Bailout 101: What new law says

Bailout 101: What new law says
Here's a rundown of key provisions of the financial rescue plan.
By Jeanne Sahadi, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- It took two tumultuous weeks of moral and fiscal debate, but Congress and the Bush administration on Friday finally put a capstone on the $700 billion bailout of the financial system.
President Bush signed the bill less than two hours after the plan, which had been amended and passed by the Senate on Wednesday, was approved by the House.
The changes the Senate made include the addition of a host of tax break extensions and some new provisions intended to help individuals and businesses.

Here's a breakdown of some of the economic rescue plan's main provisions:

Attacking credit crisis: The core of the bill the House will vote on is the same as what it rejected on Monday: the Treasury's proposal to let financial institutions sell to the government their troubled assets, mostly mortgage-related. It would only allow the Treasury access to the $700 billion in stages, with $250 billion being made available immediately.

Protecting taxpayers: The bill is also similar to the original House bill in that it includes a number of provisions that supporters say would protect taxpayers. One would direct the president to propose a bill requiring the financial industry to reimburse taxpayers for any net losses from the program after five years. And the Treasury would be allowed to take ownership stakes in participating companies.
The bill includes a stipulation that the Treasury set up an insurance program - to be funded with risk-based premiums paid by the industry - to guarantee companies' troubled assets, including mortgage-backed securities, purchased before March 14, 2008.

Curbing executive pay: The bill would place curbs on executive pay for companies selling assets or buying insurance from Uncle Sam. For example, any bonus or incentive paid to a senior executive officer for targets met would have to be repaid if it's later proven that earnings or profit statements were inaccurate.

Oversight: The bill would set up two oversight committees.
A Financial Stability Board would include the Federal Reserve chairman, the Securities and Exchange Commission chairman, the Federal Home Finance Agency director, the Housing and Urban Development secretary and the Treasury secretary.
A congressional oversight panel, to which the Financial Stability Board would report, would have five members appointed by House and Senate leadership from both parties.

Tax breaks: The Senate-version of the bill that the House is considering on Friday includes three key tax elements designed to attract House Republican votes.
It would extend a number of renewable energy tax breaks for individuals and businesses, including a deduction for the purchase of solar panels.
The legislation would also continue a host of other expiring tax breaks. Among them: the research and development credit for businesses and the credit that allows individuals to deduct state and local sales taxes on their federal returns.
In addition, the bill includes relief for another year from the Alternative Minimum Tax, without which millions of Americans would have to pay the so-called "income tax for the wealthy."

New accounting rules: The bill underlines the Securities and Exchange Commission's power to change accounting rules on how banks and Wall Street firms value securities, and directs the agency to study the issue.
Some observers argue that tight accounting rules are a major reason for the credit crisis in the first place. Others contend that changing the so-called mark-to-market rules will just bury problems lurking beneath the surface and could further shake investor confidence in the already battered financial sector. (More about the rules.)

Shielding bank deposits: The bill temporarily raises the FDIC insurance cap to $250,000 from $100,000. The bill allows the FDIC to borrow from the Treasury to cover any losses that might occur as a result of the higher insurance limit.
Federal bank regulators, who first floated the idea to Congress late Tuesday, said that bumping up the insurance limits would help improve liquidity at banks across the country. It may also provide a much-needed dose of confidence for consumers who may be worried about the health of their bank. (More about FDIC rules.)
The bill will also temporarily increase the level of federal insurance for credit union savings to $250,000.

Mitigating foreclosures: The bill calls on federal agencies to encourage loan servicers to modify mortgages by a number of means - including reducing the principal or interest rate. It also extends a temporary provision that exempts from federal income tax any debt forgiven by a bank to a borrower in a foreclosure.

Cost: The tax provisions of the bill - the bulk of which come from the addition of tax breaks from other legislation - may reduce federal tax revenue by $110 billion over 10 years, according to estimates from the Joint Committee on Taxation. More than half of that is due to the 1-year extension of AMT relief.
The Congressional Budget Office said it cannot estimate the net budget effects of the troubled asset program because of the many unknowns about that piece of the bill. However, the agency noted in a letter to lawmakers on Wednesday, it expects the program "would entail some net budget cost" but that it would be "substantially smaller than $700 billion."
Overall, the CBO said, "the bill as a whole would increase the budget deficit over the next decade."