CQ TODAY PRINT EDITION
Sept. 17, 2008 – 3:44 p.m.
AIG Bailout Causes Jitters on Hill
By Benton Ives, CQ Staff
Despite many lawmakers’ eagerness to adjourn next week and hit the campaign trail full time, leaders are making contingency plans to return to Washington amid rising concerns in both parties about the Bush administration’s economic strategy.
Speaker Nancy Pelosi said Wednesday that oversight activities would continue after the House adjourns — specifically in the Oversight and Government Reform Committee, chaired by Henry A. Waxman , D-Calif.
“We will continue to deal with this with oversight,” Pelosi said. “Mr. Waxman said we will be having hearings even after the Congress adjourns. . . . So our work will not be done.”
In the Senate, Majority Leader Harry Reid said his chamber won’t formally adjourn either after it finishes other work for the year. “That way, at least the committee structure can be maintained,” he told reporters.
But it remained unlikely that Congress would consider broad legislation to address the turmoil in the financial sector this year.
“No one knows what to do,” said Reid, D-Nev. “We are in new territory. This is a different game. We’re not out here playing soccer, basketball or football. . . . It is a multitrillion-dollar issue that is facing America, and we can’t do it on some timeline that is unrealistic.”
And Pelosi made it clear she believes administration officials bear the burden of turning the situation around. “This is their problem, this is their solution. We will be looking into it,” she said.
Meanwhile, the White House indicated it was considering a wide range of options. Press Secretary Dana Perino said the administration had “an open mind” about the idea of creating an entity similar to the Resolution Trust Corp., which managed the savings and loan crisis, to deal with the financial shake-up. Some lawmakers have floated the idea in recent days.
“We’re going to hear a lot of proposals in the coming days as we try to work through this. We have an open mind,” Perino said. “We’ll always review things that will strengthen the economy, but we’re still working through a lot of those ideas that are coming forward.”
Some Want ‘Systemic’ Approach
Lawmakers on both sides of the aisle are growing restive at what they perceive as a piecemeal approach by the Bush administration to the crisis after the federal takeover of insurance giant American International Group Inc. (AIG), facilitated by an $85 billion government loan.
“The Fed has $800 billion and can lend to whoever it wants to, on whatever terms it wants to. That’s not really appropriate,” said House Financial Services Chairman Barney Frank , D-Mass. “If that capacity is needed, it can’t be done unilaterally ad hoc by the Fed. It has to be done systematically.
“No one in this country, unelected, should have $800 billion to dispense as he sees fit,” Frank said, while noting that he considered Federal Reserve Chairman Ben S. Bernanke a “responsible” and “thoughtful” person.
AIG Bailout Causes Jitters on Hill
Frank, along with several prominent economists, has suggested that the government might have to intervene to help struggling companies deal with billions of dollars’ worth of mortgage-related securities that have gone bad.
Senate Banking Chairman Christopher J. Dodd , D-Conn., has said he thinks the Federal Reserve already has the necessary authority to buy bad debt weighing down financial institutions. Frank is planning hearings next week to consider the issue.
Wanting ‘a Better Heads-Up’
Two House Republican leaders slammed the administration for not keeping them informed about the AIG decision.
“I frankly think members of Congress could have gotten a better heads-up about how closely intertwined AIG was with so many facets of the economy,” Minority Whip Roy Blunt , R-Mo., told reporters. “Our caucus doesn’t feel it understands a coherent strategy, if there is one.”
He said the Fed’s decision on AIG, blessed by the Treasury Department, was puzzling to many Republicans because only a few days earlier the administration had refused to bail out the Lehman Brothers investment bank, which filed for bankruptcy.
“We thought the Lehman Brothers message was a clear one,” Blunt said. “But 48 hours later, it was complicated by coming in with the AIG decision that seems to contradict that.”
House Republican Conference Chairman Adam H. Putnam of Florida said, “We believe as the elected representatives of the taxpayers . . . there should be better information about the criteria they use to make these decisions.”
Putnam said Republicans still have confidence in Bernanke, “but that reservoir is not limitless. People need to understand what’s behind this ad hoc strategy.”
Perino said the administration “is taking this on a case-by-case basis, evaluating each one carefully,” repeating assertions that a failure of AIG would have caused major economic turmoil.
“We remain concerned about other companies,” she added, without naming any, “and that’s why the secretary of the Treasury continues to work with the team to see if we can stem any other losses.”
Reid also complained about a lack of administration consultation with Congress. He said a Tuesday night meeting with Bernanke and Treasury Secretary Henry M. Paulson Jr. on the AIG bailout was the first contact he’d had with the administration on the crisis this week.
Larger Role for Congress
AIG Bailout Causes Jitters on Hill
Pelosi, D-Calif., said the AIG move will force Congress into a stronger oversight role. “An $85 billion loan is a staggering sum and is just too enormous for the American people to bear the risk; Congress will demand answers to prevent this from happening again,” she said.
Pelosi said she has asked Frank and Waxman to hold hearings “that will examine the Bush administration’s mismanagement of financial-market regulation and how it led us to this remarkable failure.”
Lawmakers will investigate whether fraud played a role in AIG’s failure, why foreign investors aren’t helping to fund the bailout, and why the “Bush administration didn’t use its existing regulatory authority effectively and sooner,” Pelosi said.
Waxman scheduled two hearings — one on Oct. 6 with Lehman chief executive officer Richard Fuld, which was originally set for next week, and one on Oct. 7 on AIG, to which executives Robert B. Willumstad, Martin J. Sullivan and Maurice R. Greenberg will be invited to testify.
Housing Still Looms
Republicans and Democrats alike said more aggressive action may be needed to stem continuing problems in the housing market. Those problems have spread to the broader financial system, leading to widespread losses and a credit crunch.
The housing troubles “continue to exert a powerful drag on our financial markets and the economy as a whole,” Rep. Spencer Bachus of Alabama, the top Republican on the Financial Services panel, said at a hearing Wednesday. “Yesterday’s events brought that home to us in a powerful way.”
“Until you address the underlying cause of this problem, which is the foreclosure crisis, this problem is not going to go away,” Dodd said, adding that regional banks could feel increasing financial pressure.
Alan K. Ota, Kathleen Hunter, Edward Epstein, Erin McNeill, David Clarke and Adam Graham-Silverman contributed to this story.
Comments
$85 billion to bail out AIG? No great shakes! The U.S. has printing presses, ink and paper to print that amount of dollars in less time it takes a metro daily to do an early edition press run. Sterling Greenwood Aspen Free Press
"And Pelosi made it clear she believes administration officials bear the burden of turning the situation around. "This is their problem, this is their solution. We will be looking into it," she said." Let me get this straight. Pelosi said "This is their problem"?????! WHAT KIND OF LEADERSHIP (?) DO WE HAVE IN THIS COUNTRY? This is EVERYONE'S problem and we all must do what we can to figure it out. Our entire Financial system is crumbling and causing Great Depression #2 and House Speaker Pelosi is sitting in her chair sipping coffee saying "This is your problem, guys, deal with it?" I hate to bring up politics in a time like this but do NOT forget what this woman just said. That's like a CFO pointing to the CEO and saying "you got us into this mess, you figure it out, I'll play golf while you take the fall". Typical...let's not get another female house speaker again anytime soon, ok?
This presents an amazing amount of government involvement into what has traditionally been seen as very capitalist institutions. Congress may be able to help, but hopefully these companies don't just continue their same financial tactics and wait for the government to bail them out every time. There has to be some level of responsibility. LB
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