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by David M.
Herszenhorn, Stephen Labaton and Mark Landler, and written by Mr.
Labaton.
September 23, 2008,
The New York Times
WASHINGTON — As
Congressional Democrats began to set terms for a plan to rescue the
nation’s financial institutions, President Bush urged them on Monday to
move quickly and to resist the temptation to add provisions that, he
said, “would undermine the effectiveness of the plan.”
Democrats said on
Sunday that they believe the $700 billion bailout package must include
greater legislative oversight of the Treasury Department, more direct
assistance for homeowners and limits on the pay of top executives whose
firms seek help.
Mr. Bush’s
statement, issued early on Monday, did not address any of those
specifics, but sought to convey a sense of urgency, saying that a
failure to act quickly and to maintain focus on the immediate challenge
would not only have consequences for Wall Street; “it would threaten
small business owners and homeowners on Main Street.”
Treasury Secretary
Henry M. Paulson Jr. appeared on a number of the Sunday talk shows to
promote the package. “I hate the fact that we have to do it, but it’s
better than the alternative,” Mr. Paulson said on “Fox News Sunday.”
Mr. Paulson urged
Congress to approve a “clean” rescue plan without tacking on extra
programs, and Mr. Bush sought to underline that point.
“Obviously, there
will be differences over some details, and we will have to work through
them,” Mr. Bush said. “It is not easy to write a bill of this magnitude
in a timely manner.” But he added: “It would not be understandable if
members of Congress sought to use this emergency legislation to pass
unrelated provisions, or to insist on provisions that would undermine
the effectiveness of the plan. I appreciate members of Congress in both
parties resisting the urge to do so.”
Amid continuing
concerns over the deep global ramifications of the crisis, the finance
ministers and central bank governors of the Group of Seven major
industrial nations said on Monday that they were maintaining “heightened
close cooperation.” In a joint statement released by the United States
Treasury on Monday, they pledged to take “whatever actions may be
necessary, individually and collectively, to ensure the stability of the
international financial system.”
The ministers and
governors welcomed the “extraordinary” actions proposed by American
officials to take illiquid assets off bank balance sheets, Reuters
reported. But the statement made no other mention of any specific steps
to be taken by the group’s member nations.
The Bush
administration’s proposal could prove to be the largest government
bailout of private industry in the nation’s history. It calls for nearly
unfettered powers for the Treasury secretary in managing the bailout.
Though the jittery
state of the financial markets put pressure on officials and legislators
to move quickly, some lawmakers said they did not want to be rushed into
approving extraordinary new powers for the Treasury secretary and the
government without full consideration of the consequences.
Both presidential
nominees, who face the prospect of inheriting an enormous program, said
there had to be more oversight of the Treasury Department than the Bush
administration had proposed.
Financial
companies were already lobbying to broaden the plan. And the Bush
administration did indeed widen the scope by allowing the government to
buy out assets other than mortgage-related securities as well as making
foreign companies eligible for government assistance.
Banks and traders
also braced themselves for another tumultuous week in the markets. But
early signs indicate that investors in Asia were reacting positively to
the developments in Washington. Meanwhile, top Democrats and Republicans
on Capitol Hill said on Sunday that they would act swiftly on the
administration’s request, but not without setting their own conditions.
“Congress will
respond to the financial markets crisis by taking action this week in a
bipartisan manner that will protect the taxpayers’ interests,” House
Speaker Nancy Pelosi said. She added that the administration’s proposal
did “not include the necessary safeguards. Democrats believe a
responsible solution should include independent oversight, protections
for homeowners and constraints on excessive executive compensation.”
“We will not
simply hand over a $700 billion blank check to Wall Street and hope for
a better outcome,” she said.
Congressional
Republicans, too, put the Bush administration on notice that they would
not rubber-stamp the bailout proposal but would insist on a number of
changes, including specific protections for taxpayers. Those would
include a requirement that any profits from the program be returned to
the Treasury.
Aides to senior
House Republicans said that lawmakers would also demand greater
oversight of the program and were proposing a joint select committee,
consisting of members of both parties and both chambers of Congress.
Top
administration officials and senior lawmakers said that the markets
could be devastated if Congress and the administration failed to reach
agreement on the plan.
On Sunday, Mr.
Paulson defended the plan and the administration’s decision to expand it
to protect foreign companies and authorize even wider latitude to buy
assets other than those that were backed by mortgages.
Mr. Paulson, a
former Wall Street deal maker, also suggested that the administration
would have some flexibility in dealing with concerns raised by Congress.
Democrats said the
plan would need to provide more specific relief for troubled homeowners.
