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Bailout Debate Spawns High-Stakes Lobbying Scramble

By Michael S. Rosenwald and Heather Landy
Washington Post Staff Writers
Wednesday, September 24, 2008

Executives and lobbyists for tiny community banks, giant hedge funds, auto-loan companies and finance industry chieftains were working the phones yesterday and marching up to Capitol Hill to make sure their interests would not be forgotten as the $700 billion bailout proposal for bad debts works its way through Congress.

Their tactics were typical: conference calls with regulators, personal visits to House and Senate offices, e-mails between coordinating groups and their members. But they were working with much higher dollar figures and in a much shorter time frame than usual.

"This is a hyper-drive-blitzkrieg, no-huddle situation," said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, which represents the country's largest financial firms. "You've got a major, watershed bill that we're trying to move. There's no time for the usual sort of subtleties and coalition-building and hours of conference calls."

With a staff of just under a dozen people, the group has been trying to shape several aspects of the proposal. Among its chief goals is to prevent the legislation from limiting executive compensation at firms that participate in the bailout. The group is arguing that setting pay packages for corporate executives is "not the appropriate role for the federal government," Talbott said.

Cam Fine, president of the Independent Community Bankers Association, has been concerned whether small banks would be able to join their big Wall Street counterparts in unloading toxic mortgage-related assets onto the government.

Fine dispatched a team to press the case while he stayed glued to his television to watch lawmakers query Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke on their plans for addressing the worst credit crisis in generations.

"I was hanging on every word like it was a soap opera," Fine said. "Our entire office was."

They got excited when it sounded as though their work might pay off: Paulson in his testimony said that financial institutions both large and small would have access to the bailout program.

"That's very encouraging," Fine said.

At the same time, state banking organizations have been trying to persuade lawmakers to kill a provision that would allow bankruptcy judges to unilaterally restructure individual mortgages.

"That gives us great concern," said Mindy Lehman, vice president of government affairs for the Maryland Banking Association. "That will mean incredible risk and uncertainty in the housing market, and that's the last thing we need right now."

Auto lenders, meanwhile, are working to expand the eligibility criteria for assets and institutions allowed into the bailout program. The American Financial Services Association circulated a memo of talking points with the heading: "Motor Vehicle Financing Assets Must Be Included in the Definition of Troubled Assets."

The auto-financing industry packages loans and sells them as securities on Wall Street, much as mortgages are sold. While the securities have held up relatively well in the credit crisis, Wall Street has little interest in buying new ones, which is drying up credit for auto purchases, said Chris Stinebert, AFSA's president. He said he would like the Treasury Department to buy new auto-loan-backed securities to create liquidity in the market.

"Absent intervention by Congress, the ability of domestic manufacturers to finance new motor vehicle sales may come to a halt," the group's memo said. "To ensure continued auto sales, Congress should explicitly authorize Treasury to purchase motor vehicle financing assets from industrial banks and non-bank finance companies."

The Coalition of Private Investment Companies, a hedge-fund lobbying group chaired by the noted short seller James Chanos, has stayed out of the fracas over the $700 billion bailout proposal and instead focused on new short-selling rules announced by the Securities and Exchange Commission.

Last week, the SEC temporarily banned the shorting of financial stocks and said it would require big investors to start disclosing their short positions, which essentially are bets that a stock will decline.

Since July, when the SEC started limiting certain types of short selling, Chanos's coalition has had a number of meetings and conversations with the agency to discuss the role of short sellers in the market, said Andrew Lowenthal, president of the government relations firm Porterfield & Lowenthal, which represents the coalition.

But most of the coalition's efforts have not been waged behind closed doors, Lowenthal said.

Mainly, the group has relied on public statements and an opinion piece titled "Short Sellers Keep the Market Honest" by Chanos in Monday's Wall Street Journal to communicate the coalition's position

"It's been very open and overt with the way we've gone about it," Lowenthal said, "precisely because we believe the case needs to be made not just to the commission but to the public."

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