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House Lawmakers Divided Over Scope of Government Intervention

September 26, 2008 at 6:15 PM EDT
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Congressional leaders are showing signs of fatigue and frustration over continuing negotiations. Reps. Barney Frank and Mike Pence discuss the progress towards a workable plan.
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MARGARET WARNER: And to help us understand where a potential deal stands tonight and what obstacles remain, we turn to two House members involved in all this.

Democrat Barney Frank of Massachusetts is chairman of the House Financial Services Committee. He’s been in the forefront of negotiations with Treasury Secretary Paulson and congressional leaders since the outset.

And Republican Mike Pence of Indiana is one of the leading figures in the coalition of House conservatives pushing a Republican counterproposal.

Welcome, gentlemen, to you both.

So, Chairman Franks, where are you now? How close are you to a deal?

REP. BARNEY FRANK (D), Massachusetts: Well, the Senate Democrats, Senate Republicans, House Democrats, and the secretary of the Treasury, representing the Bush administration, have gotten close.

We looked at the original plan. We’ve added strong language to control CEO compensation, where they’re getting some benefits. We have insisted on putting in warrants so that, where there’s a profitability that comes to a company that benefited the taxpayers, they share in that.

We objected to $700 billion all at once and have put in some controls to stagger it. And we have some very significant oversight that it doesn’t have.

Given that, our judgment is this. You have the two top economic advisers of President Bush telling us that if we don’t do something quickly there’s a crisis.

But I have to tell you that, even if you think that wasn’t true before they said it, it’s very likely to be true after they said it. When the chairman of the Federal Reserve and the secretary of the Treasury say this, it does narrow, it seems to me, congressional options in this situation.

So we thought the most responsible thing to do was to take their proposal and work with it.

The House Republicans had only very recently, I must tell you, surfaced a different approach, not with enough time for any of to us look at it. We first heard about it, really, on Thursday.

And it is a — I guess I would say this. One proposal is to add an insurance component. If that was added as one of the tools the secretary could use, that would never have been controversial and people were for it.

But if they are asking that we substitute this mechanism for what the Bush administration has asked, with first coming to us on Thursday, I just don’t see how that can be done, especially if Secretary Paulson says he does not think that mechanism would work.

Disagreement over supply of capital

Rep. Mike Pence
R-Ind.
House Republicans just believe that we ought to look to trapped capital, both overseas and within the American economy, to deal with that liquidity crisis. We shouldn't go to the taxpayer on Main Street first to deal with that.

MARGARET WARNER: Congressman Pence, where do you think these negotiations are? I mean, was any progress made, in terms of you and the group you're with on your issues, as far as you're concerned, this afternoon?

REP. MIKE PENCE (R), Indiana: Well, let me say, House Republicans know our financial markets are in turmoil. And I agree with Chairman Frank that it's important that Congress act.

But nationalizing every bad mortgage in America is not the answer.

Now, I can appreciate the chairman's frustration about not having heard alternatives. You know, we only learned about this crisis about a week ago. And like most Americans, we've been drinking out of a fire hose and trying to develop solutions that are reflective of our own ideals.

And in our case, the House Republicans believe that we should not pass along the cost of a $700 billion bailout from Main Street to Wall Street.

We think that there are alternatives, including, rather than authorizing the Treasury to race around the country, purchasing every bad mortgage it can find, we think that we ought to build a structure, very much like an another FDIC, not a very foreign institution to most Americans.

We ought to ask institutions on Wall Street to pay premiums on a mandatory basis into that fund, a fund that would -- their premium would be based upon the amount of bad paper that they have.

And in that real sense, Wall Street would pay for this recovery and not Main Street.

We also would like to see tax reforms, lifting the current high rate of tax on repatriation of assets. There's other ways we can encourage capital formation.

But we really do believe Wall Street ought to have a hand up and not a handout. And I believe the majority of the American people are with us on that.

