CQ TODAY ONLINE NEWS
– ECONOMIC AFFAIRS
Updated Sept. 22, 2008 – 6:34 p.m.
Congress, Paulson Inch Closer on Rescue Plan
By Benton Ives, CQ Staff
Congressional Democrats and the Bush administration got down to hard bargaining on a financial rescue plan in a day of fast-moving developments.
House Financial Services Committee Chairman Barney Frank , D-Mass., said the administration would accept the creation of a strong oversight board for the program, and provisions to help reduce foreclosures, though Treasury officials would not confirm that. The Treasury would use its position as the owner of mortgage-backed paper to try to work out new loans terms for struggling borrowers, rather than foreclosing, Frank said.
Some lawmakers and interest groups were also pushing for a provision to allow bankruptcy judges to modify mortgage terms. But that provision has not won a sign-off from the White House, and the financial services industry fiercely opposes it.
Frank said Treasury Secretary Henry M. Paulson Jr. also is prepared to accept provisions sought by Democrats that would allow the government to take an equity stake in companies that sell their bad assets to the new program. Any equity stake for the government would include warrants that would allow the government to share profits at the participating company.
Democrats’ demand for provisions to curb executive compensation in companies that participate in the bailout has emerged as a major point of contention. Frank was dismissive of administration concerns about that idea. “I just think it’s inconceivable that the taxpayers could put some money at risk because of bad decision made by people who would then continue to be rewarded without any restriction and in fact would be rewarded for their mistakes,” Frank said.
The developments came hours after Sen. Christopher J. Dodd , D-Conn., chairman of the Banking, Housing and Urban Affairs Committee, began circulating a legislative proposal of his own that would set tough limits on executive compensation for companies that participate in the program and allow the government to take shares in those firms.
Frank said “we’re essentially in agreement” with the Senate approach, though many of the details still had to be worked out.
Dodd announced that Paulson, Federal Reserve Chairman Ben S. Bernanke, Christopher Cox, chairman of the Securities and Exchange Commission; and James B. Lockhart III, director of the Federal Housing Finance Agency, would testify before his committee Tuesday morning on the bailout and the credit crisis threatening world financial markets.
One prominent member of Dodd’s committee — ranking Republican Richard C. Shelby of Alabama — made clear Monday that he is not yet on board for the bailout.
“I am concerned that Treasury’s proposal is neither workable nor comprehensive, despite its enormous price tag,” Shelby said in a statement. “ I believe Congress must immediately undertake a comprehensive, public examination of the problem and alternative solutions rather than swiftly pass the current plan with minimal changes or discussion.”
Others on the Senate panel, however, lined up behind swift action. Three Democrats and three Republicans from the Senate Banking Committee called for quick, bipartisan action, but held their cards close when it came to the details of Dodd’s plan.
“We understand the sense of urgency, the gravity,” of the situation, Dodd said. “We want to act, but we want to act responsibly.”
“We are convinced that inaction could be a disaster,” Robert Bennett, R-Utah., said. “We don’t believe that inaction is an option.”
Congress, Paulson Inch Closer on Rescue Plan
Bennett said he thinks there should be some sort of group overseeing the rescue program, but wouldn’t comment on Democratic proposals concerning executive pay, and other more contentious issues. “I have to look at those in detail,” Bennett said.
Sen. Mel Martinez , R-Fla., said, “We can’t afford to get hung up on any one issue.”
Dodd’s Draft
Dodd’s draft includes language by Sen. Patrick J. Leahy , D-Vt., chairman of the Judiciary Committee, that would restore the possibility of court review of a Treasury bailout. The legislation put forward by Paulson bars court review of the department’s decisions.
Like the Treasury plan, Dodd’s bill would allow assets to be purchased from foreign-owned financial institutions with operations in the United States. It also would authorize the Treasury Secretary to create a fund to guarantee money market mutual fund accounts in a fashion similar to the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits.
President Bush pressed Congress to resolve its concerns quickly.
“Obviously, there will be differences over some details, and we will have to work through them. That is an understandable part of the policy making process,” Bush said in a statement Monday morning. “But it would not be understandable if members of Congress sought to use this emergency legislation to pass unrelated provisions, or to insist on provisions that would undermine the effectiveness of the plan.”
Some lawmakers in both parties, returning to that Capitol after a weekend of listening to constituent concerns about the rescue plan, expressed dismay.
“The plan puts taxpayers at risk with little or no benefit,’’ said Rep. Cliff Stearns , R-Fla.
Under Dodd’s draft proposal, the Treasury would not be able buy any troubled assets “unless the Secretary receives contingent shares in the financial institution from which such assets are to be purchased equal in value to the purchase price of the assets to be purchased.”
Leahy’s language would allow the courts to nullify the Treasury secretary’s actions if they are found to be “arbitrary, capricious, an abuse of discretion, or not in accordance with the law.”
The Judiciary chairman said that passing legislation “that eliminates the role of the courts in reviewing the decisions and policies of the administration invites abuse.”
Broadening Scope
Congress, Paulson Inch Closer on Rescue Plan
Treasury officials, lawmakers and their aides worked through the weekend to draft legislation that would allow the government to buy mortgage-related assets from financial firms, in an effort to clear their books of bad debt and unmarketable securities so they will be able to resume lending.
Over the weekend, the Bush administration sent lawmakers a revised proposal that would broaden the class of assets the Treasury can purchase and would allow foreign-based companies to participate in the program.
Under the new language, the Treasury could purchase “Troubled Assets,” which the proposal defines as both mortgage-related securities and “any other financial instrument, as he determines necessary to promote financial market stability.” By widening the proposal, Treasury could purchase assets backed by an array of consumer debt, such as car loans, credit cards or student loan debt.
That has opened the door to lobbying for other provisions. Bankers, for instance, want help with losses that financial institutions took on preferred stock in Fannie Mae and Freddie Mac when the government took control of the mortgage giants.
The Treasury also broadened the program to include foreign firms by allowing “ any institution . . . having significant operations in the United States,” to participate.
That provision could draw fire from lawmakers who object to the U.S. government helping out major banks that are headquartered abroad.
But Rep. Christopher Shays , R-Conn., appearing with Frank on “Good Morning America,” said it was only realistic to recognize that “foreign companies have helped keep us afloat. ... They have our dollars, and they can do it — use it in certain ways that can help us fund our debt or their, you know, help invest in our economy. And we want them to invest in our economy. We don’t want them to go away.”
It is not yet clear how Democratic leaders plan to move the bailout package. A Senate Democratic leadership aide said that Senate leaders expect the House could act as early as Wednesday, and the Senate would follow.
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.
His draft proposal would establish an “Emergency Oversight Board” to watch over the new Treasury program. The board would include members of the Federal Reserve and the Federal Deposit Insurance Corporation.
Joseph J. Schatz, Edward Epstein, Erin McNeill and Phil Mattingly contributed to this report.
First posted Sept. 22, 2008 10:27 a.m.
Comments
Again, CRAP Headline. The Republican Sterring Committee said that this plan is "lame" Not a word about that. Again you get it wrong.
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