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As Hill Debates Bailout, Wall St. Shifts Continue
Yesterday, British Prime Minister Gordon Brown said he would travel to New York on Wednesday to discuss what he called the "first crisis of the global economy." Brown said a "global regulatory system" should be established to govern a world where national borders often have little meaning. He added that Britain "was paying a price" for problems that started in the United States.
Though lawmakers on Capitol Hill were not working in unison, they were voicing similar concerns yesterday about whether the bailout plan includes enough oversight and protections for taxpayers.
The administration's proposal would give the Treasury secretary sweeping authority to purchase assets from any financial institution, whether headquartered in the United States or abroad, over the next two years. It would place no limit on when the assets could be sold. And it would allow the Treasury secretary to spend up to $700 billion without oversight or review by other federal agencies or the courts.
"It's the biggest amount of money with the least amount of detail I think I've ever seen in my life," said Douglas W. Elmendorf, a Brookings Institution economist who has worked in the Treasury Department and at the Federal Reserve. "The secretary does whatever he wants and spends whatever he wants."
Lawmakers across the spectrum are demanding more oversight of the bailout. House Democrats have the most specific proposal, which would order the Government Accountability Office to establish a permanent outpost within the Treasury to monitor the bailout program. That office would have unfettered access to the activities and financial documents of the rescue program, and would be required to submit reports to Congress every 60 days.
Many lawmakers also want additional protections for taxpayers. House Republicans, for example, have asked that any profits generated by the sale of the bad assets be used to reduce the budget deficit and not for any other purpose.
Where the parties appear to diverge is over Democrats' demand for government authority over the paychecks of executives whose companies participate in a taxpayer bailout. House Republicans oppose the idea, aides said, and Sen. Richard C. Shelby (R-Ala.), a key figure in the debate, said yesterday on CBS's "Face the Nation" that he thinks compensation should be set by corporate boards.
Speaking on the same program, Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said voters would protest a program that appears to permit corporate executives to pocket taxpayer dollars.
"It would be a grave mistake to say that we're going to buy up the bad debt that results from the bad decisions of these people, and then allow them to get millions of dollars on the way out the door," Frank said. "The American people don't want that to happen, and it shouldn't happen."
The idea does have a recent precedent: When regulators took over mortgage financiers Fannie Mae and Freddie Mac this month, they not only removed the firms' top executives but also eliminated $12.59 million in "golden parachutes" that had been promised in severance pay and bonuses. The executives, Daniel H. Mudd of Fannie Mae and Richard F. Syron of Freddie Mac, will now get a combined $9.43 million upon their exit.
Speaking on "Fox News Sunday," Paulson acknowledged "excesses" in executive compensation but said the debate should be put off for another time.
"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," Paulson said.
Paulson expressed more openness to the idea of foreclosure relief for homeowners whose loans are being financed by the securities the government would buy. "I think there should be a mortgage relief component to this," he said, without elaborating.
For nearly a year, Paulson has touted an initiative that calls on banks to voluntarily modify mortgages held by struggling homeowners so they can stay in their homes. Paulson said in a recent interview that this effort, called Hope Now, has helped 1.7 million households. But Democrats are skeptical, noting that the data are vague about the extent of assistance provided.
Paulson again warned lawmakers to resist adding too many provisions to the bill.
"We want this to be clean, and we want this to be quick, and it's urgent that we get this done," he said.
Correspondent Mary Jordan in London contributed to this report.