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Bailout Discord Persists as Congress Seeks to Fix Economy

September 30, 2008 at 6:05 PM EST
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With Congress set to revisit reaching a compromise over the proposed $700 billion bailout that failed in the House on Monday, a panel of lawmakers debate the plan and future efforts to alleviate the economic meltdown.
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JIM LEHRER: And NewsHour correspondent Kwame Holman begins our day-after report.

KWAME HOLMAN: Within hours of President Bush’s call for Congress to redouble efforts on an economic rescue package that could cost up to $700 billion, the major presidential nominees followed suit.

Barack Obama and John McCain also separately phoned the president and requested the same idea to help a new proposal pass: raising the amount of federal insurance on bank deposits from $100,000 to $250,000.

This afternoon, the chair of the Federal Deposit Insurance Corporation also endorsed an increase, saying, “To address this crisis of confidence, I do believe that it would be helpful for the FDIC to have the temporary ability to raise deposit insurance limits.”

Meanwhile, McCain said the U.S. Treasury Department should make full use of the resources already at its disposal. He spoke in Des Moines, Iowa.

SEN. JOHN MCCAIN (R), Arizona: First, the Treasury has already used its exchange stabilization fund to back money market accounts. I encourage it to use this fund as creatively as possible to provide backstop for accounting — accounts across our financial system, to maintain confidence on the part of savers and investors.

And, second, the recent housing bill gave the government nearly $1 trillion in authority to purchase mortgages. Housing and mortgages are at the root of this crisis. I encourage Treasury to take action to shore up mortgage values.

The administration can take these actions with the stroke of a pen to help alleviate the crisis gripping our economy. I urge them to do so.

I call on everyone in Washington to come together in a bipartisan way to address this crisis. And I know that many of the solutions to this problem may be unpopular, but the dire consequences of inaction will be far more damaging to the economic security of American families, and the fault will all be ours.

KWAME HOLMAN: In Reno, Nev., Obama acknowledged the widespread public dislike for the financial rescue, but argued it’s a must to prevent economic harm to ordinary Americans.

SEN. BARACK OBAMA (D), Illinois: If this is managed correctly, we will hopefully get most or all of our money back, possibly even turn a profit on the government’s investment, every penny of which will go directly back to you, the investor, or will be going into drawing down on our national debt.

And if we do have losses, I’ve proposed to institute a financial stability fee on the entire financial services industry so that Wall Street foots the bill, not the American taxpayer.

But understand, even with all these taxpayer protections, I know that this plan is not perfect and it’s not foolproof. No matter how well we manage the government’s investments under this plan, we’re still putting taxpayer dollars at risk.

And I know that there are Democrats and Republicans in Congress who have legitimate concerns about this. I know there are many Americans who share these concerns. What I also know is we can’t afford not to act.

KWAME HOLMAN: Meanwhile in Washington, a group of House Democrats who helped bring down the rescue plan yesterday came forward with an alternative.

REP. PETER DEFAZIO (D), Oregon: The point is, folks would like to come together on something that doesn’t put the taxpayers at risk. That’s a common theme among members both who voted for the bill and who voted against the bill: Don’t put the taxpayers at risk. The protections in that bill yesterday were nonexistent.

KWAME HOLMAN: On the other side of the Capitol, Senate Republicans met to discuss a strategy to save the rescue plan.

Republican leader Mitch McConnell.

SEN. MITCH MCCONNELL (R-KY), Senate Minority Leader: We’ve got a genuine crisis in the credit markets that have to be dealt with. And the market sent us a strong message yesterday that no action is not a solution. We’re not going to sit around and point fingers. We’re going to get the job done, and we’re going to get it done this week.

KWAME HOLMAN: The Senate could act on a bailout bail as early as tomorrow evening. The House is expected to take up the rescue plan soon after it returns on Thursday from a break for the Jewish New Year.

A 'crisis of confidence'

Rep. Bobby Scott
D-Va.
There are a lot of things we can do at virtually no cost to the taxpayer. And why we would start off with a $700 billion purchase of worthless assets is -- I think was just a step in the wrong direction.

JIM LEHRER: Now, how four House members see the situation, two who voted for it -- Pennsylvania Democrat Paul Kanjorski and Illinois Republican Ray LaHood -- and two who voted no -- Virginia Democrat Bobby Scott and Michigan Republican Peter Hoekstra.

First of all, Congressman LaHood, the House vote yesterday is being cited now as a gigantic failure of federal government leadership at all levels. Do you agree with that in general?

