The Housing Chronicles Blog: Congress refusing to roll over to approve Paulson Plan

Tuesday, September 23, 2008

Congress refusing to roll over to approve Paulson Plan

Member of Congress, ever mindful of how livid voters are over the financial meltdown on Wall Street, are certainly not rubber-stamping the latest plan outlined by Paulson & Co. So what do they want? A story in the New York Times explains:

Treasury Secretary Henry M. Paulson Jr. received an angry and skeptical reception on Tuesday when he appeared before the Senate Banking Committee to ask Congress to promptly give him wide authority to rescue the nation’s financial system... But after hours of back-and-forth, the committee’s leaders said explicitly what had seemed clear all day: that they rejected the administration’s plan. “What they have sent us is not acceptable,” the committee chairman, Senator Christopher J. Dodd, Democrat of Connecticut, told The Associated Press.

The panel’s ranking Republican agreed. “We have to look at some alternatives,” Senator Richard C. Shelby of Alabama told The A.P.

One after another throughout the session, senators from both parties said that, while they were prepared to move fast, they were far from ready to give the administration everything it wanted in its proposed $700 billion plan to buy up and hopefully resell troubled mortgage-backed securities...

Senator Dodd called the Treasury proposal “stunning and unprecedented in its scope and lack of detail.”

Asserting that the plan would allow Mr. Paulson to act with “absolute impunity,” Senator Dodd said, “After reading this proposal, I can only conclude that it is not only our economy that is at risk, Mr. Secretary, but our Constitution, as well.”

Another expression of disgust came from Senator Jim Bunning, Republican of Kentucky, who said the plan would “take Wall Street’s pain and spread it to the taxpayers.”

“It’s financial socialism, and it’s un-American,” Mr. Bunning said...

Mr. Paulson said in response to questions that he shared the senators’ exasperation. “I’m not only concerned, I’m angry” over the events that led to the problem, Mr. Paulson said. He blamed an outdated regulatory system for the turmoil and, in an effort to counter any impression that the proposed rescue plan is for the benefit of fat-cat Wall Streeters, said: “This is all about the taxpayers. That is all we are about.”

Mr. Paulson said that “this troubled asset purchase program is the single most effective thing we can do to help homeowners, the American people, and stimulate our economy.”

He and Mr. Bernanke said that the problems in the housing industry were the core of the crisis but that the problems would continue to spread far outside the housing sector if the problems in the mortgage markets were not addressed, and soon...

None of the senators who listened to Mr. Paulson and Mr. Bernanke disputed the grim possibilities if Congress should do nothing, but it was clear that they were hearing from their angry constituents. Senator Elizabeth Dole of North Carolina, for instance, said residents of her state have been complaining about “costly and reckless” behavior on Wall Street, and the potential cost to people who are anything but wealthy. (Senator Dole is running for re-election.)

The senators on the banking panel were unanimous in calling for ways to protect taxpayers’ investments — which at $700 billion would amount to $2,300 for every American citizen, Senator Mike Enzi, Republican of Wyoming, noted...

The back-and-forth came as the Bush administration and Congressional leaders moved closer to some kind of agreement on the bailout, including tight oversight of the program and new efforts to help homeowners at risk of foreclosure.

But Congress and the administration remained at odds over the demands of some lawmakers, including limits on the pay of top executives and new authority to allow bankruptcy judges to reduce mortgage payments for borrowers facing foreclosure.

Congressional leaders and Treasury officials also said they were close to an agreement over a proposal by some Democrats in which taxpayers could receive an ownership stake, in the form of warrants to buy stock, from firms seeking to sell distressed debt.

Lawmakers want to require an equity stake, while the administration wants flexibility on that matter, a Treasury official said.

Mr. Bernanke’s testimony was exceptionally brief, considering the enormous stakes involved, a mere nine paragraphs, much of it devoted to a recapitulation of the growing crisis and how it took shape.

It seemed to reflect the way Mr. Paulson and the administration have presented the bailout legislation, in bare-bones fashion, but with a clear tone of urgency.

No comments: