by David M. Herszenhorn, Stephen Labaton, Mark Landler and Mr. Labaton
The New York Times
September 23, 2008
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WASHINGTON — As Congressional Democrats began to set terms for a plan to rescue the nation’s financial institutions, President Bush urged them on Monday to move quickly and to resist the temptation to add provisions that, he said, “would undermine the effectiveness of the plan.”
Democrats said on Sunday that they believe the $700 billion bailout package must include greater legislative oversight of the Treasury Department, more direct assistance for homeowners and limits on the pay of top executives whose firms seek help.
Mr. Bush’s statement, issued early on Monday, did not address any of those specifics, but sought to convey a sense of urgency, saying that a failure to act quickly and to maintain focus on the immediate challenge would not only have consequences for Wall Street; “it would threaten small business owners and homeowners on Main Street.”
Treasury Secretary Henry M. Paulson Jr. appeared on a number of the Sunday talk shows to promote the package. “I hate the fact that we have to do it, but it’s better than the alternative,” Mr. Paulson said on “Fox News Sunday.”
Mr. Paulson urged Congress to approve a “clean” rescue plan without tacking on extra programs, and Mr. Bush sought to underline that point.
“Obviously, there will be differences over some details, and we will have to work through them,” Mr. Bush said. “It is not easy to write a bill of this magnitude in a timely manner.” But he added: “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. I appreciate members of Congress in both parties resisting the urge to do so.”
Amid continuing concerns over the deep global ramifications of the crisis, the finance ministers and central bank governors of the Group of Seven major industrial nations said on Monday that they were maintaining “heightened close cooperation.” In a joint statement released by the United States Treasury on Monday, they pledged to take “whatever actions may be necessary, individually and collectively, to ensure the stability of the international financial system.”
The ministers and governors welcomed the “extraordinary” actions proposed by American officials to take illiquid assets off bank balance sheets, Reuters reported. But the statement made no other mention of any specific steps to be taken by the group’s member nations.
The Bush administration’s proposal could prove to be the largest government bailout of private industry in the nation’s history. It calls for nearly unfettered powers for the Treasury secretary in managing the bailout.
Though the jittery state of the financial markets put pressure on officials and legislators to move quickly, some lawmakers 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 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 as well as making foreign companies eligible for government assistance.
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. 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 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 demand greater oversight of the program and were proposing a joint select committee, consisting of members of both parties and 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 for primary residences. That provision is opposed by the banking, lending and securities industries. But supporters say it would guarantee that lenders enter negotiations to modify loans to struggling homeowners.
Carl Hulse and Brian Knowlton contributed reporting.