TOPICS > Economy

Congress Struggles With Scope of Financial Rescue Plan

September 22, 2008 at 6:10 PM EST
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The government's $700 billion financial bailout proposal now faces lawmaker approval. Senate finance committee members describe which parts of the plan are stirring debate.
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RAY SUAREZ: The Washington debate began in earnest today over the bailout package proposed this weekend by the Bush administration. Treasury Secretary Henry Paulson, the administration’s point man on the crisis, outlined the stakes in a series of Sunday morning talk show appearances.

HENRY PAULSON, U.S. Treasury Secretary: This is not something that we wanted to do. This is something that is very necessary. The system was clogging up, and it was more difficult for companies to raise financing.

RAY SUAREZ: The Treasury’s draft proposal grants the secretary nearly unlimited power in spending up to $700 billion to buy mortgage-related assets from ailing financial institutions.

Both American companies and international firms with U.S. assets are eligible.

Periodic reports to Congress are due, but with little oversight of the program.

And the proposal raises the national debt ceiling to more than $11 trillion to allow for the bailout.

Paulson explained on ABC what led to the present problem and how his solution might work.

HENRY PAULSON: We have a situation where American companies weren’t able to borrow money. This could ultimately affect small banks, loans to businesses, loans to farmers, jobs, people’s retirement.

What we are recommending is that the government buy illiquid assets in big size from the institutions — these are what are clogging up the system — so that they can play the role they need to play.

RAY SUAREZ: There was concern among many on Capitol Hill that the proposal gave too much money and untrammeled power to the Treasury.

Brad Sherman, Democrat of California.

REP. BRAD SHERMAN (D), California: Why should the Department of the Treasury have total carte blanche? We should require that every major contract entered into under this bill and every purchase of toxic assets be approved in advance by the GAO. Otherwise, this is just a license for the Treasury to hand out money in return for trash, cash for trash, and they get to decide who to do it.

RAY SUAREZ: Democrats also objected to the plan’s Wall Street focus, lamenting a lack of protection for the people whose faulty mortgages are the root of the problem.

Various Democratic counterproposals included provisions that limit executive pay for firms asking for the bailout; greater congressional and independent agency oversight of the program; give the government an equity stake in the companies that are seeking a bailout; and help homeowners renegotiate mortgage terms.

However, the House minority leader, John Boehner of Ohio, said yesterday the Bush administration proposal should be passed quickly and without the add-ons.

REP. JOHN BOEHNER (R-OH), House Minority Leader: We don’t need 535 members of Congress adding their best idea to this bill. We need to keep it clean, simple, move it through the House and Senate, and get it on the president’s desk.

RAY SUAREZ: But Mr. Boehner may get significant resistance from his own side of the aisle, which has raised many questions about the slate of recent bailouts, including the government takeovers of Fannie Mae and Freddie Mac, and the private insurance firm AIG.

Cliff Stearns is a Republican from Florida.

REP. CLIFF STEARNS (R), Florida: Through these bailouts, our federal government is effectively risking hard-earned taxpayers’ dollars to protect private-sector companies that utilize reckless investment strategies with little regard to the consequences.

RAY SUAREZ: Stearns and other members of the House Conservative Caucus echo many of the concerns across party lines now that Treasury has produced its sweeping plan.

GWEN IFILL: Margaret Warner has more on the Capitol Hill reaction.

Proceedings likely to produce law

Sen. Chris Dodd
D-Conn.
we're not going to write a check for $700 billion and walk away. Accountability issues, taxpayer concerns, what we do with the foreclosure issue are all legitimate issues that people are raising.

MARGARET WARNER: And for that, we're joined by Senator Christopher Dodd, Democrat from Connecticut. As Banking Committee chairman, he's taking a lead role in managing the bailout legislation.

And Senator Jon Kyl of Arizona, he's the number-two Republican in the Senate.

Welcome to you both. Thanks for being with us.

Senator Dodd, where do negotiations stand as of now?

SEN. CHRIS DODD (D), Connecticut: Well, we're working well. I was just saying to Jon that this afternoon I had very good meetings with Senator Schumer, a Democrat from New York, a member of the Banking Committee, and Senator Bob Bennett, Chuck Hagel, Mel Martinez, Bob Corker, all members of the Republican aisle on the Banking Committee.

Nothing has been resolved here. But we're working with the common points here, and that is I've talked, of course, over the week, the last three days almost non -- no sleep to maybe 40 or 50 members, including many Democrats, as well, with various ideas.

The overall thrust I would share with you. There will be some people who are going to be against this no matter what we do. The overall membership, I think, as I've talked to them, believe we need to do something. Inaction is not acceptable.

