Senator Dodd is rejecting the blank check and demanding that we get equity for our $700 B:
The legislation requires Treasury to take an equity stake equal to the purchase price of the assets being bought. If the company isn't publicly traded, the government would take senior debt instead, placing it in the front of the line of debt holders for repayment in the event of a bankruptcy.
Dodd Proposes Giving U.S. Equity Stake for Bad Debt
Yes, if we pay for it, we get a share in any profits created by the companies. $700 B ought to buy something.
Dodd is offering a 44 page bill. Paulson's was three pages. (See Update for text of Dodd Bill)
(Update II: Krugman likes it so far)
More, after the fold.
Senate Banking Committee Chairman Chris Dodd is offering an alternative bill today on the bail out. Along with the equity stake, it would require a Board to supervise the Secretary of Treasury:
Dodd's proposal also would create a five-member oversight board to supervise the Treasury secretary's purchase and sale of distressed mortgage debt.
It would consist of the chairmen of the Federal Reserve, Federal Deposit Insurance Corp. and the Securities and Exchange Commission as well as two members from the financial industry designated by congressional leaders.
Dodd Proposes Giving U.S. Equity Stake for Bad Debt
Dodd also is going to hit executives on compensation:
Dodd is proposing to penalize executives who take ``inappropriate or excessive'' risks. The executive compensation and severance packages could be reduced if that is ``in the public interest,'' the proposal says. It would also force executives to give back profits they earned that were based on company accounting measures that are later found to be inaccurate.
Dodd Proposes Giving U.S. Equity Stake for Bad Debt
Also included is a provision to ensure decisions taken by the Treasury secretary under the bailout would be reviewable under some circumstances. The Treasury had asked that decisions not be reviewable by any administrative body or court.
The Senate Democrats' language also calls for assistance to homeowners and localities to prevent foreclosures.
Reuters: -US Senate Dems want pay limits, equity in bailout
Bush has not agreed, but he has little choice, in my view:
The draft released by Dodd "does not reflect an agreement with the (Bush) administration on a legislative product for Senate debate. Discussions and negotiations continue," according to a statement from Dodd's office.
Yahoo: Senate Democrats want equity, pay limits in bailout
Of course, if Wall Street does not like these conditions, they can rely on the market. They should understand business. It's our money.
This looks to be the Democratic response, and it's a good start.
Update I: Link to draft of Dodd Bill. Hat tip to Time Waits for No Woman, who brought the link in the comments.
Dodd Bill
Update II: Paul Krugman thinks it is a step in the right direction:
Very preliminary, no details — but this sounds like a big step in the right direction.
snip
Very serious stuff — and a major challenge to Paulson’s approach. Treasury should now be required to explain why this isn’t a much, much better way to do this rescue.
Krugman on Dodd
Hat tip once more to Time Waits for No Woman, who brought this link.