Paulson, Bernanke Lobby Senate Panel On Bailout

Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke are before the Senate Banking Committee Tuesday to urge senators to act quickly on the $700 billion bailout package. Democrats seem to be unfied over the plan but some Republicans are hostile towards it.

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TEVE INSKEEP, Host:

It's Morning Edition from NPR News. I'm Steve Inskeep.

LINDA WERTHEIMER, Host:

And I'm Linda Wertheimer in for Renee Montagne. Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke are on Capitol Hill this morning trying to sell Congress on the $700 billion bailout plan for Wall Street. Secretary Paulson had this to say in his opening statement before the Senate Banking Committee.

(SOUNDBITE OF SENATE BANKING COMMITTEE HEARING)

HENRY PAULSON: This is a difficult period for the American people. I very much appreciate the fact that congressional leaders and the administration are working closely together so that we can help the American people by quickly enacting a program to stabilize our financial system.

WERTHEIMER: NPR's Brian Naylor is watching the proceedings at the Capitol, and he joins us now. Brian, how are the lawmakers responding to this call for a quick solution to stabilize the financial system?

BRIAN NAYLOR, Host:

Linda, there's a lot of skepticism, as you might imagine. A lot of, sometimes, hostility. I think that lawmakers on the one hand will acknowledge that something needs to be done to stem the tide of losses on Wall Street, but they are very reluctant to pass the burden on to taxpayers. This is interesting. This morning, it's the first time that a Senate or a congressional committee has met publically and asked questions of Paulson about this $700 billion proposal, and there's a lot of unknowns and a lot of head scratching going on.

WERTHEIMER: I was impressed with the opening statement from Senator Christopher Dodd who talked about this as being a calamity that was predictable and preventable.

NAYLOR: Well, right. And there's been a lot of criticism that the Fed has been kind of lurching from crisis to crisis. Here, let's listen to a little bit of what Senator Dodd had to say this morning.

(SOUNDBITE OF SENATE BANKING COMMITTEE HEARING)

CHRISTOPHER DODD: I understand speed is important, but I am 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.

NAYLOR: And so, you know, Democrats are trying to come up with their own alternative, their own second idea. It's going to probably be based on what Paulson has proposed. But, you know, Republicans are also very skeptical of this. I think while Democrats are kind of unified in the sense that they're going to get something done, there's a lot more hostility towards this plan from Republicans. For instance, here's what Richard Shelby, who is the top Republican on the Banking Committee, said in his opening remarks this morning.

(SOUNDBITE OF SENATE BANKING COMMITTEE HEARING)

RICHARD SHELBY: There are very few details in this legislation. In fact, Treasury officials admit that they will have to figure out the mechanics as they go along. Rather than establishing a comprehensive, workable plan for resolving this crisis, I believe this legislation merely codifies Treasury's ad hoc approach.

WERTHEIMER: It's interesting to me, Brian, that Shelby particularly - I mean, I know he opposes this idea - but Shelby talked - he attacked the administration. He basically said that you've been here testifying day in, day out, and nobody told us this was coming or it was going to be this bad.

NAYLOR: Yep, that's true. And I think that's the way a lot of lawmakers from both parties feel. You know, first there was the bailout of Fannie Mae and Freddie Mac, and then the bailout of AIG. And lawmakers keep being assured by the administration that the problem has been solved when in fact it hasn't been. And so they're kind of wondering, what are we in for now?

WERTHEIMER: Do you think the Congress is likely to give the Treasury much of what it wants, maybe plus some safeguards and plus some add-ons?

NAYLOR: Yeah, I think so. I think they - the administration has already agreed for more oversight of this proposal. At first they said, well, we'll come back to you with a report every six months or so. Democrats are insisting on more stringent oversight. And Democrats also want to see some limits on the salaries of the CEOs of these banks that are going to be getting these bailouts. I think the administration's probably going to have to go along with that as well.

WERTHEIMER: OK. NPR's Brian Naylor, get back to the hearing. Thank you.

NAYLOR: Thanks, Linda.