MARGARET WARNER: And -- go ahead, Congressman Frank.

REP. BARNEY FRANK: Well, the problem there, as I understood the plan -- and it was to be offset by a capital gains tax cut. So Wall Street would no worse than break even on this, because a capital gains tax cut, of course, the primary beneficiaries are Wall Street.

Secondly, I'm a little surprised to hear Mike Pence characterize Secretary of the Treasury Paulson, with whom I have some philosophical disagreements, but whom I respect as a thoughtful guy, as someone who plans to, quote, "race around the country buying up every bad mortgage." That's not in the plan.

I don't think caricature helps. Yes, he is talking about buying up some of these investments. We are also talking about having equity purchases. And that's one of the things the Democrats asked for.

Take some nonvoting equity shares in some of these companies, because the problem is -- look, let's remember how we got here. A lack of adequate regulation allowed these companies to make a lot of mistakes and make a lot of bad debts.

The problem we have is they don't have money to lend. Now, it's their fault that they don't have money to lend, but the guy trying to buy a car or sell a car is going to suffer from that. The guy trying to stock the inventory in his small business is going to suffer from that.

So we do think temporarily the federal government has to deal with the inability of people to lend. And an insurance scheme, an FDIC scheme, is a useful part of some part of the problem, but it does not deal with this problem of institutions going out of business and not being able to lend.

Another institution or two fails today. Giving them an FDIC-type new thing is useful going forward, but it doesn't stop the current problem.

REP. MIKE PENCE: Well, I would like to defend the characterization...

MARGARET WARNER: Yes, Congressman -- would...

REP. MIKE PENCE: I do think the Treasury Department, under the Paulson plan, would look around the country and attempt to nationalize and purchase as many bad mortgages as they could find.

But, again, I want to agree with Barney on this point. Our insurance proposal is not the whole solution. There's a liquidity crisis in our financial markets.

House Republicans just believe that we ought to look to trapped capital, both overseas and within the American economy, to deal with that liquidity crisis. We shouldn't go to the taxpayer on Main Street first to deal with that.

Republicans push alternative plan

Rep. Barney Frank
Chair, Committee on Financial Services
Not one Republican gave Secretary Paulson or Chairman Bernanke a chance to address it publicly. We went through a hearing of several hours in the committee. I think it was wrong not to have raised this, have it discussed.

MARGARET WARNER: But, gentlemen, let me just interrupt for a minute. Congressman Pence, Congressman Frank said, as an option, the insurance proposal is theoretically not unacceptable to House Democrats.

Is it acceptable to you as an option, but still leave Secretary Paulson's core proposal? Are you unalterably opposed to having the U.S. government go in and buy these troubled securities?

REP. MIKE PENCE: Well, let me say, for myself, I simply find it anathema that the federal government would borrow $700 billion from future generations of Americans to nationalize every bad mortgage in America.

But the idea of the Republican insurance plan, again, it wouldn't be optional, and we're all catching up with details on this. Republicans are suggesting that everyone who deals in these mortgage-backed securities would pay into a mortgage-backed securities fund, like the FDIC at the Treasury Department. It's just their premiums would be either larger or smaller based upon what kind of business decisions that they make.

REP. BARNEY FRANK: Going forward, that makes good sense, but Mike Pence agrees there's a liquidity problem, so charging them more now -- liquidity problem means you don't have money to lend.

But let's also look at the language here. He says, "Let's give it to Main Street, not Wall Street." What he's talking about is a tax break for Wall Street. When he talks about freeing trapped capital, he's talking about tax breaks for Wall Street.

Now, that may or may not be a good thing, but that's hardly Main Street versus Wall Street.

So what he's saying is, "Don't borrow money to buy up the mortgages, give the people who made the mistakes in the first place more tax cuts."

