GWEN IFILL: The rescue plan for the financial system encounters headwinds on Capitol Hill. Congressional correspondent Kwame Holman has our report.
SEN. CHRIS DODD (D), Connecticut: The committee gathers this morning at an extraordinary and perilous moment in our nation’s history.
KWAME HOLMAN: As the nation’s top economic officials gathered to testify, Senate Banking Committee Chairman Christopher Dodd’s tone reflected movement away from a broad bipartisan consensus expressed just last weekend.
A growing number of Democrats joined conservative Republicans in criticizing the Bush administration’s $700 billion plan to bail out financial and other firms.
SEN. CHRIS DODD: I understand speed is important, but I’m far more interested in whether or not we get this right. There is no second act to this. There is no alternative idea out there with the resources available if this does not work. So it’s critically important that we get it right.
SEN. RICHARD SHELBY (R), Alabama: What troubles me most is that we have been given no credible assurances that this plan will work. We could very well spend $700 billion or $1 trillion and not resolve the crisis.
Before I sign off on something of this magnitude, I would want to know that we have exhausted all reasonable alternatives.
Paulson, Bernanke stress urgency
KWAME HOLMAN: Treasury Secretary Henry Paulson, who spent years on Wall Street before coming to Washington, said weeks of undergirding individual financial entities had failed to loosen credit markets adequately, requiring the major new initiative.
HENRY PAULSON, U.S. Treasury Secretary: Over these past days, it has become clear that there is a bipartisan consensus for an urgent legislative solution.
We need to build upon this spirit and enact this bill -- enact this bill quickly and cleanly, and avoid slowing it down with provisions that are unrelated or don't have broad support.
This troubled asset purchase program on its own is the single most effective thing we can do to help homeowners, the American people, and to stimulate our economy.
KWAME HOLMAN: Ben Bernanke, chairman of the Federal Reserve, underscored the urgency.
BEN BERNANKE, Federal Reserve Chairman: Mr. Chairman, the financial markets are in quite fragile condition, and I think absent a plan they will certainly get worse.
But even at the current state, they are not serving the necessary function to support the economy.
Credit is not being provided. Secretary Paulson mentioned non-financial companies are not able to finance themselves overnight. Credit is just not going to be available.
It's going to also affect savers, because the value of the assets that they have.
So even in the current condition, even if things don't get severely worse -- but I think they would get worse without some kind of action -- this will be a major drag on the U.S. economy and will greatly impede the ability of the economy to recover in a healthy way.
KWAME HOLMAN: But Richard Shelby, the committee's top Republican, expressed a sentiment shared by members of both parties.
SEN. RICHARD SHELBY (R), Alabama: What do you say to people that ask us, or at least ask me and I'm sure others, how do you rationalize or justify bailing out banks and so forth that caused -- are the root cause of a lot of this problem, where they will be made whole with capital, at least it will strengthen them?
And I understand that strengthens the economy. But they will profit dearly from this, more than likely.
HENRY PAULSON: Senator Shelby, I share your frustration. So I hate to be on this side of the table, because this is not something that I ever wanted to ask for.
SEN. RICHARD SHELBY: I know.
HENRY PAULSON: But it's much better than the alternative. So what I do is I start off saying, I'm not only concerned, I'm angry by the things that got us here, OK?
But the greatest protection for the American taxpayer, by far the greatest protection, is having this program work and having it be effective, because the consequences if it doesn't, are worse.
SEN. RICHARD SHELBY: What does it do to the homeowner who's losing their home?
HENRY PAULSON: I would say, regrettably, there's not every homeowner that's going to save their home.
Understanding the firms' worth
KWAME HOLMAN: Under questioning from South Dakota Democrat Tim Johnson, Paulson acknowledged the private market excesses that led to a very public bailout plan.
HENRY PAULSON: And it may make you angry. It makes me angry when you ask about the taxpayers being on the hook. Guess what? They're already on the hook. OK, they got put on the hook by the system we have, the system we all let happen, the system that Congress, the administration, future administrations let exist.
And that -- and so, if this system is not stabilized, they're going to bear the costs. The chairman explained that. I've explained it.
So the best thing we can do for all of them is to stabilize the financial markets so that the people can continue to get loans. Small businesses can get loans. Small farmers in your states can get loans. Big farmers in your states can get loans.
And then go to work to make sure that this doesn't happen again, and that's going to take a longer period of time.
KWAME HOLMAN: The proposal's centerpiece would give the Treasury Department authority to buy billions of dollars in compromised mortgage-backed assets from private firms.
