Oct. 14, 2008 — All eyes are on the economy as we enter the last few weeks before the elections. It's amazing how quick attention can turn; a month or so ago all anyone wanted to talk about was the energy crisis or perhaps health care, but real-world events intervene.
Troubled Asset Auction Program (program to purchase troubled mortgage-related assets through an auction format)
Capital Purchase Program (program designed to provide equity capital under standardized terms directly to certain financial institutions)
Programs for Systemically Significant Failing Institutions (program to potentially provide direct assistance to certain failing firms on terms negotiated on a case-by-case basis; in this case, the exec comp requirements would include restricting golden parachutes for departing executives)
The rules require that entities participating in any of the three programs must comply with the following rules:
Ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution;
Required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate;
Prohibition on the financial institution from making any golden parachute payment to a senior executive based on the Internal Revenue Code provision; and
Agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive.
Joining in the fray, the two presidential candidates have released competing economic plans. Sen. Obama released his plan yesterday. A key centerpiece is "A New American Jobs Tax Credit": a temporary tax credit for firms that create new jobs in the United States over the next two years.
Sen. McCain released his plan today, which focuses on extending unemployment benefits by exempting them from taxation and proposing that withdrawals from tax-preferred accounts — IRAs And 401(k)s — should be taxed at the lowest rate (10%) in 2008 and 2009.
Before the U.S. markets opened today, the president spoke to the nation concerning the economy and the help the government will provide by and U.S. Treasury Secretary Paulson issued a statement describing the new capital purchase program. This voluntary program will be available to qualifying U.S. controlled banks, savings associations and certain bank and savings and loan holding companies engaged only in financial activities that elect to participate before 5 p.m. (Eastern) on Nov. 14, 2008. These entities must also comply with the new executive comp rules that I mentioned above.