Second time was certainly a charm! With a vote of 263 to 171, the House passed the $700 billion Emergency Economic Stabilization Act of 2008. The Senate had approved the same bill Wednesday night by a vote of 74-25. Soon after, the President signed the bill, officially passing the far-reaching legislation.
I know the question we are all asking ourselves right now is how is this going to affect all of us. How will it affect our retirements? How will it affect the mortgage crisis? How will it affect our portfolios? The answers to these and other questions will only be answered over time but what I can tell you is that the legislation is a critical step toward stabilizing our markets. The main goals of the act are to:
•- Shine a new light of scrutiny and accountability on Wall Street including a curb on executive pay for companies selling assets or buying insurance from Uncle Sam. For example, any bonus or incentive paid to a senior executive officer for targets met would have to be repaid if it's later proven that earnings or profit statements were inaccurate. The bill also underlines the Securities and Exchange Commission's power to change accounting rules on how banks and Wall Street firms value securities, and directs the agency to study the issue. Some observers argue that tight accounting rules are a major reason for the credit crisis in the first place. Others contend that changing the so-called mark-to-market rules will just bury problems lurking beneath the surface and could further shake investor confidence in the already battered financial sector.
•- Let financial institutions sell to the government their troubled assets, mostly mortgage related which would allow the Treasury access to the $700 billion in stages, with $250 billion being made available immediately.
•- Provisions that support taxpayers including one that would direct the President to propose a bill requiring the financial industry to reimburse taxpayers for any net losses from the program after five years. And the Treasury would be allowed to take ownership stakes in participating companies.
•- The bill would set up two oversight committees. A Financial Stability Board would include the Federal Reserve chairman, the Securities and Exchange Commission chairman, the Federal Home Finance Agency director, the Housing and Urban Development secretary and the Treasury secretary. A congressional oversight panel, to which the Financial Stability Board would report, would have five members appointed by House and Senate leadership from both parties.
•- The bill calls on federal agencies to encourage loan servicers to modify mortgages by a number of means - including reducing the principal or interest rate. It also extends a temporary provision that exempts from federal income tax any debt forgiven by a bank to a borrower in a foreclosure.
•- Provide tax breaks for the middle class including three key tax elements. It would extend a number of renewable energy tax breaks for individuals and businesses, including a deduction for the purchase of solar panels. The legislation would also continue a host of other expiring tax breaks. Among them: the research and development credit for businesses and the credit that allows individuals to deduct state and local sales taxes on their federal returns. In addition, the bill includes relief for another year from the Alternative Minimum Tax, without which millions of Americans would have to pay the so-called "income tax for the wealthy."
So how long will we take for this to be seen on the proverbial Main Street? According to some analysts, it will take several weeks for us to see credit unfreeze but we should see some almost immediate benefits on Wall Street.
I agree with NAR's stance that we are gratified that the government recognized the importance of passing the Emergency Economic Stabilization Act of 2008. The health of the nation's housing market is critical to the financial well being of every household in the country and that, of course, is front and center here in California. I believe the legislation will help restore the liquidity in the mortgage market, which will stabilize the housing market and protect home owners. People have been, and will be debating for a very long time, the specific causes, who's to blame, who should be paying the price - but ultimately we needed quick action in the credit markets in what was quickly becoming a severe global financial crisis.
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