They said the program, which the administration proposed to be run by
Treasury, would have to be more accountable to Congress. And they said
that the plan must restrict the compensation of corporate executives
from companies that make use of the program to sell the burdensome
securities on their balance sheets to the United States.
“We need to offer
some assurance to the American taxpayer that Congress is watching,”
Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the
banking committee, told reporters on Sunday. “One of the things that got
us into this mess was the lack of accountability and the lack of
oversight that was occurring, and I don’t think we want to repeat those
mistakes with a program of this magnitude.”
Mr. Paulson said
he hoped that the government would recoup much of the cost of buying
distressed mortgage-related assets. But he did not rule out that the
initial cost of the bailout could rise beyond $700 billion, the limit
set in the terse proposal sent by the Treasury to Congress on Saturday.
“That doesn’t mean
we’ll go all the way there, or it doesn’t mean it will stop there and we
won’t ask for more,” Mr. Paulson said on the CBS program “Face the
Nation.” “What we need is something that is big enough to get the job
done. We’ll ask for what we think is a right amount to give us plenty of
flexibility.”
Representative
Barney Frank, the chairman of the House Financial Services Committee,
put forward the Democrats’ proposed changes to the administration’s
plan. They would give the Treasury secretary the authority to set
“appropriate standards” for compensation of senior executives whose
companies sell troubled assets to the government.
Under a so-called
claw-back provision, the secretary would have the power to force
companies to recoup previous payments to executives of companies
involved in the program. And Mr. Frank’s plan would give broad authority
for the Government Accountability Office, an investigative arm of
Congress, to audit and oversee the program.
But Mr. Paulson
said that he was concerned that imposing limits on the compensation of
executives could discourage companies from participating in the program.
“If we design it
so it’s punitive and so institutions aren’t going to participate, this
won’t work the way we need it to work,” Mr. Paulson said on “Fox News
Sunday.” “Let’s talk about executive salaries. There have been excesses
there. I agree with the American people. Pay should be for performance,
not for failure.”
But he quickly
added: “But we need this system to work, and so we — the reforms need to
come afterwards.”
Republicans, though
troubled by some of the same issues as Democrats, seemed ready to give
Mr. Paulson wide latitude.
Representative
John A. Boehner of Ohio, the House Republican leader, said on ABC: “We
don’t need 535 members of Congress adding their best idea. We need to
keep it clean, simple, move it through the House and Senate, and get it
on the president’s desk.”
Even as Ms. Pelosi
and other Congressional leaders were pledging to act swiftly and said a
deal was probable by the end of the week, some lawmakers said they would
not be rushed into approving a plan.
“I realize there
is considerable pressure for the Congress to adjourn by the end of next
week,” Senator Arlen Specter, Republican of Pennsylvania, wrote in a
letter to the Senate leaders of both parties. “But I think we must take
the necessary time to conduct hearings, analyze the administration’s
proposed legislation, and demonstrate to the American people that any
response is thoughtful, thoroughly considered and appropriate.”
Mr. Dodd said he
expected that Treasury would not be particularly interested in any of
the Democratic proposals. But he said he had already warned Mr. Paulson
to keep an open mind.
“I suggested
strongly to him that he leave this door open, or he is going to find
himself facing some significant problems,” Mr. Dodd said at a briefing
with reporters on Sunday at the Capitol. Mr. Dodd, who met with several
of his Democratic colleagues, said that reaching a deal could keep
Congress in session past this week, when leaders had hoped to adjourn
for the fall elections. “This is of such import that if it takes a
little longer to get it right, so be it,” he said.
As they plotted
an endgame, Democrats said they planned to consider the bailout proposal
separately from an economic recovery program that would include new
public works spending, aid to states and added unemployment and
food-stamp benefits. Congress could consider that plan and a stop-gap
funding plan for the federal government before taking up the Treasury
proposal later in the week.
While House
Democrats were the first to propose additional legislative language,
Senate Democrats were working aggressively behind the scenes on several
provisions that could set off debate among lawmakers and aggressive
lobbying by an array of interest groups.
Senator Jack
Reed, Democrat of Rhode Island, has proposed a provision that would
grant the government warrants to purchase stock in companies that
participate in the bailout plan, so that taxpayers might be able to
profit should the firms flourish after selling their bad debts to the
government.
Several
Democratic senators are interested in reviving a provision that was
knocked out of legislation last summer to grant bankruptcy judges the
authority to modify the terms of mortgages for primary residences. That
provision is opposed by the banking, lending and securities industries.
But supporters say it would guarantee that lenders enter negotiations to
modify loans to struggling homeowners.
Carl Hulse and Brian
Knowlton contributed reporting.
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