How Barack Obama's Bailout May Differ From Henry Paulson's

After all their griping and groaning about the shortcomings of Hank Paulson's gigantic financial bailout, lawmakers moved Thursday to ensure that Barack Obama will have access to the second chunk of $350 billion when he takes office. By a 52-to-42 vote, the Senate rejected a measure that would have denied him access to the cash. How did this happen? Well, in addition to the still-perilous state of the economy and financial system—Bank of America just hit up Uncle Sam for another $20 billion—the incoming Obama administration has promised to make a number of specific changes to the bailout's implementation. Here's a look at some specific areas where the second half of the bailout may differ from the first.

1. Foreclosure mitigation. Even after being prodded by lawmakers and other members of the Bush administration, Paulson steadfastly refused to use bailout cash for foreclosure mitigation. This infuriated some members of Congress—such as House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat—who moved to impose foreclosure mitigation as a condition for the release of the second $350 billion. As a result, the new administration is promising to include foreclosure mitigation in the bailout. "The Obama Administration will commit substantial resources of $50-100 [billion] to a sweeping effort to address the foreclosure crisis," Larry Summers, the incoming director of the National Economic Council, said in a letter to top lawmakers. "We will implement smart, aggressive policies to reduce the number of preventable foreclosures by helping to reduce mortgage payments for economically stressed but responsible homeowners, while also reforming our bankruptcy laws and strengthening existing housing initiatives."

2. Tracking the cash. The bailout has been slammed for failing to spark renewed bank lending, one of its original objectives. Moreover, critics have been angered by bailout recipients' inability to make clear exactly where the federal dollars have been put to use. The Obama administration intends to tackle this issue as well. "The Treasury will require detailed and timely information from recipients of government investments on their lending patterns broken down by category," Summers said in the letter. "Public companies will report this information quarterly in conjunction with the release of their 10Q reports."

3. Executive compensation restrictions: The Obama administration also says it will put more restrictions on executive pay by requiring "that executive compensation above a specific threshold amount be paid in restricted stock or similar form that cannot be liquidated or sold until the government has been repaid," Summers said in the letter.

4. Limiting acquisitions: The use of bailout cash to finance acquisitions has also stirred controversy. As a result, the Obama administration has made promises to restrict certain deals. In implementing the second $350 billion, the incoming administration will "preclude use of government funds to purchase healthy firms rather than to boost lending," Summers said in the letter.

Reader Comments Read all comments (16)

Add Your Thoughts

Comment Name State Select One AL AK AZ AR CA CO CT DE DC FL GA HI ID IL IN IA KS KY LA ME MD MA MI MN MS MO MT NE NV NH NJ NM NY NC ND OH OK OR PA RI SC SD TN TX UT VT VA WA WV WI WY International Email

Please enter the two words below into the text field underneath the image.

Incorrect please try again

Enter the words above: Enter the numbers you hear:

Your comment will be posted immediately, unless it is spam or contains profanity. For more information, please see our Comments FAQ.