

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Here’s the WashingtonWatch.com email newsletter for the week. Subscribe here.

email newsletter | tell a friend | wiki | about | home | log in Special Report: The Financial Services Bailout With a financial services bailout bill slated for a vote in the House of Representatives as early as the afternoon of Monday, September 29, this special report focuses only on that legislation. A bill has not been introduced, but a copy of the bill language has been posted on the WashingtonWatch.com blog. An estimate produced by WashingtonWatch.com puts the spending in this legislation at about $6,500 per U.S. family, or a little over $2,000 per person. [Please forward this email to those whom it may interest (and not to those whom it won't).] Troubled Asset Relief Program The central feature of the bill is the creation of a Troubled Asset Relief Program, or “TARP,” in Section 101. The TARP would exist to “purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary . . . .” Rules about the operation of the TARP and oversight of it are found in other sections that follow Section 101. The Secretary of the Treasury would be authorized to spend up to $700 billion on this program. Congressional Controls? While the legislation has a great deal more oversight than earlier proposals, spending would likely reach the full $700 billion permitted in the bill. The major impediment to spending all the money is in Section 115, which is called “Graduated Authorization to Purchase.” It would immediately grant the Treasury Secretary authority to spend $250 billion. At any time, the President could send a certification to Congress and the spending authority would rise $100 billion more. After that certification, the President would have only to submit a plan to spend yet more and the Secretary’s authority would rise to the full $700 billion. Only if Congress introduced and passed legislation to stop further spending would it be capped at $350 billion. Congress would almost certainly not pass such legislation, and even if it did the President could veto it, requiring a nearly-impossible-to-reach supermajority in both houses to stop the spending. What Can You Do? Given the size and importance of this legislation, this is a good time to contact your Member of Congress and express your opinion. The Capitol switchboard number is 202-225-3121. You can expect that there will be many calls to Capitol Hill this week. Be patient with the switchboard operators and with the congressional staff in your representative’s office. Ask that your opinion be shared with your Member of Congress, and tell the person you speak with that you will be watching to see how your representative votes. In early November, of course, you can register your opinion of your representative by voting in the election. Again, be polite at all times. Discourtesy to congressional staff will almost guarantee that your views will not be shared with your Member of Congress. email newsletter | tell a friend | wiki | about | home | privacy | contact | log in WashingtonWatch.com P.O. Box 77576 Washington, D.C. 20013

The text of the bailout legislation is below. This comes from a version posted by the L.A. Times that says “discussion draft,” but it has the same file name as the bill posted on the House Speaker’s Web site, so I believe this is the bill that will be considered in the House tomorrow. [Update: I have now downloaded the bill from the Financial Services Committee Web site and confirmed that this is the same document.]

[I will be cleaning up the text, which is copied from a PDF, and making it more presentable. New and improved versions will appear from time to time in this post. (8:40 pm - line breaks removed)(9:20 pm - centering, bolding, and other styling)(12:30 am - indentation)]

Without further ado, the bill:

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Here’s the text of a summary on the current bailout language. I don’t think a summary/salespiece like this matters much. I’m working on getting the actual text – there are some slow servers in important places – and we’ll look it over ahead of votes on it in the House and Senate.

SUMMARY OF THE “EMERGENCY ECONOMIC STABILIZATION ACT OF 2008″

I. Stabilizing the Economy
The Emergency Economic Stabilization Act of 2008 (EESA) provides up to $700 billion to the Secretary of the Treasury to buy mortgages and other assets that are clogging the balance sheets of financial institutions and making it difficult for working families, small businesses, and other companies to access credit, which is vital to a strong and stable economy. EESA also establishes a program that would allow companies to insure their troubled assets.

II. Homeownership Preservation
EESA requires the Treasury to modify troubled loans – many the result of predatory lending practices – wherever possible to help American families keep their homes. It also directs other federal agencies to modify loans that they own or control. Finally, it improves the HOPE for Homeowners program by expanding eligibility and increasing the tools available to the Department of Housing and Urban Development to help more families keep their homes.

