House Slams Vague Bailout Plan
Image has not been found. URL: /wp-content/uploads/2008/09/bernanke38.jpgFederal Reserve Chariman Ben S. Bernanke (WDCpix)
Different field. Same game.
In a virtual rerun of their Senate visit yesterday, Treasury Sec. Henry Paulson Jr. and Federal Reserve Chairman Ben Bernanke met a highly skeptical House committee Wednesday, as the financial sultans continue the quest in support of their $700 billion financial rescue plan.
Hoping to close the deal, President George W. Bush announced he would address the nation at 9 p.m. tonight in an effort to convince an equally leery American public of the proposal’s merits.
Central to the plan, the Treasury Dept. would acquire broad powers to buy up the toxic assets (mostly mortgage-backed investments) of the nation’s financial institutions — thereby freeing those firms to lend with greater confidence to businesses and individuals. The proposal states that any decisions Treasury makes be “non-reviewable” by “any court of law or any administrative agency.”
Appearing before the House Financial Services Committee Wednesday, both Paulson and Bernanke urged Congress to pass the proposal quickly, warning that the consequences of delay would reverberate throughout the credit-based economy. But they repeatedly hit a stumbling block: They know little about what their plan entails.
Asked, for example, if they’ve decided who will manage the toxic assets once the Treasury buys them, Paulson said, “We have not yet, but we’re sure working on it.” Critics, meanwhile, worry about conflicts of interest if Wall Street folks are charged with deciding which Wall Street firms will get help.
Asked how they know that $700 billion is the proper figure, Paulson responded vaguely, “we thought about it a lot.” Then he added, “We’re going to learn as we go along.” Critics, meanwhile, worry that banks will still fail if the funding is insufficient, while injecting too much money would mean taxpayers would never get a decent return.
Asked what precautions would be built in to ensure that power is not abused, Paulson could only promise, “I’m not looking for extraordinary power.” Critics, meanwhile, point to the Iraq war as an example of what this administration has done when given non-reviewable authority. (“You have a credibility problem,” Rep. Gregory Meeks [D-N.Y.] pointed out.)
Asked whether pension plans would be eligible for a bailout, Paulson replied, “I’m not prepared at this time to discuss the details of the plan with that specificity.”
That’s a tough response to swallow for lawmakers as they are being asked to appropriate $700 billion blindly. Many wondered aloud why they can’t have more time to consider the proposal.
The answer from the White House can be summarized in two words: investor confidence.
The quicker Congress passes the bill, Paulson and Bernanke said, the quicker that confidence will be restored. “Credit is the life-blood of the economy,” Bernanke said. “This is going to have real effects on people at the lunch-bucket level.”
The comments come as congressional leaders and administration officials are inching their way toward a compromise on the controversial bailout plan. Wednesday, the Bush administration announced it would accept a provision limiting the pay packages for the heads of participating companies — an element pushed by lawmakers of both parties.
The financial turmoil has disrupted the presidential election as well. Sen. John McCain (Ariz.), the Republican nominee, announced Wednesday afternoon that he’s suspended his campaign to return to Washington and address the crisis.
Sen. Barack Obama said the debate should not be postponed. “This is exactly the time,” he said, “when the American people need to hear from the person who, in approximately 40 days, will be responsible for dealing with this mess.”
But advocates are getting anxious. In a letter to congressional leaders and White House officials, Bill Novelli, head of AARP, urged stricter regulations to protect retired Americans. “This crisis highlights the importance of policies that make retirement income, pensions and personal savings more secure,” Novelli wrote.
The turmoil is only complicated by the looming elections. Washington lawmakers would love nothing more than to be at home telling constituents all that they’ve done to save the economy. But first they have to do it. And their very few choices leave them in an uncomfortable spot: Either pump hundreds of billions of taxpayer dollars to save the listing ship, or offer the harsh suggestion — radical in a credit-based economy — that Americans live somewhere near to their means.
In an election year, the latter is not likely to happen.