Democrats Begin to Set Own Bailout Terms
Democrats Begin to Set Own Bailout Terms
By DAVID M. HERSZENHORN, STEPHEN LABATON and MARK LANDLER
Published: September 21, 2008
This article was reported by David M. Herszenhorn, Stephen Labaton and Mark Landler, and written by Mr. Labaton.
WASHINGTON — Congressional Democrats began to set their own terms on Sunday for a plan to rescue the nation’s financial institutions, including greater legislative oversight of the Treasury Department, more direct assistance for homeowners and limits on the pay of top executives whose firms seek help.
The Democrats’ demands came as Treasury Secretary Henry M. Paulson Jr. blanketed the Sunday talk shows to promote the Bush administration’s $700 billion bailout package, emphasizing that it was needed not just for Wall Street, but for all Americans. He urged Congress to move swiftly to approve a “clean” rescue plan without tacking on extra programs.
“I hate the fact that we have to do it, but it’s better than the alternative,” Mr. Paulson said on “Fox News Sunday.”
The Bush administration proposal could be the largest government bailout of private industry in the nation’s history, and it calls for nearly unfettered powers to the Treasury secretary. There is intense pressure to pass a rescue measure quickly because the markets remain jittery.
Still, competing interests were already complicating the negotiations, as Democrats pushed for assistance for distressed homeowners and for oversight authority of the bailout program. Some lawmakers also said they did not want to be rushed into approving extraordinary new powers for the Treasury secretary and the government without full consideration of the consequences.
Both presidential nominees, who face the prospect of inheriting an enormous new government program, said there had to be more oversight of the Treasury Department than the Bush administration had proposed.
Financial companies were already lobbying to broaden the plan. And the Bush administration did indeed widen the scope by allowing the government to buy out assets other than mortgage-related securities.
Banks and traders also braced themselves for another tumultuous week in the markets. But early signs indicate that investors in Asia were reacting positively to the developments in Washington. Shares in Asia jumped in early trading on Monday morning, as investors took their cues from a rally on Wall Street on Friday. The Nikkei 225 index climbed 2.55 percent in early trading in Tokyo, and the Kospi index increased 2.1 percent in Seoul, South Korea.
The Standard & Poor’s/Australia Stock Exchange 200 index increased 4 percent after markets there opened a half-hour late. The opening was delayed to allow time for further details to be issued regarding a monthlong ban imposed by Australian regulators on all short selling of shares traded on the exchange.
Meanwhile, top Democrats and Republicans on Capitol Hill said on Sunday that they would act swiftly on the administration’s request, but not without setting their own conditions.
“Congress will respond to the financial markets crisis by taking action this week in a bipartisan manner that will protect the taxpayers’ interests,” House Speaker Nancy Pelosi said. She added that the administration’s proposal did “not include the necessary safeguards. Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive executive compensation.”
“We will not simply hand over a $700 billion blank check to Wall Street and hope for a better outcome,” she said.
Congressional Republicans, too, put the Bush administration on notice that they would not simply rubber-stamp the bailout proposal but would insist on a number of changes, including specific protections for taxpayers. Those would include a requirement that any profits from the program be returned to the Treasury.
Aides to senior House Republicans said that lawmakers would also insist on greater oversight of the program and were proposing a joint select committee, consisting of lawmakers of both parties and from both chambers of Congress.
Top administration officials and senior lawmakers said that the markets could be devastated if Congress and the administration failed to reach agreement on the plan.
On Sunday, Mr. Paulson defended the plan and the administration’s decision to expand it to protect foreign companies and authorize even wider latitude to buy assets other than those that were backed by mortgages.
Mr. Paulson, a former Wall Street deal maker, also suggested that the administration would have some flexibility in dealing with concerns raised by Congress.
Democrats said the plan would need to provide more specific relief for troubled homeowners. They said the program, which the administration proposed to be run by Treasury, would have to be more accountable to Congress. And they said that the plan must restrict the compensation of corporate executives from companies that make use of the program to sell the burdensome securities on their balance sheets to the United States.
