House Republicans Offer Insurance Plan to Rescue Wall Street

September 26, 2008

Conservative Republicans in the U.S. House have offered an alternative to a $700 billion government bailout of Wall Street that they say would rely on private capital markets, rather than taxpayers, to free up frozen credit markets.

Other lawmakers have said the proposal lacks detail and that Treasury Secretary Henry Paulson has concerns it would not work. But elements could be included in a package to win more Republican support for the rescue plan.

The House Republican plan calls for:

– A new insurance program to provide insurance for mortgage backed securities, rather than have the government purchase them as proposed by the Treasury Department. Holders of the securities would pay insurance premiums. Supporter argue that the government already insures about half of all mortgage-backed securities.

– Drawing private capital into the system through tax breaks, saying too much private capital is sitting on the sidelines.

– Requiring that Wall Street executives not benefit from taxpayer funded aid. This already is in the package being negotiated between congressional leaders and the administration.

– Providing temporary tax relief to companies to free up capital to maintain operations. Also provide for temporary suspension of dividend payments by financial institutions to free up capital.

– Increasing transparency by requiring firms to disclose to Treasury the value of their mortgage assets on their books, the value of any private bids within the last year for such assets, and their last audit report.

– Requiring Fannie Mae and Freddie Mac to beef up their mortgage underwriting standards.

– The Securities and Exchange Commission to audit reports of failed companies to ensure that the financial standing of these mortgage finance companies was accurately portrayed.

– An SEC review of the performance of the credit rating agencies and their ability to accurately reflect the risks of failed investment securities.

– Creating a blue ribbon panel with representatives of Treasury, SEC, and the Federal Reserve to provide advice and make recommendations on market reforms.

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