The outrage on the part of Congress– not to mention theconstituents – is understandable, given the size of the billtaxpayers are being asked to foot, Seth Weinstein, principal ofStamford, CT-based Hannah Real Estate Investors, tellsGlobeSt.com.

|

Furthermore, the proposed plan doesn't address the fundamentalproblem of accountability or of a financial system that has gottenseriously out of whack, he says. "Today, financial engineers thatpackage and repackage derivative products stand to earn 10 times asmuch as the original developers or manufacturers of theseproducts," he says, citing what he says is just one example.

|

Unfortunately – or not, depending on one's view – it appearsthat the sizable detractors to the plan proposed by Secretary ofTreasury Henry Paulson last week may ultimately get their wish,either by blocking it outright or by weighing it with unpalatablerequirements. Some of the suggested additions to the plan arecounter-intuitive, David Webb, senior managing director –principal, with Cassidy & Pinkard Colliers in Washington DC,tells GlobeSt.com. Capping CEOs pay of companies participating inthe plan is an example. "There is no point of having a program thatdiscourages lenders from participating." Other proposals, though,do make sense – such as requiring the firms to share their profitswhen the economy and their fortunes do rebound. "If the governmentoverpays for these assets that are now under water, it makes sensethere should be some kind of compensation."

|

While politics is a backdrop to the negotiations, many Hillwatchers attribute the struggle over the plan more to a sense ofaccountability by Congress. "This is not a partisan thing,"Elizabeth Holtzman, a former Democrat member of Congress, formerNew York City comptroller, and now co-chair of the governmentrelations practice group at the New York City-based law firmHerrick, tells GlobeSt.com.

|

"There will be a new Treasury secretary [after theinauguration], and many Democrats think it'll be a Democrat.Requiring transparency, requiring the possibility of judicialreview, and requiring appropriate checks on the Secretary of theTreasury is not a partisan move on the part of Democrats. When youtalk about the expenditure and management of $700 billion, nobodyshould get a blank check, regardless of what party they belong to."There are some Republicans who feel there ought to be appropriatechecks on the Secretary of the Treasury as well, she notes. "Thebottom line is that nobody should be that unaccountable or havethat kind of absolute power. The idea of checks and balances isthat two heads are better than one."

|

Even if the plan does go forward, it is unclear whether it willsucceed or not, "Even a perfectly constructed plan can fail if itis not well executed," Don Henry, chief real estate officer of theAtlanta-based Wells Real Estate Funds, tells GlobeSt.com. "Andunfortunately, we don't have that many details about how this wouldwork just yet."

|

One factor that will likely push the rescue toward the finishline is that the government has used just about all of the economictools at its disposal – and still financial calamity is a distinctpossibility. For instance, although the Federal Reserve Bankdeclined to cut the federal funds rate last week, there have beenpublished reports of rumors that it may reverse itself.

|

But at this point, lowering rates is unlikely to help, HughFinnegan, a partner with Sullivan & Worcester LLP, tellsGlobeSt.com. "The issue now is two-fold. One, lenders need tomaintain their own capital in order to shore up their balancesheet. This means that they are not lending money, including toeach other. Until the inter-bank market stabilizes, there will notbe a lot of activity. Secondly, right now, no one knows whatproperties are worth. As a result, banks do not want to lend unlessthere is a huge amount of equity in the deal. The residentialmarket needs to bottom-out before that will happen."

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.