III. Taxpayer Protection
Taxpayers should not be expected to pay for Wall Street’s mistakes. The legislation requires companies that sell some of their bad assets to the government to provide warrants so that taxpayers will benefit from any future growth these companies may experience as a result of participation in this program. The legislation also requires the President to submit legislation that would cover any losses to taxpayers resulting from this program by charging a small, broad-based fee on all financial institutions.

IV. No Windfalls for Executives
Executives who made bad decisions should not be allowed to dump their bad assets on the government, and then walk away with millions of dollars in bonuses. In order to participate in this program, companies will lose certain tax benefits and, in some cases, must limit executive pay. In addition, the bill limits “golden parachutes” and requires that unearned bonuses be returned.

V. Strong Oversight
Rather than giving the Treasury all the funds at once, the legislation gives the Treasury $250 billion immediately, then requires the President to certify that additional funds are needed ($100 billion, then $350 billion subject to Congressional disapproval). The Treasury must report on the use of the funds and the progress in addressing the crisis. EESA also establishes an Oversight Board so that the Treasury cannot act in an arbitrary manner. It also establishes a special inspector general to protect against waste, fraud and abuse.

Congress has all the planning skills and foresight of a teenager.

Y’know how when mom and dad are coming back from their weekend away, the kid tries to do all the chores for the weekend in the last hour? That’s Congress.

So as we wrap up the current Session, Congress is racing to do all the things it should have done all year long. Members are throwing every pet project they’ve got at the leadership, hoping to get it through before the Congress ends.

Sure, we’ve got spending decisions for fiscal year 2009, and this financial services bailout, but let’s try to get through dozens of other bills at the same time.

Here’s a look at all the bills that were on the House floor just yesterday. Lots of them are simple and straightforward, but nothing kept Congress from addressing them all through the year.

Congress waited until the last minute and most assuredly isn’t showing these bills, or the really big issues before it, the care it should. We citizens haven’t gotten much of a chance to look them over either.

H.R. 3018
The Family Self-Sufficiency Act of 2007

H.R. 3402
The Calling Card Consumer Protection Act

H.R. 3232
The Travel Promotion Act of 2007

H.R. 6950
The Stephanie Tubbs Jones Gift of Life Medal Act of 2008

H.R. 1014
The Heart Disease Education, Analysis Research, and Treatment for Women Act

H.R. 6946
To make a technical correction in the NET 911 Improvement Act of 2008

H.R. 1343
The Health Centers Renewal Act of 2007
Costs $102.88 per family

S. 2932
The Poison Center Support, Enhancement, and Awareness Act of 2008

S. 1810
The Prenatally and Postnatally Diagnosed Conditions Awareness Act
Costs $0.17 per family

S. 1382
The ALS Registry Act
Costs $0.62 per family

H.R. 6568
The Tom Lantos Pulmonary Hypertension Research and Education Act of 2008

H.R. 6901
The Meth Free Families and Communities Act

H.R. 6469
The Organ Transplant Authorization Act of 2008

H.R. 1157
The Breast Cancer and Environmental Research Act of 2007

H.R. 758
The Breast Cancer Patient Protection Act of 2007
Costs $0.00 per family

H.R. 4544
The Code Talkers Recognition Act of 2007

H.R. 4120
The Effective Child Pornography Prosecution Act of 2007

H.R. 6045
The Bulletproof Vest Partnership Grant Act of 2008

S. 1046
The Senior Professional Performance Act of 2007
Costs $0.05 per family

S. 928
The Homeowners Protection Act of 2007

A good number of bills have been introduced this week to distribute blame and respond to the financial crisis triggered by the failure of the government-sponsored home mortgage enterprises.

“Wakerider” legislation – bills that follow the headlines – deserve some skepticism because the time is ripe for political posturing and other silliness, but some of the bills coming forward might be good.