REP. RAY LAHOOD (R), Illinois: Well, not really. I mean, I think the administration has pushed very hard for their plan. And I think our leaders, both on the Democratic and Republican side, pushed very hard, too. I think there will probably have to be some adjustments made.

But look at -- the leaders from the White House to the Treasury were flexible enough to make the changes that some of the leaders wanted. And our leaders were flexible enough to try and influence some of our members.

And I think a tweak here, a tweak there, and we'll have a plan, Jim.

JIM LEHRER: OK.

Congressman Hoekstra, of course, you're a Republican. You voted against it. Should that be seen as a repudiation of President Bush's leadership?

REP. PETER HOEKSTRA (R), Michigan: No, but I think it does indicate that there is a lack of confidence by the American people in Washington's leadership. Once again, we're unable to deliver a solution to this problem.

You know, the people back home -- and I've talked to a lot of them today -- they're wondering how we got into this predicament in the first place. We have a Treasury Department. We have the Federal Reserve. Why didn't they anticipate it?

And they put that together with an Energy Department that couldn't anticipate an energy crisis, and that's why they're so nervous about taking $700 billion of taxpayer money and giving it to another now new bureaucracy in Washington and say, "Go out and buy $700 billion worth of assets. You decide what you're going to buy, how much you're going to pay for it, and then you decide who is going to be able to buy it for how much money."

So there is a crisis of confidence at the grassroots level in Washington, D.C., that we're going to have to -- that we're going to have to address.

JIM LEHRER: Congressman Scott, as a Democrat who voted against this plan, do you share the feeling that there's a crisis of confidence, is at the bottom of all of this?

REP. BOBBY SCOTT (D), Virginia: Well, I think it would be helpful just to get away from the theater and who's winning and who's losing and get to the point that Pete just made.

The bill authorized the secretary of the Treasury to buy $700 billion worth of assets at who knows what price and who gets to unload worthless, exotic derivatives and options on the government?

A better plan is, as Sen. McCain pointed out, the administration has the authority to buy worthful mortgage-backed securities, those that have value. There's no point in spending all this money on worthless assets.

What we can do to deal with the credit crisis -- as the group you cited earlier today, under Pete DeFazio's leadership, can do administrative things, accounting, like the mark-to-market, which would expand the amount of lending capacity, the FDIC adjustment, which would relieve the pressure on people pulling their money out, and the net worth certificates, which have been used in the past, which would give banks confidence in lending money to other banks.

We could deal with homeowners, struggling homeowners, with the Home Ownership Loan Corporation that we did in the Great Depression, which, when the dust settled, we protected all the mortgages, prevented foreclosures, and ended up making a profit.

There are a lot of things we can do at virtually no cost to the taxpayer. And why we would start off with a $700 billion purchase of worthless assets is -- I think was just a step in the wrong direction.

We ought not get lost in who's winning, who's losing, whose fault it was. But I think if we slow down and deliberate and think this thing through, we can come up with a much better product.

Constituents expect a plan

Rep. Paul Kanjorski
D-Penn.
There's a crisis of confidence and a crisis of credit in America. Both of them are very much related. The worst problem that we have is probably a lack of faith and trust by constituents out there to take our word for it that there is a problem.

JIM LEHRER: Congressman Kanjorski, you're a Democrat. You voted for it. And why? What was it -- what did you see in it that Congressman Scott, your Democratic colleague, did not see?

REP. PAUL KANJORSKI (D), Pennsylvania: Well, of course, I'm on the committee of jurisdiction, so I've been watching...

JIM LEHRER: The Financial Services Committee.

REP. PAUL KANJORSKI: That's right. I've been watching this disaster, if you will, unfold for probably two years now, and particularly since last August -- not this immediate past August, but the August before that, when the subprime mortgage problem was created.

And then we saw the deterioration that occurred in October when the auction market started to fail. And then we saw the infection spread throughout the financial system.

Until now, when Secretary Paulson came up to the Hill 11 days ago and said we are now at a disaster stage, I recognized he was right.

Jim, what a lot of people -- my fellow members, also -- they don't recognize, the Treasury spent $500 billion trying to contain this problem, going from institution to institution and bailing them out and doing -- putting certain protections in place. It didn't work.

That ad hoc firewall is not a concept. And that's what the secretary recognized.

So he came up here and said, "Look, guys, we're going to have to put in a firewall that's going to cost a lot of money. But if we fail to stop this problem now, it's going to cost trillions or perhaps collapse the system."

Now, nobody wants that. My three colleagues here tonight certainly don't want to see that failure. I don't want to. And neither do the constituents across America.

