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Bailout Proposal Meets Bipartisan Outrage
With McConnell's announcement, the broad outlines of a consensus on the bailout plan appeared to be taking shape. Rep. Barney Frank (D-Mass.), who is leading negotiations with Paulson, said Treasury officials have agreed to accept key changes to their proposal, including an oversight board to monitor the program. Treasury is also discussing provisions to help distressed borrowers avoid foreclosure and to guarantee taxpayers an equity stake in companies that take advantage of the plan.
The remaining sticking points in talks with the Treasury, Frank said, are whether to limit executive pay and whether bankruptcy judges should be given authority to modify mortgages on primary residences. But the bankruptcy provision, which is fiercely opposed by the banking industry and many Republicans, is widely viewed as a bargaining chip. And if Republican lawmakers accept limits on executive pay, the White House may find it difficult to resist.
Frank yesterday floated another approach to executive pay, one that would require firms that take taxpayer money to permit shareholders to nominate members to their boards. Some Republicans have complained that corporate boards, not the government, should decide issues of executive pay.
Frank shot down as "highly unlikely" a separate idea, gaining traction among some lawmakers, that calls for limiting the initial size of the program and releasing the full $700 billion later if early efforts prove effective.
"We're moving forward," Pelosi said. "I think we are making some progress."
But Democratic leaders, who said they hope to approve the bailout plan by the end of the week, were having their own trouble rallying the rank and file. House Democrats summoned to a lunchtime meeting to discuss the proposal yesterday received a glossary of financial terms, such as "credit default swap" and "illiquid assets." Many nonetheless emerged unconvinced of the need for speed, comparing the administration's warnings that the economy will collapse unless Congress acts to warnings they received regarding the invasion of Iraq.
"Where have I heard this before? 'The Iraqis have weapons of mass destruction, and they're ready to use them,' " said Rep. Gene Taylor (D-Miss.). "I'm in no rush to do this."
Lawmakers from both ends of the Capitol, in both parties, said the White House needs to make a stronger public pitch for the bailout. Congress had planned to adjourn Friday for an election season in which dozens of House and Senate incumbents are feeling political heat back home. Bush, who spent his first five years in office overpowering Congress in a variety of high-stakes showdowns, is an unpopular figure, even among many Republicans. Meanwhile, Paulson is asking lawmakers to approve the largest bailout in the nation's history even though he won't be around to monitor the success or failure of the program.
"You've got the succession question. What happens in the next administration?" said Sen. John Thune (R-S.D.), warning that the plan is being pushed "in the fog of an election."
At the Senate hearing, Paulson and Bernanke were met with a nearly universal tone of disgust. Many senators expressed concern that the proposal is moving ahead without more deliberate consideration and that it could amount to a giant bailout of the very companies whose risky investments have upended the financial system.
"While Wall Street banks get to sell their bad investments to the Treasury Department, homeowners will still be saddled with mortgages they cannot afford," said Sen. Richard C. Shelby (Ala.), the banking committee's ranking Republican.
Those complaining did not say they would vote against the bailout plan and instead argued for changes to the administration's proposal. Paulson and Bernanke expressed openness to those suggestions, acknowledging that the program needs to have strong oversight and provisions to protect taxpayers.
Both men also stressed that they are still working through details of how the government would price the troubled mortgage assets it buys under the $700 billion plan. They asked Congress to give them maximum flexibility to design auctions or other procedures. Bernanke said he had heard from all sorts of experts on designing auctions, which are one way the purchases might be structured, and that it will take time to figure out how exactly to execute them.
At one point during yesterday's Senate hearing, the Fed chairman tossed aside his prepared testimony -- and the reserved language he usually uses in such formal settings -- to strongly argue that the consequences of inaction could be dire.
"I'm a college professor. I never worked in Wall Street," he said. "My interest is solely for the strength and the recovery of the U.S. economy. I believe if the credit markets are not functioning, that jobs will be lost; the unemployment rate will rise; more houses will be foreclosed upon; GDP will contract; that the economy will just not be able to recover in a normal, healthy way, no matter what other policies are taken."