CQ TODAY ONLINE NEWS
– BANKING & FINANCIAL SERVICES
Updated Sept. 21, 2008 – 5:07 p.m.
Lawmakers Scramble to Finish Financial Bailout Bill
By Benton Ives, CQ Staff
Key lawmakers working with Treasury Secretary Henry M. Paulson Jr. to rescue the nation’s teetering financial system want some help for ordinary Americans in return for granting him sweeping powers to purchase up to $700 billion worth of bad debt from financial firms.
Senate Democratic leaders conferred by telephone Sunday, discussing the Treasury proposal and a strategy for moving it forward.
According to Christopher J. Dodd , D-Conn., chairman of the Senate Banking, Housing and Urban Affairs Committee, one approach under consideration would add the bailout bill to a continuing resolution Congress must clear by Sept. 30 in order to keep the government funded.
“I presume they’re going to work on trying to put this in a continuing resolution,” Dodd told reporters Sunday afternoon. No final decision has been made, he cautioned, “but I’m working on that assumption.”
Dodd said there was broad agreement, at least among Democrats, that the Treasury’s sweeping powers should be paired with greater protections for taxpayers, more oversight of the new program and more help for homeowners facing foreclosure.
House Speaker Nancy Pelosi , D-Calif., underscored that point.“Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive executive compensation,” she said in a statement Sunday. “We will not simply hand over a $700 billion blank check to Wall Street and hope for a better outcome. Democrats will act responsibly to insulate Main Street from Wall Street.”
Need for Speed
The stock market was sinking fast last week and cracks were opening up throughout the financial system before the dramatic Sept. 18 announcement that Congress and the administration would enact a rescue plan within days.
With the markets set to open again within hours, Paulson made the rounds of the Sunday morning television talk shows, repeatedly stressing the need for speed.
“We want this to be clean and we want it to be quick, and it’s urgent that we get this done,” Paulson said on Fox News Sunday.
Dodd agreed that swift congressional action is needed but said speed is not the only consideration. “It’s important to move quickly; it’s far more important to do this right,” he told reporters Sunday afternoon. “There’s not a second act to this.”
Treasury would prefer unfettered latitude to borrow funds to buy up faltering mortgage-related assets and to pay for the costs of administering the program.
The Paulson plan broadly defines a “mortgage-related asset” as “residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages.” In order to qualify for purchase under the program, the asset would have to have been originated or issued “on or before September 17, 2008.”
Lawmakers Scramble to Finish Financial Bailout Bill
Draft legislative text circulating late Sunday indicated Democrats were bent on putting their own imprint on the bailout bill.
Under the draft, the Treasury secretary would have to set certain standards for executive compensation at any firm seeking to sell its shaky assets to the new entity. Those standards would have to include limitations on severance pay “determined to be appropriate in the public interest in light of the assistance being given to the entity,” among other requirements.
The standards also would have to include “a claw-back provision for incentive compensation paid to a senior executive based on earnings, gains, or other criteria that are later proven to be inaccurate,” according to the draft.
The Treasury entity would also be required to leverage its role as the holder of mortgage-backed securities to work to avoid foreclosure, along with other efforts to keep people in their homes.
The draft language would put the Government Accountability Office in an oversight role over the new Treasury facility, and the GAO would have to report back to Congress at least every 60 days on the program’s performance.
The Democratic insistence on some backstop for Main Street as well as Wall Street could test the bipartisan consensus that formed around the Treasury plan when Paulson and Federal Reserve Chairman Ben Bernanke first outlined the need for a speedy bailout at a dramatic and sobering meeting of 15 congressional leaders on Sept. 18.
Republicans warned against piling too much onto the legislation, particularly unrelated provisions aimed at stimulating the economy, such as added spending for infrastructure, home heating and Medicaid.
“There are a lot of well-meaning, well-intentioned ideas out there but they don’t need to be part of this package,” House Minority Leader John A. Boehner , R-Ohio, said on ABC’s “This Week With George Stephanopoulos.”
Sen. Charles E. Schumer , D-N.Y., said on Fox News Sunday that a stimulus package should be done “alongside the bailout, but not [as] part of it.”
Dodd agreed, saying stimulus provisions would most likely move “as free-standing . . . rather than tied to this,”
President Bush and Paulson urged Congress to act on the bill this week. Rep. Barney Frank , D-Mass., chairman of the House Financial Services Committee, said Sunday he thought the House could pass the legislation by the end of the week but that the Senate might need another few days to complete work on it.
Dodd said that efforts to increase transparency and help struggling homeowners as part of the package were not intended to gum up the Treasury’s plan. “This is not in anyway to deprive the secretary of the ability to act – we totally understand the gravity of the moment,” Dodd said.
“We’re not trying to tie his hands,” he added.
Lawmakers Scramble to Finish Financial Bailout Bill
Under a legislative proposal circulated early Saturday morning, the Treasury would be “authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.” The purchasing authority would sunset in two years.
Paulson said that professional asset managers would help work out the details of the program and “there will be some form of auction process.”
Dodd said lawmakers might try to attach language that would allow bankruptcy judges to reduce the principal and terms on primary residence mortgages, something they are currently barred from doing. Attempts to add such language to an earlier housing bill were rebuffed in the face of heavy financial industry lobbying against the change.
Dodd said the new Treasury entity needs to be accountable, and a board with a strong consultative role, but not veto power, could help do that. He said that the GAO or an inspector general could keep close watch on the new program’s activities.
“I think we make a huge mistake if we just write a check for $700 billion without demanding accountability, addressing homeownership and addressing major concerns about taxpayer exposure,” Dodd said.
Frank, on CBS’ “Face the Nation,” said he wanted to see provisions in the bailout bill aimed not only at reducing foreclosures but also at limiting compensation for corporate executives who got their companies into the precarious situation those firms now face.
While Paulson indicated Sunday “there should be a mortgage relief component to this,” he said compensation limits could discourage participation in the program.
“If we design it so it’s punitive ... this won’t work the way we need it to work,” he said on Fox News Sunday.
But Frank was adamant.
“These are corporations that are offering to us bad debt,” he said on the CBS show. “They are hoping that we will buy some of their bad debt. I think it’s entirely legitimate to say as a condition of buying the bad debt, we want some compensation restrictions. I don’t want the federal taxpayer to be at risk for their bad debt, and then the guy who incurred the debt gets tens of millions of dollars on the way out the door.”
David Clarke, Alan K. Ota and Molly Hooper contributed to this story.
First posted Sept. 21, 2008 12:16 p.m.
Comments
Why is the feds forgetting the tax-payer? All you here about is the poor banks and lending institutions? What about the homeowner, or those of us that had to file bankruptcy because Congress wasn"t doing their job or the crisis caused by corporate greed?
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