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It took two tumultuous weeks of moral and fiscal debate, but Congress and the Bush administration on Friday finally put a capstone on the $700 billion bailout of the financial system.

President Bush signed the bill less than two hours after the plan, which had been amended and passed by the Senate on Wednesday, was approved by the House.

The changes the Senate made include the addition of a host of tax break extensions and some new provisions intended to help individuals and businesses.

Here’s a breakdown of some of the economic rescue plan’s main provisions:

Attacking credit crisis: The core of the plan the House voted on is the same as what it rejected on Monday: the Treasury’s proposal to let financial institutions sell to the government their troubled assets, mostly mortgage-related. It will allow the Treasury access to the $700 billion in stages, with $250 billion being made available immediately.

Protecting taxpayers: The final law is also similar to the original House bill in that it includes a number of provisions that supporters say will protect taxpayers. One will direct the president to propose a bill requiring the financial industry to reimburse taxpayers for any net losses from the program after five years. And the Treasury will be allowed to take ownership stakes in participating companies.

In addition, over time, supporters say, taxpayers are likely to make back much if not all of the money the Treasury uses because it will be investing in assets with underlying value.

The law includes a stipulation that the Treasury set up an insurance program - to be funded with risk-based premiums paid by the industry - to guarantee companies’ troubled assets, including mortgage-backed securities, purchased before March 14, 2008.

Curbing executive pay: The law will place curbs on executive pay for companies selling assets or buying insurance from Uncle Sam. For example, any bonus or incentive paid to a senior executive officer for targets met will have to be repaid if it’s later proven that earnings or profit statements were inaccurate.

Oversight: The rescue plan will set up two oversight committees.

A Financial Stability Board will include the Federal Reserve chairman, the Securities and Exchange Commission chairman, the Federal Home Finance Agency director, the Housing and Urban Development secretary and the Treasury secretary.

A congressional oversight panel, to which the Financial Stability Board will report, will have five members appointed by House and Senate leadership from both parties.

Tax breaks: The Senate-version of the bill that the House passed on Friday included three key tax elements designed to attract House Republican votes.

It extends a number of renewable energy tax breaks for individuals and businesses, including a deduction for the purchase of solar panels.

The law also continues a host of other expiring tax breaks (cash loans). Among them: the research and development credit for businesses and the credit that allows individuals to deduct state and local sales taxes on their federal returns.

In addition, the law includes relief for another year from the Alternative Minimum Tax, without which millions of Americans would have to pay the so-called "income tax for the wealthy."

New accounting rules: The bailout plan underlines the Securities and Exchange Commission’s power to change accounting rules on how banks and Wall Street firms value securities, and directs the agency to study the issue.

Some observers argue that tight accounting rules are a major reason for the credit crisis in the first place. Others contend that changing the so-called mark-to-market rules will just bury problems lurking beneath the surface and could further shake investor confidence in the already battered financial sector. (More about the rules.)

Shielding bank deposits: The law temporarily raises the FDIC insurance cap to $250,000 from $100,000. It allows the FDIC to borrow from the Treasury to cover any losses that might occur as a result of the higher insurance limit.

Federal bank regulators, who first floated the idea to Congress late Tuesday, said that bumping up the insurance limits will help improve liquidity at banks across the country. It may also provide a much-needed dose of confidence for consumers who may be worried about the health of their bank. (More about FDIC rules.)

The plan will also temporarily increase the level of federal insurance for credit union savings to $250,000.

Mitigating foreclosures: The new law calls on federal agencies to encourage loan servicers to modify mortgages by a number of means - including reducing the principal or interest rate. It also extends a temporary provision that exempts from federal income tax any debt forgiven by a bank to a borrower in a foreclosure.

Cost: The law’s tax provisions - the bulk of which come from the addition of tax breaks from other legislation - may reduce federal tax revenue by $110 billion over 10 years, according to estimates from the Joint Committee on Taxation. More than half of that is due to the one-year extension of AMT relief.

The Congressional Budget Office said it cannot estimate the net budget effects of the troubled asset program because of the many unknowns about that piece of the bill. However, the agency noted in a letter to lawmakers on Wednesday, it expects the program "would entail some net budget cost" but that it would be "substantially smaller than $700 billion."

Overall, the CBO said, "the bill as a whole would increase the budget deficit over the next decade." 

