Financial Services News & Information : Blank Rome Government Relations Lobbying Firm : Government Relations, Corporate Governance : Financial Reform Watch Law Blog

Congress took the first major step yesterday in levying heavy taxes on bonuses paid to executives of AIG and to institutions who have been recipients of significant (more that $ 5 billion) assistance from the Troubled Asset Relief Program (TARP) in recent months. In a move best described as spasmodic, the House voted 323-93 to place a 90 percent tax on the bonuses of TARP-recipient executives with adjusted gross incomes over $250,000.

Senate Majority Leader Harry Reid (D-NV) moved to bring the legislation to the floor yesterday, but Sen. Kyl (R-AZ) blocked the attempt, saying the Senate needs more time to consider the ramifications. Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Chuck Grassley (R-IA) introduced a bill late yesterday that would impose a 70 percent excise tax—35 percent on the TARP recipient companies and 35 percent on their executives—on excessive bonuses, defined as anything exceeding $50,000 in a calendar year.

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Lest anyone think Congress was not giving the financial crisis enough time and attention, the House Financial Services and Senate Banking Committees are holding no less than six hearings on financial regulatory reform and oversight this week. Down the avenue, the Treasury Department is hard at work crafting plans to release the second half of the Troubled Asset Relief Program (TARP), also known as TARP II. Rumors have it that TARP II will require recipients to dedicate a percentage of the federal funds received to consumer, auto, student, and small business loans. The good “bad bank” or aggregator bank proposal also still seems to be in the works, and the Beltway buzz is that it will not emerge until next week. Perhaps the administration is waiting to see what this week’s Congressional hearings yield.

The General Accountability Office (GAO) just issued its second TARP status report and concluded that while Treasury is making limited progress implementing the recommendations of the last GAO report, there is much work to be done. GAO’s major criticism is that Treasury has no overarching TARP strategy, which is the source of most of the TARP’s other problems. Specifically, the report concluded: “While GAO does not question the need for swift responses in the current economic environment, the lack of a clearly articulated vision has complicated Treasury’s ability to effectively communicate to Congress, the financial markets, and the public on the benefits of TARP and has limited its ability to identify personnel needs.” The Office of Financial Stability (OFS), which oversees TARP, has hired only 38 of the approximately 131 staff members needed.

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In another indication of the knock-on effects of the financial crisis, the auto industry's number one supporter in Congress suffered a preliminary defeat today in his effort to retain a powerful House committee chairmanship. House Energy and Commerce Committee Chairman John Dingell (D-MI) failed to get enough Democratic leadership votes today to retain his chairmanship over challenger Rep. Henry Waxman (D-CA). The Democratic Steering Committee, a leadership organization responsible for determining Democratic committee assignments, voted for Waxman by a vote of 25-22. Waxman is one of the most liberal members of Congress and a champion of environmental issues. Many environmental activists believe that Dingell has spent too long protecting the auto industry, which has resulted in a weakened industry that has failed to produce the cleaner, more efficient cars that consumers want.

The good news for Dingell is he gets a do-over with the full Democratic Caucus which is likely to vote tomorrow to accept or reject the steering committee decision. Dingell believes he has enough votes to prevail over Waxman. The two-dozen incoming Democratic freshmen will participate in that vote, and some believe that Waxman, who endorsed Barack Obama in the Democratic primary, will have more sway with the freshman class. Dingell, who endorsed Hillary Clinton, is expected to draw support from politically moderate members and older members, who are committed to preserving the seniority system.

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While the machinery to oversee Treasury's management of the programs under the Emergency Economic Stabilization Act (EESA) has been slow to gear up, there are signs that the pieces are beginning to fall into place. This comes not a moment too soon, as the clamor from the media and from Capitol Hill for more transparency has been building in the past ten days.

On Friday, November 14th, House Speaker Nancy Pelosi (D-CA) and Senate Majority Leader Harry Reid (D-NV) announced they have picked three of the five members of the Congressional Oversight Panel (COP) established by the EESA. The other two members are to be chosen by House Minority Leader John Boehner (R-OH) and Senate Minority Leader Mitch McConnell (R-KY). The fact that the Democratic leaders did not coordinate the announcement of appointments with their Republican counterparts makes it clear that the day of bipartisan cooperation on Capitol Hill has not yet dawned.

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With each passing day it becomes more apparent that neither the Congress nor the Bush Administration has an appetite for significant new actions to aid the financial system or the economy at large before the end of the year. Congressional leaders on Thursday made it clear that passage of an economic stimulus package or a package to aid the auto industry were looking increasingly difficult. At the Treasury Department, consideration is being given to making Capital Purchase Program assistance available to non-bank financial institutions, but no guidelines for how that might happen or what form the assistance may take have emerged. Meanwhile, congressional Republicans have begun clamoring for more information on the actions Treasury and the Federal Reserve have already taken to assist ailing financial institutions and other companies.

Sen. Chuck Grassley (R-IA), Ranking Member of the Senate Finance Committee, sent a harshly worded letter to the Treasury Secretary and Federal Reserve Chairman "to express concerns and receive answers to questions" he has regarding implementation of the Emergency Economic Stabilization Act of 2008 (EESA). In a statement released along with his letter, Grassley said of the implementation thus far, "When you see so many changes, you wonder if they really know what they’re doing."

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Most people in Washington are carefully tracking political polls today, trying to predict the fates of their presidential and congressional candidates. However, there are others both inside and outside of Washington studying another survey released this afternoon—the Federal Reserve’s quarterly Senior Loan Officer Survey.

The October 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices confirms what many have suspected—credit markets are still struggling. Conducted October 2-16, the survey gathered responses from 55 domestic banks and 21 U.S. branches of foreign banks. The survey focuses on two areas:

1. changes in the amounts of commercial and industrial (C&I) loans and
2. changes in credit limits on existing credit card accounts for prime and non-prime borrowers.

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