Economic recovery package signed into law

Credit is expected to loosen but there will be lots of oversight

By Tom Stundza -- Purchasing, 10/3/2008 1:49:00 PM

President Bush has signed the Emergency Economic Stabilization Act, which includes financial-market rescue provisions that could ease credit restrictions. The bill also extended numerous expiring business and energy tax provisions, kept the alternative minimum tax from increasing in 2009, and added disaster assistance.

Highlights of the package provided to Purchasing.com by Ken Simonson, chief economist at the Associated General Contractors in Arlington, Va., include:

• Stabilizing the Economy: The new law provides up to $700 billion to the Secretary of the Treasury to buy mortgages and other assets affecting the balance sheets of financial institutions and making it difficult for families and businesses to access credit.
• Homeownership Preservation: The law requires the Treasury to modify troubled loans wherever possible to help families keep their homes. 
• Mark-to-Market Accounting: This provision gives the Securities and Exchange Commission (SEC) the authority to suspend mark-to-market accounting for any type of security, but doesn't require the agency to act.
• Taxpayer Protection: The act requires companies that sell some of their bad assets to the government to provide warrants so that taxpayers will benefit from any future growth in these companies as a result of participation in this program. 
• No Windfall for Executives: In order to participate in this program, companies will lose certain tax benefits and, in some cases, must limit executive pay. In addition, the bill limits "golden parachutes" and requires that unearned bonuses be returned.
• Strong Oversight: Rather than giving the Treasury all the funds at once, the legislation gives the Treasury $250 billion immediately, and then requires the President to certify that additional funds are needed ($100 billion, then $350 billion subject to Congressional approval). 
• Temporary Increase in Deposit and Credit Union Share Insurance Coverage: The provision increases the maximum amount of FDIC deposit insurance coverage from $100,000 to $250,000 per account, and provides the same increase for credit union deposits. The changes are effective upon enhancement and expire on December 31, 2009.