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Lawmakers Skeptical Of Bailout Plan

Treasury Secretary Henry Paulson, Fed Chairman Ben Bernanke and others prepare to testify. i i

Treasury Secretary Henry Paulson (from left), Federal Reserve Board Chairman Ben Bernanke, Securities and Exchange Commission Chairman Christopher Cox and Federal Housing Finance Agency Director James Lockhart III prepare to testify during a hearing before the Senate Banking Committee on Tuesday. Alex Wong/Getty Images hide caption

itoggle caption Alex Wong/Getty Images
Treasury Secretary Henry Paulson, Fed Chairman Ben Bernanke and others prepare to testify.

Treasury Secretary Henry Paulson (from left), Federal Reserve Board Chairman Ben Bernanke, Securities and Exchange Commission Chairman Christopher Cox and Federal Housing Finance Agency Director James Lockhart III prepare to testify during a hearing before the Senate Banking Committee on Tuesday.

Alex Wong/Getty Images

The fate of the largest economic bailout in American history appeared less certain Tuesday, as lawmakers said the plan still lacked detail and had not yet been properly explained.

While some version of the proposal is still likely to receive congressional approval, lawmakers appeared to balk at having any plan finalized this week as well as at other key details.

"This proposal is stunning and unprecedented in its scope and lack of detail," said Connecticut's Christopher Dodd, chairman of the Senate Banking Committee.

"It is not just our economy at risk but our Constitution as well," Dodd said, because the plan would allow the Treasury Department to spend $700 billion "with impunity."

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson urged the Senate Banking Committee to quickly pass a $700 billion financial bailout, warning that a delay could be disastrous to the U.S. and global economy.

Both regulators made the case that the proposal would be cheaper for taxpayers than letting financial markets further collapse.

"I'm angry by the things that got us here," Paulson said. But "by far the greatest protection for the American taxpayers is having this be effective. The consequences if we don't do anything are worse."

The Bush administration wants lawmakers to approve the bailout package by the end of the week, although that appeared ambitious even before Tuesday's testy hearing.

Some lawmakers expressed skepticism about the size of the bailout; one called it a "bet" that a governmental infusion of capital into the economy would help abate the mortgage crisis at the root of the current crisis.

Sen. Mike Enzi (R-WY) said the plan would cost $2,300 per taxpayer. "This committee would not be doing its job if that were allowed to happen," Enzi said.

Essentially, the Bush administration's rescue plan would give the Treasury Department broad authority to buy as much as $700 billion worth of mortgage assets held by banks, Wall Street firms and other financial institutions. It would also allow the Treasury secretary to oversee the assets in any way he or she sees fit. That includes the ability to go outside normal government contracting practices to hire private companies to manage them. Lastly, the plan would require the government to report to Congress within three months and every six months thereafter, but it would shield the program from judicial review.

Paulson has left out many details of how he expects the historic plan would be implemented, saying it's imperative that the administration be allowed to hit the ground running and not be stymied by additional congressional restrictions or mandates.

Still, lawmakers hammered away on several key questions: How bad are the assets the government is being asked to buy? Would the plan allow the government to take an equity position in companies that participate in the bailout? Why should the Treasury secretary be given nearly unfettered oversight of the process?

Throughout the hearing, Paulson stood his ground. He said approval of the plan would "avoid a continuing series of financial institution failures and frozen credit markets that threaten American families' financial well-being, the viability of businesses both small and large, and the very health of our economy."

Next up: the House Financial Services Committee is hosting Paulson and Bernanke on Wednesday, where topics such as executive compensation and additional mortgage debt relief are likely to get more attention.

Democratic presidential nominee Barack Obama said Tuesday that if he is elected, the massive bailout package being negotiated to rescue Wall Street will very likely force him to delay some of the spending programs he has advocated on the campaign trail.

Obama acknowledged that some of his proposals for health care and education reform, improvement to the nation's infrastructure and investment in a new "green" energy sector might have to be phased in.

Republican nominee John McCain hasn't made specific comments about the impact of a bailout on his presidential agenda, though he did say over the weekend that he still plans to be as ambitious as before.

Stocks were up slightly Tuesday after a drop Monday caused by concerns about the bailout plan's implementation.

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