The administration and congressional Democrats have agreed that the government should take equity in institutions that receive government help for troubled mortgages, House Financial Services Committee Chairman Barney Frank, D-Mass., said yesterday, adding that the final cost to taxpayers of the historic bailout may be as low as $100 billion to $200 billion, rather than the $700 billion being requested by the administration.
"There was some concern about whether they're only going to buy bad assets," Mr. Frank said at a press conference on Capitol Hill.
"We got a lot of advice from people in the financial community that they should also be able to take some equity, and we agreed, and the secretary's agreed with that," he said, referring to Treasury Secretary Henry Paulson.
The equity is to come with warrants ensuring that if the company becomes profitable the government will receive extra payment for taking the risk of buying up the loans, he said.
"A lot of the value out there is undervalued," because the market is depressed, Mr. Frank said.
Selling the bad mortgage assets over a longer period could enable the government to break even or even make money, he said.
"It's never going to remotely cost anything like $700 billion."
The administration and congressional Democrats have not agreed on limits on executive compensation and tighter restrictions on corporate governance, Mr. Frank said.
"I just think it's inconceivable that people would say that the taxpayer should put some money at risk because of bad decisions made by people, who would then continue to be rewarded without any restriction, and in fact would be rewarded for their mistakes," he said.
Under the plan being discussed, the administration would create an independently funded oversight board that would not have operational authority, but would have authority to investigate and be a source of information about the institutions that are being aided under the plan, Mr. Frank said.
Congressional Democrats also want the government to handle the crisis to minimize foreclosures as much as possible, he said.
"We accept reluctantly the fact that bad decisions in the private sector, unconstrained by appropriate regulation, have brought us to the point where we have to do this. There's clearly far too much risk-taking going on; far too much leveraging," Mr. Frank said.
Next year Congress will look at tighter regulations on high-risk financial products as well as more regulation of hedge funds and
private equity funds, he said.