My own view is this, by the way. What we are talking about doing is buying up the assets. And, again, no, Hank Paulson isn't planning to buy up every bad asset. He's trying to buy up assets from companies that are temporarily stressed out. He's going to buy some equity.

He's not going to buy up mortgages that are no good whatsoever, because we're trying to get money into people who are going to replace -- who are going to get back into lending. And we're going to sell these assets and get a lot of the money back.

But we do understand that what Mr. Pence means by helping Main Street and not Wall Street is giving tax cuts to Wall Street.

MARGARET WARNER: Congressman Pence, if the House Republicans felt so strongly about this as an alternative idea, why wasn't this on the table earlier?

REP. MIKE PENCE: Well, I think that, quite frankly, you know, every American was shocked by the news of this a week ago.

MARGARET WARNER: Yes, but I just mean in the past week, since Secretary Paulson made his proposal?

REP. MIKE PENCE: Well, quite frankly, obviously, Secretary Paulson had a jump on us in developing his ideas. And House Republicans, under the strong leadership of John Boehner, formed a group of not just conservatives.

I want to make sure my friend, Barney, knows this proposal of Republicans was embraced by conservative members of our conference, but also people that the chairman works with regularly, people like Judy Biggert and Mike Castle.

REP. BARNEY FRANK: (OFF-MIKE)

REP. MIKE PENCE: Yes, you do, and very well. But this is a combination proposal from moderates and conservatives in the Republican conference.

And it just -- from my perspective, I want to confirm something that Barney just said. We are talking about, in particular with regard to repatriating assets, we're talking about lowering the current tax rate, which is around 30 percent, down to about 5 percent.

The last time we did that, which wasn't long ago, about 2005, we took a holiday on the high taxes on American corporate profits that were trapped overseas. And in that year alone, $350 billion of liquidity came back into the United States markets, fully half of what the government today wants to look to the American taxpayer to provide.

REP. BARNEY FRANK: I have to respond -- I have to respond to those poor corporate profits trapped overseas. These are American corporations that decided to make their money overseas.

And now I don't think it's trapped when they do (inaudible) beyond that, though, in terms of surfacing this, on Wednesday, we had a hearing before the Financial Services Committee.

All the Republicans and all the Democrats -- clearly, the Republicans were at the time thinking about this alternative plan. It didn't spring up full-blown on Thursday. Not one Republican gave Secretary Paulson or Chairman Bernanke a chance to address it publicly.

We went through a hearing of several hours in the committee. I think it was wrong not to have raised this, have it discussed.

And I think they were afraid that Secretary Paulson and Chairman Bernanke were both going to say, "It's a nice option, but it doesn't begin to solve the problem."

Impact of McCain's choice

Rep. Barney Frank
Chair, Committee on Financial Services
John McCain is kind of like Andy Kaufman as Mighty Mouse. 'Here I come to save the day from nothing,' because there wasn't going to be a deal without all parties, House and Senate, Democrats and Republicans, and the administration.

MARGARET WARNER: Congressman Pence, before we end, I want to be sure to ask about John McCain's role here, because your whip, Roy Blunt, said today that McCain essentially stopped a deal from finalizing that House Republicans wouldn't have supported.

Was that phrasing correct, that he essentially stopped the deal that was in the works yesterday? And if not, what was his role?

REP. MIKE PENCE: Well, I think, quite frankly, as a fiscal conservative, I can tell you, I breathed a lot easier the minute John McCain stepped off the airplane and came back to Washington, D.C. He has a long record of commitment to fiscal discipline and limited government.

MARGARET WARNER: But, I mean, what was his role -- if I could just ask -- what was his role yesterday actually?

REP. MIKE PENCE: I believe -- I believe John McCain's role yesterday, in a very real sense, the same as Senator Obama's, was to come together, to facilitate a dialogue. He did that.

Now, the dialogue broke down, because, quite frankly, until this morning, the administration and the Democrats in Congress's definition of compromise was we compromise our principles and do what they want to do.

