Page last updated at 16:09 GMT, Friday, 26 September 2008 17:09 UK

US rescue deal: Sticking points

McCain, Bush and Obama at rescue talks
Key figures remain at odds over the rescue plans
Leading US lawmakers are split over a multi-billion dollar bail-out plan for the US economy.

Under the proposals, the government would spend $700bn (380bn) buying up bad mortgage-related debts from US banks, give the Treasury Secretary powers to oversee the two-year plan and would borrow the cash from the money markets by issuing more government debt.

So what are the sticking points?


The legislation being discussed in Congress will give the US Treasury Secretary sweeping powers to manage the bail-out plan.

However, under the deal currently on the table the secretary will have to report to Congress to update them on progress.

Cash for the bail-out will also be doled out in tranches. Reports suggest the initial slice will amount to $350bn, and each time Mr Paulson needs more cash he will have to return to Congress to ask for it.

Critics fear the unprecedented bail-out will also lead to greater government interference in the corporate world, something Republicans in particular object to.

But both Democrats and Republicans agree that an independent board must make sure the plan is implemented properly.


Most lawmakers agree that some limit must be placed on the pay of executives at rescued firms.

However, the key stumbling block here is how this will be carried out.

Initially, Mr Paulson had objected to the proposals as he believed company bosses would not agree to the measure.

Now he seems to approve, but only if executives are deemed to be receiving "excessive" pay - although what constitutes "excessive" pay is not clear.

Further questions also remain about how to implement a cap on executive wages and how many firms would be affected by the move.


Details of what action the government will take and what it should get in return for its investment remain sketchy.

The initial proposal suggested simply buying up illiquid assets - toxic mortgage-related debts the banks can't sell. But critics say this would leave taxpayers liable for any losses of any rescued company.

Meanwhile, buying these assets at above market prices risks transferring wealth to shareholders and executives of institutions that helped trigger the current crisis.

However, current problems mean banks are not just short on liquidity, they are also lacking in capital.

So to boost money in the financial system some experts have suggested that the government should take a stake in at-risk firms instead. Such a move would also allow the government to benefit from any gains made.

However, the question of how much the government should pay for stakes in these troubled firms also remains.

If it buys shares at too high a price it risks a loss in future, while if it buys at too low a price it risks putting off companies from taking part.


Some Republican lawmakers in the House of Representatives want to see an alternative plan.

It would see the government provide insurance to companies that agree to hold frozen assets, rather than have the US purchase the assets.

They believe that under the Paulson proposal bankers could get off too lightly.

The Republican plan also calls for tax cuts, something the Democrats would not accept.


Critics have attacked the plan for bailing out Wall Street but offering no help to homeowners facing foreclosure.

Democrats have demanded foreclosure laws be weakened to allow borrowers facing the loss of their home more time to pay up.

Supporters say it would make no sense for the government to take over troubled mortgages but not attempt to restructure them - a move that would help the beleaguered US housing market and restore investor confidence, they say.

However Republicans have rejected similar calls from the party over the past year, fearing it will make banks more reluctant to issue new mortgages in the future.

Other help for homeowners could include a requirement that mortgage-lenders must make attempts to restructure existing mortgages before moving to repossession.

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