Myth vs Fact on bailout compromise

A source close to House Republicans has put out a Myth vs Fact rundown of the bailout compromise, announced early this morning.  This may answer some questions that have come up in the comments over the last few days:


Myth:  Windfall for ACORN.

Fact:  The Frank-Dodd proposal created an affordable housing slush fund and directed 20 percent of net benefits from the program to be directed to ACORN-type organizations.  The proposed compromise does not include any affordable housing slush fund and directs all net benefits back to the Treasury to pay down the national debt.

Myth:  Tax increase on financial industry.

Fact:  The proposed compromise imposes NO tax on the financial services industry.  The proposed compromise simply requires a proposal from the Administration to recoup any losses after five years.

Fact:  The proposed compromise includes tax cuts for struggling community banks.

Myth:  Blank check for $700 billion with little accountability.

Fact:  In general, the Treasury Secretary is limited to purchasing up to $250 billion outstanding at any one time.  If the Treasury needs to use another $100 billion, the President must certify this action and report to Congress.  Further spending requires Congressional action.

Myth:  Treasury plan is the only option available.

Fact:  Treasury is given multiple options to deal with the current economic crisis, including insurance, public/private auctions, loan guarantees, and direct support to financial institutions.


Fact:  Further, Treasury is MANDATED to create an insurance program (Section 102) that protects the taxpayers and requires companies that wish to participate in this program to have some skin in the game by paying risk-based premiums.

Myth:  The taxpayer is not adequately protected.

Fact:  The proposed compromise includes strong taxpayer protections.  Treasury’s proposal had minimal oversight to protect taxpayer dollars.  The proposed compromise enhanced the oversight structure by creating a Financial Stability Oversight Board, a Special Inspector General, and a Congressional Oversight Panel.

All AIG-type deals require mandatory equity interest in order to provide taxpayers with potential future benefits.  All auctions require a percentage of equity interest based on participation in the program.

Requires the Secretary to develop regulations/guidelines necessary to prohibit or, in specific cases, manage any conflicts of interest with respect to contractors, advisors, and asset managers.

Myth:  The taxpayer does not benefit from Treasury bailouts.

Fact:  The proposed compromise (Section 113) requires mandatory equity interest in scenarios like AIG.  The proposed compromise also allows Treasury to take an equity interest in the program generally.


Myth:  Treasury will never use the insurance option.

Fact:  Treasury is mandated (Section 102) to establish an insurance program and set risk-based premiums.  This will protect taxpayers by requiring the beneficiaries of the insurance program to pay risk-based premiums.  Treasury further shall collect premiums  mandatory equity interest in scenarios like AIG.  The proposed compromise also allows Treasury to take an equity interest in the program generally.

Will this resolve all of the concerns conservatives have in this plan? No, but it does address some of the most contentious issues. It also shows how much influence that the House Republicans had on the final draft, and for that they can thank John McCain for his intervention.

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Ed Morrissey 4:41 PM on September 29, 2023