GOP Members Forging Alternative Bailout Plan

A group of House Republicans is cobbling together a proposal to stabilize financial markets that can serve as an alternative to the plan proposed by Treasury Secretary Henry Paulson, legislative sources have told CNBC.

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The failure of Monday's vote on the $700 billion bailout package—which these Republicans doubt is likely to cause an economic "doomsday" scenario—emboldened the group to press forward with its own plan, sources said.

The group pressing the alternative plan is doing so for largely ideological reasons: They're opposed to the federal government taking a large role in financial markets, sources say.

Components of the alternative plan including the following, according to sources:

• Require the Treasury Department to guarantee, at up to 100 percent, bank losses resulting from failed mortgage-backed securities originated prior to the plan's enactment. Such insurance, supporters say, would provide immediate value to the securities and a foundation for which they could then be sold. The Treasury Department would finance that insurance by assessing a premium on outstanding mortgage-backed securities.
  
• Allow companies to carry back losses arising in tax years ending in 2007, 2008, or 2009 back five years, generating a tax refund and immediate capital
  
• Allow a "repatriation window" for profits earned by U.S. firms overseas. Such repatriation amounts would not be taxed if invested in distressed debt (as defined by Treasury) for at least one year.
  
• Allow banks to treat losses on shares of preferred stock in Fannie Mae and Freddie Mac as ordinary losses, not as capital losses
  
• Suspend the capital gains tax rate for two years
  
• Limit backing of high-risk loans by Fannie Mae and Freddie Mac  
  
• Schedule Fannie and Freddie for privatization
  
• Suspend "mark-to-market" accounting until the SEC can issue new guidelines that will allow firms to mark these assets to their true economic value
  
• Stabilize the dollar by repealing the Humphrey-Hawkins Full Employment Act, which alternative bailout supporters say diverts the Federal Reserve's attention from long-term price stability to short-term economic growth
  
• Require the Treasury to write rules prohibiting excessive compensation or golden parachutes to executives of failed companies
  
• Task the SEC with regular, annual audit reports of entities the federal government has brought under conservatorship or now owns

The development of the alternative plan comes as members of the Senate consider voting on the original financial rescue plan as soon as Wednesday evening. The $700 billion rescue bill may be attached to a tax plan that included relief to taxpayers paying the alternative minimum tax, or AMT.

(Rep. Peter DeFazio, D-Ore., talks about his alternatives in the video)

The Senate plan would also raise federal deposit insurance limits to $250,000 from $100,000, as called for by the two presidential nominees only hours earlier.

The move to add a tax legislation -- including a set of popular business tax breaks -- risks a backlash from House Democrats insisting they be paid for with tax increases elsewhere.

But by also adding legislation to prevent more than 20 million middle-class taxpayers from feeling the bite of the AMT, the step could build momentum for the Wall Street bailout from House Republicans.

The presidential candidates Sens. John McCain, R-Ariz., and Barack Obama, D-Ill., intend to fly to Washington for the votes, as does Sen. Joe Biden of Delaware, the Democratic vice presidential candidate, the Associated Press reported.

Another possible change to the bill would call on regulators to modify "mark to market" accounting rules. Such rules require banks and other financial institutions to adjust the value of their assets to reflect current market prices, even if they plan to hold the assets for years.

Some House Republicans say current rules forced banks to report huge paper losses on mortgage-backed securities, which might have been avoided.

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