On September 20, the Treasury Department submitted a short three-page draft of a bill to Congress, which proposed a Troubled Asset Relief Program (TARP) giving the Treasury Secretary broad authority to purchase, manage and dispose of up to $700 billion of mortgage-related (and in some cases, non-mortgage related) troubled assets.

The Congressional Democrats immediately responded to Treasury’s proposal with two alternate versions of the bill, drafted by Senate Banking Committee Chairman Chris Dodd and House Financial Services Committee Chairman Barney Frank, respectively. These versions of the legislation included strict oversight of the Treasury Secretary’s actions under the program, greater reporting requirements and the opportunity for review of the Secretary’s decisions. The proposals also added provisions regarding executive compensation caps, bankruptcy reform, foreclosure mitigation, and increased requirements for contracts entered into under the program.

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke testified before Congress throughout the week and, after President Bush’s primetime address on Wednesday evening, appeared to move toward a consensus. On Thursday afternoon, House Democrats, and House and Senate Republicans, announced an agreement on basic principles of the program. The joint agreement included items previously addressed in the draft proposals by Dodd and Frank, including equity sharing, application of profits to the national debt, strong oversight by a board and independent Inspector General, regular detailed reports by the Secretary to Congress, Government Accountability Office audits, and homeownership preservation (including foreclosure mitigation and the application of profits to the Affordable Housing Fund and Capital Magnet Fund). Finally, the joint agreement included a “fence” on available funds for the program, whereby $700 billion would be authorized, with only $250 billion available immediately and an additional $100 billion released upon the Treasury Secretary’s certification that funds were needed. The agreement provides Congress with the authority to deny the final $350 billion through a joint resolution.

The White House meeting, however, showed that the program was far from completion as House Republicans announced a vastly different proposal of their own. The House Republican proposal focuses on using mortgage insurance and private capital to solve the problem and includes the following provisions: 

  • Requires holders of mortgage-backed securities to pay premiums for mortgage insurance;
  • Removes regulatory and tax barriers to allow for private capital to be brought into the market;
  • Provides temporary tax relief for companies and temporary suspension of dividend payments by financial institutions; 
  • Requires participating firms to disclose to Treasury the value of their mortgage assets on their books and the value of any private bids within the last year for such assets; 
  • Requires that Securities and Exchange Commission (i) audit reports of failed companies to ensure that the financial standing of these troubled companies was accurately portrayed; and (ii) review performance of the Credit Rating Agencies and their ability to accurately reflect risks; 
  • Prohibits government-sponsored enterprises securitizing any “unsound” mortgages; and 
  • Creates a “blue ribbon panel” with representatives of Treasury, Securities and Exchange Commission, and the Federal Reserve to make recommendations for reforms of the financial sector by January 1, 2009.

Given the fundamental differences between the proposals, talks concerning this issue will likely extend into this weekend and a consensus may not be reached until early next week.

Treasury fact sheet:


Treasury proposal:


Dodd Bill:


Frank Bill:


House Democrat, and Senate Democrat and Republican, Agreement of Principles:


House Republican Plan: