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The Emergency Economic Stabilization Act of 2008
The Emergency Economic
Stabilization Act of 2008 (EESA)
is a law authorizing the United States Secretary
of the Treasury to spend up to $700 billion to purchase distressed
assets, especially mortgage-backed securities (MBS) from the
nation's banks, raises the American debt ceiling from $10 trillion
to $11.3 trillion and establishes a program to allow companies to
insure those assets.
The Government's unprecedented, bold and
aggressive market intervention called for by the plan was vital to
prevent further erosion of confidence in the U.S. credit markets and
to get real estate moving again. As real estate goes, so goes our
nation's economy.
Following is a brief synopsis of the Act:
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Stabilize the
economy
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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 making it difficult for
American families, large and small businesses 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.
-
Improve liquidity
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Purchasing impaired assets will create liquidity and promote
price discovery in the markets for these assets while reducing
investor uncertainty about the current value and prospects of
financial institutions.
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Taxpayer
Protection
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Companies that sell some of their bad assets must provide
warrants to ensure that taxpayers will benefit from any future
growth. 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.
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No Windfalls for
Executives
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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. If the Treasury purchases
assets directly from a company and in turn receives a meaningful
equity or debt position, executive pay limits go into effect as
well as a limit on golden parachute payments and they must
return earned bonuses.
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Homeownership
Preservation/Foreclosure Mitigation
- The
Treasury Department must modify existing troubled loans wherever
possible and mortgages owned by other Federal agencies must
modify troubled loans where possible. Implement a plan to
maximize assistance for homeowners and encourage loan servicers
to take advantage of the expanded
HOPE for
Homeowners Program of the National Housing Act and
other available programs to minimize foreclosures.
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Consequence of
Fewer Foreclosures
- Less
inventory on the market, which translates into price jumps.
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Strong Oversight
and Transparency
- The
Treasury Secretary is required to disclose a description of the
transaction, the quantity and pricing of the assets involved
within two days of the transaction and in electronic form. EESA
establishes an oversight board, with a special inspector general
to protect against waste, fraud and abuse. The Comptroller
General is required to conduct ongoing oversight and report to
Congress every 60 days.
-
Judicial review
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FDIC Insurance
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Increased from $100,000 to $250,000 per account
Bank failures today compared to the Savings and
Loan failures of the 80's is miniscule. Unfortunately, this Act was
necessary because the actions of Fannie Mae, Freddie Mac and the
sub-prime loan market caused all sectors of the real estate market
to plummet. Once the capital is infused from the government to the
banks and money starts to flow, you will see a correction in the
market for both real estat and stocks. Although this will take
time, it will create exceptional buying opportunities for the next
several months for people who are looking for great deals. I
believe when the plan is fully implemented the single biggest
beneficiary will be the real estate industry, which will not only be
good for the country but all of us here on Hilton Head Island.
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