From the posturing department, there’s H.R. 6987. It would require corporate officers of companies to repay their bonuses during years in which their companies are subject to a taxpayer bailout, and the two preceding years as well.

Fine. We get it. Corporate compensation is high. But even the millions and millions paid to corporate executives is an infinitesimal fraction of the losses at stake in the financial crisis.

Maybe the public needs this symbolism, but I’d rather see Congress put its energy into getting its own house in order. It will be spending hundreds of billions of dollars without oversight this week or next (beyond the financial services bailout money) simply because it didn’t follow regular processes for budgeting and allocating its own spending this year.

From the “Hurry! Close the barn door!” department, there’s H.R. 6853 and S. 3547. The House bill would establish a Nationwide Mortgage Fraud Task Force Act in the FBI. The House passed it on Monday. The Senate bill would create a Nationwide Mortgage Fraud Coordinator.

Hmmmm. What about having a “Countrywide” Mortgage Fraud Coordinator to look into the sweetheart mortgage deals some Senators were allegedly getting from that firm? – but that was news a few months ago, wasn’t it. We’ve all forgotten. (Someone hasn’t: S. 3542 was introduced yesterday to require full disclosure of the terms of home mortgages held by Members of Congress.)

From the “Wha’ happan’?” department, there’s H.R. 6990. It would establish an independent Fannie Mae and Freddie Mac Investigative Commission to investigate the officers and directors at Fannie Mae and Freddie Mac responsible and the decisions that led to the enterprises’ financial instability.

If this thing goes, it had better look at the policy – the implied government backing to these behemoths. The ‘public-private partnership’ – so often such a celebrated concept – is why we’re paying such a huge price now. Maybe “public-private” will come to be recognized as “public losses, private profits.”

And from the “This May Make Some Sense” department, there’s H.R. 6986, which would raise the maximum Federal deposit insurance coverage to $200,000. This seems to update the amounts covered by federal deposit insurance not in response to the crisis, but in response to the possibility that it could be needed. Nice to see someone possibly getting ahead of the curve, rather than following along behind it. But I have to say “least bad” is not high praise . . .

[Update: New bailout text is here. Spending under the new language is likely to be roughly the same. See discussion here.]

The text of bailout legislation that might pass through Congress this coming week is circulating on the blogs (and reliable sources too . . .). I’ve taken it and done a little analysis, based on a few assumptions that I will discuss below.

But here’s the punch line: The bailout will cost about $6,500 per U.S. family, a little over $2,000 per person.

The draft legislation would raise the public debt limit to $11.3 trillion dollars. That’s $116,000 per family, or $37,000 per person, in total governmental debt, which is really your debt.

Because this is draft legislation, and my own estimate rather than an official prediction, I will discuss those assumptions a little bit:

The bill would authorize the Secretary of the Treasury to purchase mortgage-related assets, and it would give him $700 billion dollars to work with. It is possible that the federal government will not expend all of those $700 billion, or even make some money back later on the assets it buys in the near term, but I agree with the blogger who called that laughable.

The Resolution Trust Corporation, which was created to clean up the S&L mess, had an estimated cost of about $50 billion in the early years, but wound up costing about $124 billion. So I assume that the $700 billion made available to the Treasury Secretary will be gone.

These are net present value calculations, made using current interest rates and population figures. I’ve treated the spending as occurring over three years, though most authorities in the draft legislation expire in two. It takes time to ramp up and wind down an operation like this, and it’s very hard to estimate when the spending will happen. This matters because future spending is cheaper than current spending. It’s very difficult to estimate costs when the situation is so fluid, but I think these are fair-to-conservative assumptions.

As I said before, there is almost no way that the government can tax this much money out of us directly. The U.S. government’s credit is obviously weakening, making borrowing more difficult. What will probably happen is that the government will inflate the currency by just printing more dollars. This taxes us a different way by making the cash we have worth less. This also imperils the viability of the dollar as a currency. Loss of confidence in the dollar would make this crisis look like a walk in the park.