But clearly we're not going to write a check for $700 billion and walk away. Accountability issues, taxpayer concerns, what we do with the foreclosure issue are all legitimate issues that people are raising. Some maybe have more items they want to add, others less, but all of it kind of focused on the issue.

No one wants to turn this into a Christmas tree. So I feel very positive at this point. We've got a lot of work to do over the next three or four days.

But I'm optimistic we can come to a bipartisan result here that will allow the secretary to move, but simultaneously give us the assurance that we're not just going to turn over a check and walk away.

MARGARET WARNER: Senator Kyl, help us understand how these negotiations are proceeding. Is there a sort of unified Republican position and a unified Democratic position, as you understand it? Or are -- no, I see you laughing. Go ahead.

SEN. JON KYL (R), Arizona: My colleague, Chris, is chuckling, and I am, too. No. The answer is no.

This is one of those things, first of all, that nobody wants to have to do. Secretary Paulson started out, he said, "I didn't come to Washington to do this." I hate that we have to do it.

And I think a lot of members of Congress are wanting to work constructively together to see if we can put together a bill that satisfies the objections in a very short period of time, which is what Chris was just now talking about.

There are others who are not going to be supportive of this on both sides of the aisle, I suspect. What's basically happened is that the Department of Treasury has produced a draft of the legislation. There have been some additions to that draft from members of the House Democratic side, as I understand it.

I have been trying to get some ideas to the Treasury Department. Chris just mentioned the meeting that he's had. There is not a -- I would say, a really coherent set of negotiations here, except to the extent that Treasury is being bombarded with a million ideas and they're trying to accommodate, I think, as many of them as makes sense, within the short period of time.

And the only thing I would add is this. If this is going to be done, some of the good ideas on both sides of the aisle are going to have to await another day.

Part of the necessity here is to get this done with alacrity. I think the market's reaction today is a good indication that we don't have a whole lot of time to get this done.

So there are some good ideas and some maybe not so good ideas that are going to have to be left to the side for another day, if we're going to get it done.

Huge bill needs to move quickly

Sen. Jon Kyl
R-Ariz.
[P]rotecting the taxpayer is number one....The more we do that, the less oversight from somebody on the outside we're going to need.

MARGARET WARNER: Senator Dodd, help us with the process here. Senator Kyl said some of his fellow Republicans or he's channeling some Republican suggestions to Treasury. Is that the process, or are you writing an amended bill, essentially?

SEN. CHRIS DODD: Well, again, and Jon is right. There's not a coherent approach on this point, because we're doing something extraordinary.

Jon and I were in the room last Thursday evening when we heard some rather dramatic descriptions of the condition of our economy. We have about a week or so left here before we adjourn, before the elections.

Normally, you'd have a bill in the Senate, a bill in the House, you'd go back and forth, and this would take a normal amount of time, where good ideas would be explored, examined, and rejected or accepted.

We're trying here to bring everyone together at one moment in time on an extraordinary request. This is twice the cost of the Iraq war, $700 billion.

In 41 days, we're going to have a new president. I presume within hours after that choice being made, they're going to announce maybe who the new secretary of the Treasury is apt to be.

So it isn't just this Treasury or Treasury secretary, but the one that will follow this one, who will also be charged with handling all of this. And, therefore, there are legitimate questions. Can we do this?

Jon's correct. We need to move quickly.

I would add -- and I would hope we all agree -- it's just as important we do this correctly, if we can, that we don't want to look back, because there isn't a second act to this. There's not another $700 billion if this plan doesn't work for us to come back to.

So while it's important to move quickly, it's also important to move with a clear purpose in mind as to how this will work. The accountability provisions are very important to people.

Secondly, of course, making sure that taxpayers are going to be protected and first in line, if we hope, as we do, that these assets will eventually produce revenues that can come back.

So I'm trying to build consensus with my committee, Democrats and Republicans, where I can, to be able to say to the leadership, "We've got something working here," working with Barney Frank in the House, I know he's trying to work, as well, and then simultaneously with the Treasury, so that they will accept these ideas or give us a good reason why they ought to be rejected.

And hopefully we can do that in the next two or three days.

MARGARET WARNER: Now, Senator Kyl, let me ask you about a couple of ideas that certainly the Democrats have proposed on paper and some of your colleagues and you on the Sunday talk shows yesterday also indicated an interest.

One is some kind of layer of oversight over Treasury as they manage this, that so-called accountability. And, also, some kind of perhaps an ownership stake in the companies that agree to or that ask to be bailed out here. Are Republicans on board for those two things?

SEN. JON KYL: Well, let me take the second one first. And I don't want to get down too much into the weeds.

But my understanding from Treasury is that they want to do this, first of all, to take the easiest assets to buy. And those are assets that you simply buy. It's commercial paper that you would buy on the market. There's no point in taking an ownership stake in any company when you do that.