Our basic problem is they're correct. There's a crisis of confidence and a crisis of credit in America. And both of them are very much related.

And the worst problem that we have is probably a lack of faith and trust by constituents out there to take our word for it that there is a problem.

JIM LEHRER: Congressman LaHood, do you agree, that -- first of all, why did you vote for it? And then, do you agree that your constituents there in Peoria, Ill., may not think that this job can be fixed by people who are running things right now?

REP. RAY LAHOOD: Well, look at -- we're elected to fix big problems, Jim. And that's what people expect us to do. And that's the reason that I voted for it. The infrastructure of our financial system cannot fall down around us because it does hurt people.

I'm just a few blocks from Main Street here in Peoria, and this is truly Main Street, America. And people in central Illinois want Ray LaHood to fix the problem and stop the blame game that is prevalent in Washington, D.C., and make sense out of it.

And I believe that the plan -- the compromise plan that was put forth was about as good as we can get. But, apparently, there weren't 218 people that felt that way.

And so, as I said earlier, there's going to have to be some tweaking here and there, perhaps some of the things that Bobby Scott suggested, in order to find the 218 votes.

But we're responsible to fix the problem so that people on Main Street in Peoria don't see their 401(k)s diminished between 20 percent and 40 percent.

Jim, as I was driving from Chicago to Peoria last night to get home, a friend of mine called me. He just retired from Caterpillar. He's not a Wall Street mogul. He doesn't have a lot of money. He lost $66,000 yesterday as a result of an 800-point drop in the stock market.

Those are real dollars to people who are just retiring and want to live on their 401(k). And they're expecting people like us to fix it. And I think we have the ability to do it. That's why I voted for the plan yesterday.

A need to help Main Street

Pete Hoekstra
R-Mich.
[W]ouldn't it be great if we sent a signal to the American people, to the markets, and to foreign investors that we can put together a plan that's going to get 300, 325 votes.

JIM LEHRER: Congressman Hoekstra, you've got a Main Street in Grand Rapids just up the road from Peoria, and you saw it differently. You voted against it. Explain that.

REP. PETER HOEKSTRA: Well, I didn't that the program that was presented yesterday was a program that was going to work. I think some of the things that Bobby talked about were things that we became aware of over the last three or four days, that there was an alternative way to go or that there were things that we could attach to this package that would make it better.

Now, Bobby and I serve on the same committee, Education and the Workforce. We don't agree very often. But I can tell you that the plan that he outlined, if we add that to the plan that was presented to the House yesterday, I think we don't end up with 218 votes. We potentially end up with something close to 300 votes.

You heard Ray say that he would be -- or that he would accept some of those things. I would accept most of what Bobby outlined and including some kind of cut in capital gains.

I think the objective here should be for us to get to a point, rather than getting to the magic number of 218 votes, wouldn't it be great if we sent a signal to the American people, to the markets, and to foreign investors that we can put together a plan that's going to get 300, 325 votes, so that there is a clear signal that, regardless of who wins on Election Day on Nov. 4, the House and the Senate have set a clear direction and it's not going to change when we get to a new administration.

JIM LEHRER: Congressman Scott, do you think that's possible? Can you do that? Can you see 300 votes eventually going for this, if they make some of the changes that you've outlined a moment ago with some others that others may have?

REP. BOBBY SCOTT: I think we all agree that there is a serious problem and we have to do something. And I think the first step -- the administrative kinds of things that I outlined are things for which we can get a clear consensus.

Conscientious people I think can agree on those. There may be some things we would disagree on, but we ought to at least take the first step. Those administrative things, the mark-to-market, the FDIC, the net worth certificates, those kinds of things I think we can agree on would fix a lot of the problem at no cost to the taxpayer.

And you ought to do those first. I think if we just take some time and think through this thing, we can put a good bill together.

JIM LEHRER: When you say take some time, Congressman Scott, everybody's saying it's got to be done quickly, because the crisis is right here. What do you mean by time? How much time?

REP. BOBBY SCOTT: Well, if we just take some time and think it through, we can do things in stages. We don't have to do everything tomorrow afternoon.

JIM LEHRER: All right, but your vote is still in play, right? I mean, you might actually end up voting for a rescue plan if it's modified?

REP. BOBBY SCOTT: Well, we have to pass something. And if we put a good package together, I think 300 votes is not unreasonable to expect.

But if you try to get everything in it, and if you try to suggest that the secretary of the Treasury should have $700 billion that he can spend on whatever he wants for however much he wants without judicial oversight, without any oversight at all, which is the first suggestion, I think you're going to have trouble.