The bailout is plainly a sop to the financial services companies whose profits were privatized and whose losses will now be socialized. That’s wrong. The proponents of the bailout, which appear to include most of our political leaders, say that it’s needed to prevent further financial catastrophe. Treasury Secretary Henry Paulson says that reforms will follow.

It’s up to you whom you agree with and whom you believe.

Here’s another “wakerider” bill – legislation introduced on the heels of a newsworthy event – dealing with the collapse of Fannie Mae and Freddie Mac (discussed earlier here and here):

S. 3471, a bill to prohibit government-sponsored enterprises from making lobbying expenditures, political contributions, or other certain contributions. (I’m sure they meant “certain other” contributions.)

This is good, though. Part of the way these organizations shifted the risk of loss to the taxpayer (i.e. you) was by lobbying like crazy, spending something like $174 million on it over the last ten years.

Now, this bill is obviously too little too late. The damage is done and the new regulatory overseer of the Macs has reportedly said “All political activities, including all lobbying, will be halted immediately.” But maybe putting in law will make sure that stays true.

Here’s the current vote on S. 3471. Click to vote, comment, learn more, and edit the wiki article about the bill.

With Congress back in town this week, the legislation spigot has been turned back on.

A new one – strictly reactive to the latest headlines – is H.R. 6864, which would prohibit golden parachute payments for former executives and directors of Fannie Mae and Freddie Mac.

Take that! – you capitalizers on the billions of dollars in institutional risk that we in Congress allowed you to accrue and profit from for oh so many years. We hope you’ve learned your lesson!

Here’s the current vote on H.R. 6864. Click to vote, comment, learn more, or edit the wiki article on the bill.

[Update: The Federal Housing Finance Agency discussed below was created by Title III of Public Law 110-289, the Foreclosure Prevention Act of 2008. This legislation is not linked to H.R. 1427 in the Library of Congress' legislative database so I missed the fact that a version of the bill had passed. I sometimes point out that the federal government is a jack of all trades and master of none. The same criticism applies to me when I report on areas of federal policy that I'm not intimate with. Apologies for missing this.]

Lending giants Fannie Mae and Freddie Mac have been rotting from the inside out for several years now. While the risk to taxpayers has been known for quite some time in Washington, D.C. policy circles, the politics didn’t line up to do anything about it.

So now – hopefully to avert real financial catastrophe – the government has taken over Fannie Mae and Freddie Mac, placing them under the control of conservators.

This San Francisco Chronicle article does a decent job of explaining things. It reports that taxpayers could be on the hook for $25 billion, though some guess it might go as high as $50 or $100 billion. (That’s about $240, $480, or $960 per U.S. family, if the spending were all to occur in the coming fiscal year.)

That’s not to say that people haven’t tried to do something about this before now. Back in March of last year, Rep. Barney Frank (D-MA), the Chairman of the House Financial Services Committee introduced H.R. 1427, The Federal Housing Finance Reform Act of 2007. It passed the House in May of last year, but languished in the Senate.

At a cost of about $55 per U.S. family, H.R. 1427 would have created a new regulatory oversight body for Fannie and Freddie plus tougher standards and reporting requirements for them. Nobody can be sure whether that would have averted the most recent events and the far higher costs to taxpayers, but it might have.

The Chron article reports something important: “The companies will be forced to stop lobbying efforts.” Fannie and Freddie have been legendary for years with their lobbying to keep financial risk with the taxpayer while funneling the profits to owners. Private risk and private profits is A-OK, but public risk and private profits – no damn way. Hopefully, this brings it all to an end.

We’ll follow the goings-on related to this in Congress, which returns to work this week. In the meantime, here’s the current vote on H.R. 1427, The Federal Housing Finance Reform Act of 2007. Click to vote, comment, learn more, or edit the wiki article about the bill.