But they may eventually get to the point where there are some other troubled institutions that have assets on the books that the United States could profitably take over.

And in those situations, because of the nature of the institution, they may need to strike a separate bargain with them, something like the bailout of an AIG or one of the other companies that we've bailed out, in which case of course you would want to have an equity position in order to protect the taxpayer.

The other thing I think is critical here is protecting the taxpayer is number one. And several of the ideas that I conveyed today were designed to try to build in the protection of the taxpayer. The more we do that, the less oversight from somebody on the outside we're going to need.

There will be congressional oversight of this. But rather than at least personally me worrying about some kind of oversight board, I'd like to start -- and I'm sure Chris agrees with this -- to make sure that the language in the legislation authorizing the secretary to act provides pretty specific guidelines as to how he's supposed to approach setting the price for these assets and how he's going to go about acquiring them, so that we have the best chance possible to make sure that, at the end of the day, the taxpayers will get our -- their money back.

Saving economy, protecting citizens

Sen. Chris Dodd
D-Conn.
[T]he public would be irate over is if in some of these companies where we're buying this junk...turn around and end up having contracts that...reward them with multimillion-dollar compensation packages.

MARGARET WARNER: Senator Dodd, in our limited time, let me ask you about two of the real biggies that many Democrats and many Republicans have talked about. One is some limit on executive compensation of the countries that get bailed out.

And the other is to help homeowners who are at risk of foreclosure, in addition to helping the banks who are at risk of being -- having their assets so they can't -- that they can't sell.

So are you near agreement with the administration on either of those? Barney Frank said today that, in fact, they did seem amenable to helping the homeowners at risk of foreclosure.

SEN. CHRIS DODD: Well, I hope so, because again -- and, again, Ben Bernanke, the chairman of the Federal Reserve, and Hank Paulson have said repeatedly over the last number of weeks that, of course, the cause of this problem, a preventable problem, in some ways, had there been a more aggressive action on the foreclosure problem earlier on, is still at the heart of this, these mortgage-backed securities, the bulk of which are residential mortgages that are not worth much.

MARGARET WARNER: But my question is, do you think you're close to some agreement, at least in concept, that that should be part of this bill?

SEN. CHRIS DODD: Well, I believe it should. And I think there are a number of people who agree with that. Otherwise, we're back at this problem again, until you deal with the cause of it.

Dealing with executive compensation is thornier for some. It's probably more of an optics issue than dealing with the issue itself.

But, again, if you're investing $700 billion of taxpayer money, what the public would be irate over is if in some of these companies where we're buying this junk and getting it off their books that they turn around and end up having contracts that award them, reward them with multimillion-dollar compensation packages.

I can't begin to describe to you the anger we would receive from people if we didn't try to address that, as well.

MARGARET WARNER: Senator Kyl, I know you said there's no real agreement here. But let me just ask, is there an emerging consensus among Senate Republicans on either of those two issues, whether something should be added to help homeowners here at risk, that is, renegotiate their mortgages, and, two, some way to limit executive compensation or what is considered excessive compensation, if these companies turn for help?

SEN. JON KYL: Yes, I think the answer to both questions is yes. I understand that there have been a lot of proposals conveyed to Treasury, and they're trying to figure out what to do on the executive compensation and have some ideas on that.

And that, with respect to the language on foreclosures, I've actually seen language which looks to me pretty good, because what it does is to use this new process to actually make a law that was just passed and became effective on July 30th to actually have a better chance of working.

It sets up $300 billion worth of mortgages to be reworked. And what this language would do is to encourage the secretary to find those loans that are in that category that could be reworked as part of the loans that are acquired under this new program.

Action Should Be Taken Soon

Sen. Jon Kyl
R-Ariz.
[T]his is one of those things where there is an emergency. And the kind of time that we would ordinarily put into one of these things is not available to us now.

MARGARET WARNER: Quick final word, Senator Dodd, Senator Kyl, does this have to be done this week?

SEN. CHRIS DODD: Well, it should be done soon. And, again, I think speed is important. But I want to emphasize to you getting it right -- we're going to live with this for decades to come now, so we better do it right, as well.

MARGARET WARNER: Do you think it has to be done this week, Senator Kyl?

SEN. JON KYL: I do. I agree with Chris; it's got to be done right. But this is one of those things where there is an emergency. And the kind of time that we would ordinarily put into one of these things is not available to us now.

So I think, by the end of the week or early part of next week, we'd better have it done or the market is going to react in a pretty negative way.

MARGARET WARNER: Senator Kyl, Senator Dodd, thank you both.

SEN. CHRIS DODD: Thanks.

SEN. JON KYL: You're welcome.