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.Agreement on Bailout Bill?

The ''Emergency Economic Stabilization Act of 2008" Will Set Up "TARP"
for the U.S. Economy and the Hospitality Industry


By Jim Butler, Hotel Lawyer | Author of www.HotelLawBlog.com - 30  September 2008 - 

The Bailout Bill may pass. Hospitality Lawyer muses what it means to the world's economy and the hospitality industry. . . 

As of 7 pm, Sunday, September 28, 2008, it appears that all contingents have approved the largest financial bailout in U.S. history -- a historic $700 billion which is more than the entire budget for 2009. Here is an early take on this situation.

The ''Emergency Economic Stabilization Act of 2008" -- The $700 billion Bailout Bill

Here is the text of the bill that may be approved by Congress and the President in the next few days.

The overview and a new alphabet soup to memorize.

The bill is called the Emergency Economic Stabilization Act of 2008. Who knows what acronym it will acquire in the coming days . . . Will it become known as the EESA or will it always be the "Bailout Bill" for the Panic of 2008?

The bill establishes a "TARP" or Troubled Asset Relief Program which is described in Section 101 of the Law. Get ready for all the bad puns about the protection of a TARP over your business or industry. The painters will be chagrined.

There is also a new "Fund" called the Assets Insurance Financing Fund (AIFF?) apparently created as the compromise with the "revolting House Republicans".

The law basically will be administered by the Treasury, which many assume will make the Treasury the predominant financial regulator in the U.S.

And the term "Financial Institution" (generally meaning those institutions that are eligible to participate in the bailout) is very broadly defined to include banks, savings associations, credit unions, security brokers or dealers, and insurance companies established or regulated under the laws of the U.S. or any State of the U.S.

The law is basically focused on assets that involve residential or commercial mortgages or any securities related to mortgages issued before March 14, 2008. It may also include other instruments that the Secretary of the Treasury determines must be purchased to promote financial market stability.

There is also a Financial Oversight Board to make sure things go well. This is comprised of:

•  the Chairman of the Board of Governors of the Federal Reserve System 
•  the Secretary of the Treasury 
•  the Director of the Federal Home Finance Agency 
•  the Chairman of the Securities Exchange Commission 
•  the Secretary of Housing and Urban Development

When do we know what this really means to us? Why are asset mangers the new elite in the EESA?

Right now, no one really knows what the largest financial bailout in history really means. Although it takes more than 100 pages to say it, the real decisions will be made in the next 45 days when regulations are supposed to be promulgated.

This bill may be the biggest boon to asset managers in the history of the U.S. The EESA expects to hire asset managers to assist in the purchase and sale of assets, and the management of those assets to optimize value. Who will be the asset managers? How will they go about their job? How do they select assets to purchase or manage? These are all great questions to be answered "soon" when regulations are promulgated.

It is expected that troubled assets will be valued by a Dutch Auction, where sellers offer bids of the prices at which they will sell their assets, and the buyer takes the cheapest assets first.

How much?

The purchasing power of the legislation is $700 billion.

It comes in tranches: 

•  $250 billion is authorized immediately 
•  Another $350 billion can be authorized by Treasury upon certification to Congress 
•  Thereafter, the President can authorize another $100 billion upon submitting a report to Congress, unless denied by a joint resolution of Congress

The Bill increases the Federal Debt ceiling to $11 Trillion to accommodate these commitments.

The bill is not yet law. The discussion above is the current iteration of what is believed to be the version that may be passed by House and Senate in the next few days. Nancy Pelosi has said that this version of the law is "frozen", meaning that it cannot and will not change further.

There is incredible administrative authority to be exercised in implementing this law. It will be many weeks before we really know what it means and how it will apply.

But in any event, this is one of the most important pieces of legislation and financial policy to be implemented in the world in the many decades. We will continue to be here to help interpret and evaluate the impact on the economy, as well as the Hospitality Industry.



About the Author:
Jim Butler is one of the top hotel lawyers in the world. GOOGLE “hotel lawyer” or “hotel mixed-use” or “condo hotel lawyer” and you will see why.  He devotes 100% of his practice to hospitality, representing hotel owners, developers and lenders.  Jim leads JMBM’s Global Hospitality Group®—a team of 50 seasoned professionals with more than $40 billion of hotel transactional experience, involving more than 1,000 properties located around the globe. In the last 5 years alone, they have brought their practical advice to more than 80 “hotel-enhanced mixed-use” projects, a term Jim coined to fill a void in industry lexicon.  This term describes one of the hottest developments in real estate-where hotels work together with shopping center, residential, office, retail, spa and sports facility components to mutually enhance the entire project’s excitement and success. Jim and his team are more than “just” great hotel lawyers.  They are also hospitality consultants and business advisors.  They are deal makers.  They can help find the right operator or capital provider. They know who to call and how to reach them. They are a major gateway of hotel finance, facilitating the flow of capital with their legal skill, hospitality industry knowledge and ability to find the right “fit” for all parts of the capital stack.  Because they are part of the very fabric of the hotel industry, they are able to help clients identify key business goals, assemble the right team, strategize the approach to optimize value and then get the deal done.  Jim is the author of the Hotel Law Blog, www.HotelLawBlog.com.  He can be reached at +1 310.201.3526 or jbutler@jmbm.com.
 
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Contact:

Jim Butler
Chairman, Global Hospitality Group
Jeffer, Mangels, Butler & Marmaro LLP
1900 Avenue of the Stars, 7th Floor
Los Angeles, CA 90067-4308
(310) 201-3526 direct
jbutler@jmbm.com
www.HotelLawBlog.com
 

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Also See:  Tough Sledding Ahead for Hotel Industry / Karen Johnson / September 2008
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