Agreement Reached on Bailout

Early Sunday morning, an agreement was reached on the proposed $700 billion bailout of financial firms. A vote still needs to be held, but it seems likely that the revised package will be approved by both the House and the Senate.

It is Congress, however, and nothing will be official until a bill reaches President Bush's desk and he signs it into law. Nonetheless, things are looking positive.

The Wall Street Journal, and several other news sources, have a summary of latest version of the proposal. Key provisions include:   

• Half the $700 billion will be paid in the future and is dependent on Congressional review    
• Some bad loans will be insured rather than purchased by the government    
• Taxpayers will receive warrants in participating companies    
• If government is unable to recoup losses within 5 years, a 2% tax will be placed on participating companies to pay back the bad debt    
• CEO compensation will be restricted    
• Oversight is greatly improved    
• The government can modify mortgages

Though not perfect, the latest plan is vastly improved over the original version. The revisions help to protect taxpayers, while still providing much needed liquidity to the financial sector.

Keep in mind that the proposal is not a magic cure for companies like Comerica (CMA) or National City (NCC). It also does not automatically improve business conditions for MBIA (MBI) or PMI Group (PMI).

History will be critical of this bailout and in hindsight, we will find other solutions that would have worked better. However, in a crisis situation, action is better than no action. Henry Paulson and Ben Bernanke deserve credit for coming up with a creative solution.

Read the analyst report on Comerica

Read the analyst report on MBIA

Read the analyst report on National City

Read the analyst report on PMI Group

Read the full analyst report on PMI

Read the full analyst report on MBI

Read the full analyst report on CMA

Read the full analyst report on NCC