If we sit down and work it out, agree on what we can do and pass that, get that done, and then some things that we may not agree on, we'll have to argue that out.

But there are so many things that would make a big difference in credit availability that we can do almost immediately that we ought to agree on and get that done.

Chances of resolving the crisis

Rep. Ray LaHood
R-Ill.
I've been talking to bankers today and common, ordinary citizens, they understand that we need to fix a big, big, huge mess that we have, and it will be up to us to do it.

JIM LEHRER: Congressman Kanjorski, as you say, you've been on the committee who's been watching, following all of this. Is what Congressman Scott, Congressman Hoekstra, and others have said, is that possible, to get this thing together, and change it quickly enough, and get it done in such a way to resolve this crisis?

REP. PAUL KANJORSKI: The magic word is, what is quickly enough, Jim? And from what we've been told by experts on both sides, both political parties, experts in government, and in the academic world, they say it's a matter of a limited time before this really explodes.

I think that you can see what happened here, just by our failure to act yesterday cost us already $1,200,000,000,000, $500 billion more than the whole plan would have cost us just in the loss in the stock market yesterday.

JIM LEHRER: In fact, the man that Congressman LaHood was talking about in Peoria lost so many thousand dollars in one day.

REP. PAUL KANJORSKI: Absolutely. Absolutely. And that's going to happen.

And I've been on the telephone for the last several days to small-business people. Their lines of credit are running out. They're being denied financing from banks. Within a matter of weeks, people will have to be laid off. Expansion of business won't occur.

A major American corporation has exhausted its line of credit. And if they can't get additional new credit, they won't be able to make payrolls within two weeks. We're talking about tens of thousands of jobs in that.

This is...We started the program wrongly. Somebody described it as a bailout of Wall Street. There's not one of these four members that gives one hell of a damn about the people on Wall Street. We represent the people on Main Street. And we know that they're the ones that are really going to suffer when the economy implodes.

JIM LEHRER: Well, let's go around on that. Congressman LaHood, is that the -- has that been the problem here with the public from the beginning, it was seen as a bailout of Wall Street, not a rescue plan?

REP. RAY LAHOOD: Well, look at -- I'm told that Secretary Paulson is a genius when it comes to knowing the ins and outs of this, but, look at, he's not a genius when it comes to communication. And we need people to communicate.

And I guess those of us that represent 600,000 or 700,000 people are pretty good communicators. And so I think what Rep. Kanjorski is saying is probably proof in the pudding.

We need people to communicate that this is going to help people on Main Street in Peoria, Ill. And as I've been talking to bankers today and common, ordinary citizens, they understand that we need to fix a big, big, huge mess that we have, and it will be up to us to do it.

JIM LEHRER: What are you hearing from the folks in Grand Rapids, Congressman Hoekstra? Do they want this thing fixed, too? Are they concerned about bailing out Wall Street?

REP. PETER HOEKSTRA: Well, I think it's very clear. They want this fixed. I talked to a number of my small- and medium-sized business folks. Some of them were very angry. Their credit lines are running out. They said, "Pete, we need it fixed, and we need it fixed quickly."

I did some door-to-door campaigning today. They view this as a bailout of Wall Street and they're very nervous about it. But they also recognize that it needs to be fixed.

One final point. I think in Congress we've got to be very, very cautious about taking a look at what the market does on any given day. It was down 700 and some points yesterday. It was up almost 500 points today.

Should we then infer that Congress not being in session is good for the markets so we should maybe stay home two or three more days and we'll recover everything we lost? No, that's silly.

But what we do need to recognize and work with our constituents that we are developing a long-term plan that will enable us to get back to financial stability and economic growth. That is what we have to be focused on, a long-term solution. We can't be swung by major fluctuations in the market from day to day.

And I think, you know, as others have said, I think all four of us are committed to getting a solution done, doing the right thing. And I think that there's common ground that the four of us, representing different factions of our political party, can come together and develop a very broad-based consensus package.

JIM LEHRER: Congressman Scott, can it be done on Thursday?

REP. BOBBY SCOTT: I don't know if it can be done on Thursday or Friday or Saturday or Sunday or Monday, but I think, if we are shown to be working on it and coming up with something that actually works, passing the bill that doesn't do anything other than allow the secretary of the Treasury to buy worthless assets for $700 billion may not and, in my judgment, would not do anything for credit.

We need to target our assistance in such a way and draft a bill in such a way that will actually solve the problem that we're trying to solve.

JIM LEHRER: Well, I think the four of you just did, so we'll leave it right there. Thank you all four very much.