Now, that's changed, and we're at the table. Our whip, Roy Blunt, is at the table, and we're making a good faith effort to get there.

REP. BARNEY FRANK: Let me say, that's just nonsense. In the first place...

REP. MIKE PENCE: But that was the role.

REP. BARNEY FRANK: ... there was never going to be a deal without House Republicans. So John McCain is kind of like Andy Kaufman as Mighty Mouse. "Here I come to save the day from nothing," because there wasn't going to be a deal without all parties, House and Senate, Democrats and Republicans, and the administration.

As far as negotiations, we were literally begging the administration, not on one knee, like Hank Paulson, but literally begging the House Republicans to join the negotiations. We asked them to come in. Spencer Bachus was there. He said, "I couldn't negotiate."

We said, "Please." Last night, we said -- Secretary Paulson called the Republican leader and said, "Would you send us someone who can negotiate?" Spencer Bachus came and said, "I'm here, but I can't negotiate." So this notion that we weren't willing to negotiate is a mistake.

Until yesterday, you didn't tell us you had an alternative plan, and we were ready to talk about anything. We weren't always ready to agree with each other. No one is asking anybody else to compromise his principles.

MARGARET WARNER: Now, gentlemen, you are at the table...

REP. MIKE PENCE: Well, look, we have time to get the right thing done. We really do. And I'm glad we're negotiating.

REP. BARNEY FRANK: (OFF-MIKE)

REP. MIKE PENCE: I'm glad we're discussing.

REP. BARNEY FRANK: And I'm glad...

REP. MIKE PENCE: And we're committed to seeing if we can find a way forward. But the interests of the American taxpayers have to come first. We cannot borrow $700 billion to nationalize every bad mortgage in America.

REP. BARNEY FRANK: I don't think the interests of the average American taxpayer is served by lowering taxes on corporate profits earned overseas or by a capital gains tax cut. That's not the average American taxpayer.

Prospects for a quick agreement

Rep. Mike Pence
R-Ind.
One thing we saw with markets this week was, as long as the Congress was working earnestly and sincerely to address this very real crisis in our financial markets, that, you know, our marketplace stayed very stable.

MARGARET WARNER: Let me ask you -- let me ask you both very briefly, will a deal -- do you think an agreement will be reached this weekend?

Mr. Chairman, you first?

REP. BARNEY FRANK: I hope so, but, you know, I don't want to say for sure, because I love the media, but we can't trust you with deadlines. If we give you a deadline, and there was a power outage, and we miss it by a few hours, you overreact, so we're going to try very hard to get a deal, but I'm not giving you any timelines.

MARGARET WARNER: And, Congressman Pence, do you think there's great urgency to finish it up in the next couple of days?

REP. MIKE PENCE: Well, you know, I really don't believe that's the case. One thing we saw with markets this week was, as long as the Congress was working earnestly and sincerely to address this very real crisis in our financial markets, that, you know, our marketplace stayed very stable.

REP. BARNEY FRANK: (OFF-MIKE)

REP. MIKE PENCE: I think we've got time.

REP. BARNEY FRANK: They need to see that we're working together. We don't have to -- yes, I agree with that.

REP. MIKE PENCE: They need to see that we're working. We've got time to get this right.

And I know House Republicans -- but this is a sincere man sitting next to me. The president is a sincere man. We're all going to try and work together.

But House Republicans -- this is not about politics. We believe we need to look to Wall Street for the recovery and not to Main Street.

REP. BARNEY FRANK: By giving them a capital gains tax break?

MARGARET WARNER: Gentlemen...

REP. MIKE PENCE: And we believe...

MARGARET WARNER: ... we are going to -- we are going to leave it there.

REP. MIKE PENCE: And we believe we have to keep government out of the private sector as much as possible.

MARGARET WARNER: All right. And good luck this weekend. Thank you both.

REP. MIKE PENCE: Thank you.