Sourse

Last Sunday, I reviewed the major credit cards that give you cash rebates once a year, linked to your spending.

Readers were quick to suggest some great deals I missed.

The no-fee Citi Enrich MasterCard provides 1 per cent cash back on all your spending. The maximum rebate is $250 a year.

With a no-fee Canadian Tire Cash Advantage MasterCard, you also get 1 per cent cash back on all spending. But on all purchases at Canadian Tire stores and gas bars and Mark’s Work Wearhouse, you get a rebate of 2 per cent.

This week, I want to talk about credit cards that give you discounts on life’s essentials – such as groceries, gas and new cars.

When it comes to groceries, the no-fee President’s Choice Financial MasterCard provides 10 points for each dollar spent on the card.

Once you get 20,000 points, you can redeem them for $20 in free groceries at participating supermarkets where PC products are sold. That’s a 1 per cent rebate on all your spending.

Laurentian Bank has a no-fee Visa Black Reward Me card. You get one point for each dollar spent, which you can redeem for gift cheques at 30 participating merchants. For example, with 2,600 points (or $2,600 in spending), you can get a $20 Starbucks card. With 3,250 points (or $3,250 in spending), you can get a $25 card for M&M Meat Shops.

Gasoline discounts are a big draw ever since prices hit $1 a litre. With Laurentian Bank’s Visa Black Reward Me, you can get a $25 Esso card with $3,250 in spending.

Canadian Tire has a no-fee Gas Advantage MasterCard, which gives a discount of 10 cents a litre at company gas bars if you spend $2,000 or more in a billing cycle.

That 10-cent-a-litre gas discount used to be available with more than $1,000 in monthly spending until July 1, 2008. That’s when the rules were changed.

Now you get eight cents a litre off gas if you charge more than $1,000 (and less than $2,000) to your card in a billing cycle, five cents a litre with $500+ monthly purchases and two cents a litre with purchases of up to $500 (instant pay day loan).

To save money on a new car — specifically, a GM vehicle – check out the no-fee GM Visa card offered by TD Bank.

This card gives you 3 per cent in earnings. For example, if you spend $2,000 each month, you will contribute $60 a month toward the purchase price or lease down payment on a GM car or truck, up to $720 a year.

The no-fee Citi Driver’s Edge Platinum MasterCard has a lower benefit level, but more flexibility. You get 2 per cent cash rebates on any new or used car, truck, motorcycle, motor home or all-terrain vehicle you buy or lease in Canada up to $5,000.

You may be confused about which credit card to get. How do you compare rewards, interest rates, annual fees and insurance benefits (such as trip interruption coverage or collision damage waivers on rented vehicles)?

The Financial Consumer Agency of Canada has an online Credit Card Interactive Tool at www.moneytools.ca, a good place to go to start your comparisons. (There are also links to the credit card companies’ websites.)

Next week, we’ll check out a product marketed heavily by many card issuers. Is credit balance insurance worth buying?

Clarification: BMO’s Premium Cashback Reward option on its Mosaik MasterCard provides a 3 per cent rebate at Shell gas stations (not 2 per cent, as I wrote last week).

Ellen Roseman’s column appears Wednesday, Saturday and Sunday. eroseman@thestar.ca

Sourse

If you want to see how America’s credit crisis is hitting the streets of your hometown, go to your local car dealer. Auto dealers depend on credit. They need it to run their stores and their customers need it to buy their products. From every angle, credit trouble hurts.

"I’m talking to dealers every day who are just hanging on," said Denny Fitzpatrick, Chairman of the California New Car Dealers Association and owner of Fitzpatrick Chevrolet Hummer in Concord, Calif.

There could be 300 to 400 fewer auto dealerships in America by the end of the year, predicted Paul Taylor, an economist with the National Automobile Dealers Association. In an ordinary year of economic growth, the industry adds 75 to 150 dealers, he said.

High gas prices that have turned buyers away from large trucks and SUVs - and all but obliterated Hummer sales - have hurt his business, but Fitzpatrick thinks tight credit is doing even more damage.

"We’re seeing people with Beacon scores that are pretty darned good," Fitzpatrick said, "and the finance companies are just looking for reasons to turn them down."

Not every car dealer sees the situation as that dire. John McEleney, president of McEleney Autocenter in Clinton, Iowa and vice chairman of the National Automobile Dealers Association, says he understands that things are hard, but his business is holding up fairly well.