Under a process called a reverse auction, firms would bid for the ability to sell assets instead of buy them, which in theory would set a fair price. Democrat Robert Menendez was concerned the government would end up overpaying for assets the true value of which cannot be known.
SEN. ROBERT MENENDEZ (D), New Jersey: So how do you know -- how does any of these institutions even know how to bid, for example, in the reverse auction if, in fact, they couldn't in the first place determine what the value is?
BEN BERNANKE: The holders have a view of what they think it's worth. The trouble is, it's difficult for those outside to know what it's worth. And I think that there are combinations -- and I want to be clear, I haven't specified a specific mechanism, and this is an important thing to be looking at.
But I do believe that there are combinations of market-based-type auction procedures with expert input that would reveal, just as when you sell a painting at Sotheby's, you don't know -- nobody knows what it's worth until the auction is over. Then people know what it's worth. I think it's the same thing here.
Concerns over the deadline
KWAME HOLMAN: Members also worried they face a tight deadline to complete a bailout bill. They hope to adjourn for the election by the end of the week.
Republican Mel Martinez of Florida.
SEN. MEL MARTINEZ (R), Florida: We now are moving down the road to try to get something done. And obviously, it needs to be done right more than it needs to be done fast.
But do you still -- and this is also to Chairman Bernanke -- do you both continue to feel the sense of urgency that was present when we first spoke about this on Friday?
HENRY PAULSON: I feel at least as great an urgency, because I believe that what calmed the markets was the understanding that we were going to do this.
And we stood -- you know, with the press conference, with the leaders of both houses, saying we're all going to work together to get this done quickly.
And so I feel great urgency, and I believe it's got to be done this week or before you leave.
SENATOR: Mr. Chairman?
BEN BERNANKE: I agree with that. I think it's necessary, at a minimum, to give a very strong indication of exactly what's happening and very soon, so that markets will understand what's happening. Yes, I do see that urgency.
KWAME HOLMAN: Pennsylvania Democrat Bob Casey pressed Paulson on a key plank of Democratic proposals for the bailout, that executive compensation be limited for firms that choose to participate in the program.
SEN. BOB CASEY (D), Pennsylvania: I think that the message sent by a failure to address the executive compensation question in a reasonable way, in a way that we can have bipartisan forces come together, I think would send the wrong signal.
And in terms of confidence, we're concerned about market confidence, but we also, I think, part and parcel of that is the confidence the American people have in us, all of us, to be able to deal with an essential question of fairness, and equity, and real justice.
HENRY PAULSON: I understand how serious the problem is. I've just got -- and how great the concern is and the outrage. You know, I hear it everywhere.
But I can just say to you the most important thing by far, the most important thing is to have something that works, works well, and works effectively.
SEN. CHRIS DODD: Almost any plan we're going to talk about is going to deal with executive compensation. Count on it. Just count on that one. We'll figure it out, but it's going to be here.
Limiting executive pay
KWAME HOLMAN: Paulson said he welcomed the suggestion from members of Congress that some oversight body look over his shoulder as he administers the bailout program.
HENRY PAULSON: What we want to do is have the oversight, have the protections, but be able to move quickly to implement this. And implementing it does not mean going out and investing $700 billion immediately.
KWAME HOLMAN: Meanwhile, late today, House Speaker Nancy Pelosi underscored Democratic calls for a limit on executive pay.
REP. NANCY PELOSI (D-CA), Speaker of the House: The party is over. The party is over for this compensation for CEOs who take the golden parachute as they drive their companies into the ground.
The party is over for the disparity in our country between CEOs making almost immoral salaries and not being interested in lifting other people up.
The party is over for financial institutions taking risks, but at the same time privatizing any gain they may have, while they nationalize the risk, asking the taxpayer to pick up the tab.
So we can't even consider any legislation that the Republicans send us unless it ends, you know, it addresses and reforms compensation for chief executive officers, unless it has protections for the taxpayer. That's our responsibility.
KWAME HOLMAN: And that was echoed by the Senate's Republican leader, Mitch McConnell, breaking with some in his party who opposed putting limits on executive pay in the bill.
SEN. MITCH MCCONNELL (R-KY), Senate Minority Leader: If we are going to advance taxpayers' dollars, and if the government ends up, in effect, taking an equity position in businesses, I think the taxpayer 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.
KWAME HOLMAN: The Treasury secretary and the Fed chairman will testify before House members tomorrow, even as talks about shaping their proposal continue.