October 6, 2008
With the Emergency Economic Stabilization Act (EESA) now law, Treasury is moving quickly to choose advisers, issue regulations, and hire companies to serve as asset managers for the Troubled Asset Relief Program (TARP).
Today, Secretary Paulson announced that he has selected Neel Kashkari to be the interim head of the new Office of Financial Stability, which will implement the Troubled Asset Relief Program. Kashkari is currently Assistant Secretary for International Economics and Development and has been a key adviser to Secretary Paulson.
It is our understanding that Secretary Paulson intends to hire a small staff with expertise in asset management, accounting, and legal issues to commence the Troubled Asset Relief Program.
Guidelines Announced by Treasury
Today, Treasury announced a number of interim guidelines relating to the authorities created by the EESA. These interim guidelines address the hiring of asset managers, conflicts of interest, and procurement authorities and procedures.
Treasury also issued notices to financial institutions interested in providing any of the following services: whole loan asset management; securities asset management; and custodian, accounting, auction management, and other infrastructure services. The deadline for responding to Treasury’s solicitations is 5:00 p.m. EST on October 8, 2008.
Below are brief descriptions of the guidelines issued by Treasury today. The guidelines and Treasury’s solicitations can be found on the new EESA web page: http://www.treas.gov/initiatives/eesa/
Asset manager selection guidelines:
Conflict of interest guidelines:
Procurement authorities and procedures guidelines:
Treasury Authority to Make Equity Investments
A provision of EESA that did not receive much attention during Congressional debate appears to provide the Treasury authority to make equity investments in financial institutions if "necessary to promote financial market stability." The definition of "troubled asset" in the legislation includes not only mortgages and instruments based on or related to mortgages, but also "any other financial instrument" if the Treasury, in consultation with the Fed, determines that the purchase of the instrument "is necessary to promote financial market stability." A report must be made to the appropriate Congressional committees if instruments are purchased under this provision.
Although there is yet no gloss on how Treasury might interpret this provision, it appears broad enough to include preferred stock or other equity investments. Economists and others critical of EESA have stated that to the extent that the Treasury plan focused on buying bad mortgage-related assets, it would not address the additional problem of capital impairment in the banking industry, as institutions recognize their losses from such bad assets or the write-down of their holdings of FNMA and FHLMC preferred stock. It may be that this "other financial instrument" provision provides a basis for the Treasury and Fed to address capital weaknesses in banks as the financial crisis evolves. We will be following closely the Treasury’s views on this provision and report as developments occur.
Action on the Hill
Now that Congress has passed legislation to stabilize the government, it is turning its attention to the underlying causes of the financial markets’ meltdown. Representative Henry Waxman, Chairman of the House Oversight and Government Reform Committee, has announced a series of hearings to examine Wall Street’s missteps. Today, the topic was the Lehman bankruptcy filing. Tomorrow, the committee will focus on AIG . On Thursday, October 16, the committee will look into hedge funds’ role in the crisis. On Wednesday, October 22, credit rating agencies will be scrutinized, and on Thursday, October 23, the committee will investigate federal regulatory actions.
The House Financial Services Committee, the House Agriculture Committee, and the House Education & Labor Committee also have scheduled hearings relevant to the market crisis.
Steps Taken by the Fed
This morning, the Federal Reserve Board announced that it will begin to pay interest on depository institutions’ required and excess reserve balances. The Fed also is increasing the size of its Term Auction Facility Auctions, as well as consulting with market participants to find new ways to support term unsecured funding markets. 
Please view Gibson Dunn’s complete series of updates on the financial markets crisis on our website.
 For the full text of these guidelines, see http://www.ustreas.gov.
 When opportunities become available, they will be posted at www.fedbizopps.gov. Businesses may submit capability statements to Treasury’s Office of the Procurement Executive at firstname.lastname@example.org. Small businesses can receive information on participating in Treasury contracting by contacting Treasury’s Office of Small and Disadvantaged Business Utilization at TreasuryOSDBU@do.treas.gov.
