After being rejected by the U.S. House of Representatives last September 29, 2008, the Emergency Economic Stabilization Act of 2008 was quickly revised and later named the HR1424 by US Senators to address concerns brought about by those who opposed the bill. Enacting the bill would increase the dependence on the government and hurts the free market structure.

Floating Lifeline – The Bill’s Key Points

Stabilizing the Economy

The Emergency Economic Stabilization Act of 2008 (EESA) provides up to $700 billion to the Secretary of the Treasury to buy 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.

Homeownership Preservation

EESA requires the Treasury to modify troubled loans – many the result of fraudelent and low doc/no doc applications – 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.

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.

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.

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.

Prolonging the inevitable

The obvious factor of the bill being turned down the first time was it’s bloated price tag. Several cities have already taken to the streets and voiced their protests against the bill, stating that the Bank’s responsible for the crisis shouldn’t kept afloat using taxpayers money. But the bill’s authors claim that if nothing is done, the U.S. markets would spiral into an even deeper crisis.