“We need to offer some assurance to the American taxpayer that Congress is watching,” Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the banking committee, told reporters on Sunday. “One of the things that got us into this mess was the lack of accountability and the lack of oversight that was occurring, and I don’t think we want to repeat those mistakes with a program of this magnitude.”
Mr. Paulson said he hoped that the government would recoup much of the cost of buying distressed mortgage-related assets. But he did not rule out that the initial cost of the bailout could rise beyond $700 billion, the limit set in the terse proposal sent by the Treasury to Congress on Saturday.
“That doesn’t mean we’ll go all the way there, or it doesn’t mean it will stop there and we won’t ask for more,” Mr. Paulson said on the CBS program “Face the Nation.” “What we need is something that is big enough to get the job done. We’ll ask for what we think is a right amount to give us plenty of flexibility.”
Representative Barney Frank, the chairman of the House Financial Services Committee, put forward the Democrats’ proposed changes to the administration’s plan. They would give the Treasury secretary the authority to set “appropriate standards” for compensation of senior executives whose companies sell troubled assets to the government.
Under a so-called claw-back provision, the secretary would have the power to force companies to recoup previous payments to executives of companies involved in the program. And Mr. Frank’s plan would give broad authority for the Government Accountability Office, an investigative arm of Congress, to audit and oversee the program.
But Mr. Paulson said that he was concerned that imposing limits on the compensation of executives could discourage companies from participating in the program.
“If we design it so it’s punitive and so institutions aren’t going to participate, this won’t work the way we need it to work,” Mr. Paulson said on “Fox News Sunday.” “Let’s talk about executive salaries. There have been excesses there. I agree with the American people. Pay should be for performance, not for failure.”
But he quickly added: “But we need this system to work, and so we — the reforms need to come afterwards.”
Republicans, though troubled by some of the same issues as Democrats, seemed ready to give Mr. Paulson wide latitude.
Representative John A. Boehner of Ohio, the House Republican leader, said on ABC: “We don’t need 535 members of Congress adding their best idea. We need to keep it clean, simple, move it through the House and Senate, and get it on the president’s desk.”
Even as Ms. Pelosi and other Congressional leaders were pledging to act swiftly and said a deal was probable by the end of the week, some lawmakers said they would not be rushed into approving a plan.
“I realize there is considerable pressure for the Congress to adjourn by the end of next week,” Senator Arlen Specter, Republican of Pennsylvania, wrote in a letter to the Senate leaders of both parties. “But I think we must take the necessary time to conduct hearings, analyze the administration’s proposed legislation, and demonstrate to the American people that any response is thoughtful, thoroughly considered and appropriate.”
Mr. Dodd said he expected that Treasury would not be particularly interested in any of the Democratic proposals. But he said he had already warned Mr. Paulson to keep an open mind.
“I suggested strongly to him that he leave this door open, or he is going to find himself facing some significant problems,” Mr. Dodd said at a briefing with reporters on Sunday at the Capitol. Mr. Dodd, who met with several of his Democratic colleagues, said that reaching a deal could keep Congress in session past this week, when leaders had hoped to adjourn for the fall elections. “This is of such import that if it takes a little longer to get it right, so be it,” he said.
As they plotted an endgame, Democrats said they planned to consider the bailout proposal separately from an economic recovery program that would include new public works spending, aid to states and added unemployment and food-stamp benefits. Congress could consider that plan and a stop-gap funding plan for the federal government before taking up the Treasury proposal later in the week.
While House Democrats were the first to propose additional legislative language, Senate Democrats were working aggressively behind the scenes on several provisions that could set off debate among lawmakers and aggressive lobbying by an array of interest groups.
Senator Jack Reed, Democrat of Rhode Island, has proposed a provision that would grant the government warrants to purchase stock in companies that participate in the bailout plan, so that taxpayers might be able to profit should the firms flourish after selling their bad debts to the government.
Several Democratic senators are interested in reviving a provision that was knocked out of legislation last summer to grant bankruptcy judges the authority to modify the terms of mortgages on primary homes. That provision is opposed by the banking and securities industries. But supporters say it would guarantee that lenders enter negotiations to modify loans to struggling homeowners.
Carl Hulse contributed reporting.