McEleney owns several dealerships and sells several General Motors brands as well as Hyundai and Toyota cars and trucks.

"Probably the most direct effect for me has been availability of retail financing for my customers," said McEleney.

So far his customers can still get auto loans, McEleney said, but they may need a bigger down payment.

"I wouldn’t say it’s that dramatic, yet," he said.

Fortunately for him, McEleney said, Iowa didn’t experience the run-up in home prices other parts of the nation did, including California. That’s means it hasn’t experienced the home equity crash, either.

In most of the country, the collapse of the housing market has left consumers without the low-cost home equity loans that drove car sales in recent years. Also, the drain of home equity has left potential customers feeling poor, said NADA economist Paul Taylor. That, as much as the actual loss of low-interest credit, has hurt car sales.

With sales down, auto dealers who carry large inventories are experiencing their own credit squeeze.

"The cost of doing business is going up," said Mike Jackson, chief executive of AutoNation, the country’s largest car dealership chain. "Especially on floorplanning with domestics."

"Floorplanning" is the line of credit dealers use to pay for their inventory. Domestic-brand auto dealers who carry large inventories will be among the first to die, Jackson predicts.

Floorplan loans become burdensome the longer cars go unsold. For the first three months a car is in inventory, interest on the floorplan loan is usually reimbursed by the manufacturer. Later, if a vehicle is still there after about six months, finance companies can start demanding payment on the principal on the loan.

As credit markets have tightened, GMAC and Chrysler Credit have raised interest rates and what are called "curtailment" costs, the cost of having vehicles in inventory for a long time, according to reports in the industry newspaper Automotive News. (GMAC and Chrysler credit would not confirm those reports.)

"When you’re scrambling with cash flow like this, it’s ‘How are we going to pay these costs?’" said California dealer Fitzpatrick, who finances his inventory through GMAC.

Many dealers have learned to operate with leaner inventories, said Iowa’s McEleney.

"When a dealer is called upon to pay down $100,000 to $200,000 in inventory they have to look to other outlets," said McEleney. Those other "other outlets," other credit sources to draw from to pay curtailment costs, are no longer easily accessible, he said.

Finance companies have an incentive not to squeeze high-performing dealers too hard, McEleney said. Pushing away a good car dealer means driving away a lot of potential consumer auto loans.

"Historically, that’s been a very desirable piece of business from a lender’s standpoint," he said.

That gives big, multi-store dealers more bargaining clout with lenders, said NADA economist Taylor. For example, Asbury Automotive, a large national dealer chain, recently announced that it had locked in a line of credit with several banks. Smaller dealers can’t do that and their interest rates have been fluctuating widely, said Taylor.

Squeezing dealers on curtailment costs can be a way for manufactures and their affiliated auto finance companies to weed out dealers they see as underperforming, Fitzpatrick said. GMAC has been scrutinizing his dealership’s finances more closely, he said. (GMAC could not immediately comment on Fitzpatrick’s complaints. A spokewoman for General Motors said GM plays no role in floorplan financing.)

"The big question is ‘Who’s going to be left standing?" he said. 

Sourse

The United States needs to act urgently to shield its economy from an escalating credit crisis and Europe must ready plans in case its problems worsen, the head of the International Monetary Fund said on Tuesday.

“We’re right at the moment where action is needed,” IMF Managing Director Dominique Strauss-Kahn told Reuters.

“A non-perfect plan is better than no plan at all,” he said of the $700 billion bank bailout plan rejected by the U.S. House of Representatives on Monday.

Strauss-Kahn said restoring market confidence required the bailout plan to be passed quickly and for the U.S. public to understand what is at stake unless the economy starts to function properly again.

As the crisis has spread beyond Wall Street, European countries have stepped up their efforts to avoid bank defaults as concerns grew that more institutions would fail, prompting the Irish government to guarantee all bank deposits.

The lack of a pan-European regulator makes it more difficult to respond to the crisis in the event of the collapse of a big bank whose business crosses borders, Strauss-Kahn said.

“Developing a contingency plan does not mean it’s announcing a lot of trouble coming. But they’re not totally immune (from the U.S. financial crisis), and so they need to organize. At the European level this is totally needed.

“The EU rules make it much more difficult than in the U.S.,” to act across borders, he said. 

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