1. Under the Paulson bill, Treasury will have the power to purchase mortgage-related assets. Under the Dodd bill, Treasury will have the power to purchase these assets and “any other financial instrument, as the secretary determines necessary to promote financial market stability.” In Davidoff's words, the Dodd bill “could allow this program to expand to credit card debt, student loan debt, market purchases of equity and even the debt of the big automakers. Basically, the entire financial system.”
2. Under the Paulson bill, Treasury would buy assets with cash. Under the Dodd bill, Treasury would be required to obtain equity warrants as well; Sorkin says that this provision will probably end up being discretionary. So Treasury will be able to obtain equity stakes whenever it believes that doing so makes sense (presumably, so as to obtain a portion of the upside if Treasury overpays for the securities), and will have to exercise whatever control its equity interest gives it, including possibly a say in the management of the firm (think of AIG).
3. Under the Paulson bill, Treasury has no power to determine executive compensation. Under the Dodd bill, the executive compensation provision, in Davidoff's words, “basically puts the Treasury Department in the business of setting compensation and disclosure policies for much of financial America.”
4. Under the Paulson bill, Treasury has no power to adjust mortgages that go into foreclosure. Under the Dodd bill, Treasury is supposed to figure out some way to help homeowners whose property is subject to the securities it obtains, including reducing interest rates and principal.
5. Finally, with respect to the most important discretionary item of them all – negotiating a price of the mortgage-related assets and most of the other terms of the deal – the Paulson bill and the Dodd bill identically leave it up to Paulson and his successors.
The Dodd bill does do three things to confine the discretion of the Treasury Secretary. It provides for (1) limited judicial review (however, it is hard to imagine judges second-guessing pricing decisions); (b) more reporting to Congress; and (c) an oversight committee consisting of various notables that, however, has little power.
In sum, compared to the Paulson bill, the Dodd bill vastly extends the Treasury Secretary’s powers, while putting in place very modest oversight mechanisms. Dodd, and apparently many of his colleagues, want Treasury to do more, not less.
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- The AIG Deal.
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