 For more information on these actions taken by the Fed, see http://www.federalreserve.gov/newsevents/press/monetary/20081006a.htm.
Gibson Dunn has assembled a team of experts who are prepared to meet client needs as they arise in conjunction with the issues discussed above. Please contact Michael Bopp (202-955-8256, email@example.com) in the firm’s Washington, D.C. office or any of the following members of the Financial Markets Crisis Group:
Public Policy Expertise
Mel Levine – Century City (310-557-8098, firstname.lastname@example.org)
John F. Olson – Washington, D.C. (202-955-8522, email@example.com)
Amy L. Goodman – Washington, D.C. (202-955-8653, firstname.lastname@example.org)
Alan Platt – Washington, D.C. (202- 887-3660, email@example.com)
Michael Bopp – Washington, D.C. (202-955-8256, firstname.lastname@example.org)
Securities Law and Corporate Governance Expertise
Ronald O. Mueller – Washington, D.C. (202-955-8671, email@example.com)
K. Susan Grafton – Washington, D.C. (202- 887-3554, firstname.lastname@example.org)
Brian Lane – Washington, D.C. (202-887-3646, email@example.com)
Lewis Ferguson – Washington, D.C. (202- 955-8249, firstname.lastname@example.org)
Barry Goldsmith – Washington, D.C. (202- 955-8580, email@example.com)
John H. Sturc – Washington, D.C. (202-955-8243, firstname.lastname@example.org)
Alan Bannister – New York (212-351-2310, email@example.com)
Financial Institutions Law Expertise
Chuck Muckenfuss – Washington, D.C. (202- 955-8514, firstname.lastname@example.org)
Christopher Bellini – Washington, D.C. (202- 887-3693, email@example.com)
Amy Rudnick – Washington, D.C. (202-955-8210, firstname.lastname@example.org)
Howard Adler – Washington, D.C. (202- 955-8589, email@example.com)
Richard Russo – Denver (303- 298-5715, firstname.lastname@example.org)
Dennis Friedman – New York (212- 351-3900, email@example.com)
Stephanie Tsacoumis – Washington, D.C. (202-955-8277, firstname.lastname@example.org)
Robert Cunningham – New York (212-351-2308, email@example.com)
Joerg Esdorn – New York (212-351-3851, firstname.lastname@example.org)
Stewart McDowell – San Francisco (415-393-8322, email@example.com)
C. William Thomas, Jr. – Washington, D.C. (202-887-3735, firstname.lastname@example.org)
Real Estate Expertise
Jesse Sharf – Century City (310-552-8512, email@example.com)
Alan Samson – London (+44 20 7071 4222, firstname.lastname@example.org)
Andrew Levy – New York (212-351-4037, email@example.com)
Dennis Arnold – Los Angeles (213-229-7864, firstname.lastname@example.org)
Andrew Lance – New York (212-351-3871, email@example.com)
Eric M. Feuerstein – New York (212-351-2323, firstname.lastname@example.org)
David J. Furman – New York (212-351-3992, email@example.com)
Bankruptcy Law Expertise
Michael Rosenthal – New York (212-351-3969, firstname.lastname@example.org)
Oscar Garza – Orange County (949-451-3849, email@example.com)
Craig H. Millet – Orange County (949-451-3986, firstname.lastname@example.org)
Janet M. Weiss – New York (212-351-3988, email@example.com)
Executive and Incentive Compensation Expertise
Stephen W. Fackler – Palo Alto (650-849-5385, firstname.lastname@example.org)
Michael J. Collins – Washington, D.C. (202-887-3551, email@example.com)
Sean C. Feller – Los Angeles (213-229-7579, firstname.lastname@example.org)
Amber Busuttil Mullen – Los Angeles (213-229-7023, email@example.com)
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