“They don’t seem to have a superplan to deal with this. … We want to see the plan. This is not a done deal yet. But we know there’s crisis, there’s stress, in the financial markets that we haven’t seen in, say, 70 years.” – Republican Senator Richard Shelby
Download: Dept. of Treasury Blueprint
By Benton Ives
Key lawmakers working with Treasury Secretary Henry M. Paulson Jr. on legislation to rescue the financial system say they 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.
Democrats made clear Sunday that they also want stronger oversight provisions, limits on executive compensation and a mechanism to reduce mortgage foreclosures in return for authorizing the government to buy up mortgage-related assets and securities that are clogging the nation’s credit stream.
Senate Democratic leaders conferred by telephone on Sunday, discussing the Treasury proposal and a strategy for the moving it forward.
The Democratic insistence on aid 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.
Treasury is seeking unfettered latitude to borrow funds to buy up faltering mortgage assets and to pay for the costs of administering the program. The 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.”
Republicans warned against piling too much on to the legislation, although they did not dismiss out of hand Democratic demands for action on consumer-focused matters. “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 Sunday on ABC’s “This Week with George Stephanopoulos.”
There were signs that Democrats were willing to keep the rescue bill itself fairly clean and simple, although several made clear they want tougher oversight provisions written into it. But they also signaled they will demand support from the administration and Republicans for additional steps – possibly in companion legislation – to help struggling homeowners, small businesses, and states and localities hit by declining revenues.
Sen. Christopher J. Dodd, D-Conn., chairman of the Banking, Housing and Urban Affairs Committee, said on “This Week” that he had discussed a number of potential add-ons Saturday night with his panel’s top Republican, Richard C. Shelby of Alabama. But those would not necessarily be addressed “within the legislation” authorizing the government purchase of debt, he said.
“We need to give the secretary the authority to work. These are complex issues. I don’t think we ought to micromanage that part of it,” Dodd said.
President Bush and Paulson urged Congress to act on the plan swiftly this week. Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said on the Sunday talk shows that 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, speaking later Sunday at the Capitol, 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.
Dodd added that members understand Paulson needs to act swiftly to unfreeze struggling credit markets. “He’s going to be responsible for doing that. We understand that he doesn’t need us to tell him how to do that,” he said.
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.”
Congressional staff members from both chambers and both parties met on Capitol Hill with administration officials for nearly two hours Saturday afternoon. A senior Democratic staffer who attended the meeting said the officials “walked through the proposal.”
“We’re trying to understand this and get our hands around it,” the staffer said. “A lot of aspects of this are unprecedented.”
“Members want to make sure taxpayers will be protected . . . and that we’re not misfiring,” the staffer said, adding that there are questions about the mechanics of the security purchases and the apparent lack of oversight over the purchasing facility.
The lawmakers most deeply involved in negotiating with the administration – leaders of the Financial Services and Banking committees – were scattered around the country Sunday, making it unlikely that any final decisions on elements of the package will be made until Monday at the earliest.
Democrats are pressing for action on new economic stimulus measures within or in conjunction with the rescue plan for financial institutions.
Sen. Charles E. Schumer, D-N.Y., said on Fox Sunday that a stimulus package should be done “alongside the bailout, but not [as] part of it.”
Frank, on CBS’ “Face the Nation,” said he was speaking for “the great majority of people in my party” when he focused on “the need for stimulus being part of this overall approach and reducing foreclosures and reducing [executive] compensation or restricting it.”
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.”
Paulson was cautious when asked about the possibility of tying other measures to passage of the financial rescue.
“We want this to be clean and we want it to be quick,” he said on Fox.
Schumer and Dodd met at the Capitol with key staff after the round of TV talks shows on Sunday.
“I think Paulson is open to changes provided they don’t get in the way of the specifics of buying the bonds,” Schumer said, as he headed into that meeting.