By Lori Montgomery, Paul Kane and Neil Irwin
Washington Post Staff Writers
Wednesday, September 24, 2008
The Bush administration sent some of its most powerful figures to Capitol Hill yesterday to rally support for a $700 billion plan to revive the U.S. financial system, but they encountered stiff resistance from lawmakers who are deeply skeptical of the proposal and angered by the administration's push for its speedy approval.
Vice President Cheney, White House Chief of Staff Joshua B. Bolten and other Bush advisers shuttled from meeting to meeting, selling privately to worried lawmakers what Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke pitched publicly at a Senate hearing: a massive bailout for the financial markets. They urged Congress to authorize the plan quickly and without many alterations.
The issue transcended party lines. Democrats voiced doubts, and many Republicans, particularly in the House, balked at the entreaties from Cheney, Bolten and other officials.
"Just because God created the world in seven days doesn't mean we have to pass this bill in seven days," Rep. Joe Barton (R-Tex.) said after exiting a two-hour meeting with Cheney.
Democratic leaders warned that they would not approve the biggest government intervention in the private markets since the Great Depression without significant Republican support.
"It's their problem. It's their bill. And they're going to have to figure out if they can support it," said House Speaker Nancy Pelosi (D-Calif.).
Paulson and Bernanke, meanwhile, defended themselves before the Senate Banking, Housing and Urban Affairs Committee, where senators fumed that the administration had abetted the meltdown in the markets by failing to halt the spread of exotic home loans that are now falling into foreclosure at a record pace. A wide array of firms bought complicated financial instruments backed by those mortgages; the administration is proposing to purchase those troubled assets to help those firms stay afloat.
At times yesterday, Paulson and Bernanke almost seemed to echo the outrage from their questioners.
"I'm not only concerned, I'm angry about the things that got us here," Paulson said. "It makes me angry, and it makes you angry. You talk about taxpayers being on the hook? Guess what? They're already on the hook. If the system isn't stabilized, they're going to bear the cost."
The vice president got a warmer reception during a luncheon with Senate Republicans. But afterward, key GOP senators announced that they now agree with Democratic demands that the bailout package set limits on executive salaries at financial institutions that participate in the program. Democrats have argued that chief executives whose companies accept taxpayer money should not be permitted to pocket millions of dollars in bonuses or big severance packages known as "golden parachutes."
Paulson and the White House have objected to limits on executive compensation, saying limits would discourage successful firms from participating in the bailout. "These are not all weak or troubled firms that own mortgage-backed securities," said White House spokesman Tony Fratto. "They were not necessarily irresponsible players, and so you have to be careful about how you deal with them."
But Republican senators, many of whom face voters in six weeks, have concluded otherwise. "I think executive compensation ought to be part of this," Senate Minority Leader Mitch McConnell (R-Ky.) told reporters. "I think the taxpayers should expect no less than strict limits on what kind of executive compensation might be possible for those involved in these partially government-controlled enterprises."
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."