Oversight board

One of the most controversial issues was the unbridled authority the original plan gave to the Treasury secretary to buy the distressed assets he deemed necessary.

The compromise legislation establishes an oversight board with the power to direct and potentially limit the secretary’s discretion. It is likely to include three heads of federal agencies (the US Federal Reserve, the Securities and Exchange Commission and the Federal Deposit Insurance Corporation) and two directors appointed by Congress.

It will set up controls on conflicts of interest for investment firms hired by the Treasury to advise on the programme; establish a new Treasury inspectorate to monitor and oversee the use of the fund; require all transactions to be posted online; and make them subject to judicial review.

Homeowner help

From the start of the debate, Democrats in Congress were insistent that the package help homeowners directly, as well as through bailing out financial institutions.

The proposal gave them a chance to press plans to revise the bankruptcy code to help homeowners facing the threat of foreclosure.

In practice, a compromise has been worked out whereby the Treasury can use its authority as the owner of mortgages (and securities backed by mortgages) to reduce the number of foreclosures, including by reducing the principal or interest rate on mortgages or lengthening the payback period. Other proposals did not make it into final legislation, such as one to allow judges forcibly to write down the mortgage on a primary residence in case of bankruptcy.

Executive pay

With criticism of Wall Street rampant throughout the US, according to opinion polls, there was a strong feeling that top managers who had recklessly lent and invested should not benefit from the improvement in the finances of their companies .

The legislation allows for companies taking part in the asset sales to come under rules on executive compensation. The rules kick in for firms that have more than a threshold value of assets – $100m has been suggested – bought by the Treasury.

They would limit CEO compensation to discourage excessive risk-taking and prevent “golden parachute” pay-outs.

Taxpayer benefits

One of the concerns that arose from the original plan was the lack of benefits for taxpayers from the deal. While the Treasury could lose money if the assets turned out to be worth less than they paid for them, they would not benefit from gains in share prices in the institutions.

The proposal seeks to allow the Treasury to take warrants in non-voting stock from firms in the auction. It also includes a provision for the overall cost to be recouped from the beneficiaries of the deal if it makes losses. If the programme makes a loss after five years, the president will submit a plan for recovering the shortfall that could involve taxing the Wall Street companies whose assets were bought with public money.