Congress Reaches Tentative Bailout Agreement
LIANE HANSEN, host:
From NPR News this is Weekend Edition. I'm Liane Hansen. After a bargaining session that lingered into the early hours of the morning, lawmakers emerged to announce that they had reached a tentative agreement on a financial rescue package. Treasury Secretary Henry Paulson took part in the negotiations at the Capitol.
Secretary HENRY PAULSON (Treasury Department): We've still got more to do to finalize it, but we're - I think we're there.
HANSEN: The House is expected to vote on the measure tomorrow with a Senate vote to follow. NPR's Frank Langfitt joins us to talk about the terms of the deal. So Frank, tell us what made it into the bailout package.
FRANK LANGFITT: What's really interesting here is Secretary Paulson basically got what he wanted when he asked for it about a week ago. It's a $700 billion package which will allow the government to buy all these toxic securities that are bringing down the investment banking system, the financial - you know, threatening the financial system of the country. And what's going to happen is the government is going to set a price for these securities and try to get them as cheaply as they can. No one really knows what's they're worth right now. And then it wants to hold them in hope that because many of the mortgages in the United States are actually pretty good, that when the jitters go away, when the economy gets better, they'll be able to sell these later and maybe not cost the taxpayers quite so much.
HANSEN: Both Democrats and Republicans criticized this bill. So what's in this version that brought people onboard?
LANGFITT: Well, one of the things that Democrats - they were, you know, kind of aghast when Secretary Paulson came in last - I guess it was a week ago - and gave them just three pages and basically said, I want all this money, and here's - I'm going to use it this way. And frankly, not a whole lot of questions, you know. And so one of the things that they wanted was to kind of control the purse strings. I mean, that's their job here in the U.S. government. And so they're going to do it in an installment basis.
And so they're only going to get a certain amount in the beginning, and then the Congress will have some mobility to dole out the rest of the money, to see how this goes. Because of course, for the U.S. government, for the taxpayer, this is an enormous venture to be taking on. It's a huge amount of money, and we're really in uncharted territories. We've never really done this as a country before.
HANSEN: What about executive pay? How was that ultimately addressed?
LANGFITT: Well, they're - they had to have - I think they had have something on executive pay, because there was outrage across the nation this week. I went out on Wednesday into Maryland and was talking to ordinary voters, and they were so frustrated. This, I think, really touched on an issue of fairness for a lot of people, that people who do make their mortgages, as most of us do, felt they were having to pay for the problems and the mistakes of people who are much wealthier and, in theory, a lot smarter, these investment bankers on Wall Street. And congressional offices were flooded with complaints.
Now, in the bill there is talk about reasonable limits on executive pay. It's not entirely clear. You know, not everything is written down here. We don't know exactly what that means. But I think you're going to see some real limits on - if you're one of these investment banks, and you want the government to bail you out, you are going to have to take a certain, you know - you're not going to be able to make that much money. And especially if your firm fails, you can't profit from it and just walk away.
HANSEN: Let's talk a little bit about the politics of the deal. This is what House Financial Services Committee Chairman Barney Frank had to say about the compromise.
Congressman BARNEY FRANK (Democrat, Massachusetts; Chairman, House Financial Services Committee): This was never going to be a buildup which is going to make people happy, because no solution to a problem can be more elegant than the problem itself.
HANSEN: Now House Republicans were the big holdup late in the week. What convinced them to back this?
LANGFITT: Well, they were listening to their constituents, and they knew how mad their constituents were. And what they wanted to do was - they put in an insurance program. And what this would say is investment companies could take out insurance. They would still hold these toxic securities. So they would still take responsibility for them, and it would be an insurance program. But it looks like it's more of a voluntary sort of thing. And I think some people see it as symbolic, because many investment banks would like nothing better than to get rid of this stuff off their books now.
HANSEN: Republican Congressman Roy Blunt of Missouri actually talked about the pressure that the lawmakers were under.
Representative ROY BLUNT (Republican, Missouri): I've been involved in the last few years in a lot of these conferences that can be pretty tense and pretty complicated. And people really showed patience in this one.
HANSEN: Talk about what they were up against time wise. Why such urgency?
LANGFITT: I think there was a sense that really Congress had a gun to its head in a way that it probably hasn't in a very long time. In one thing, you've got the Asian markets opening tonight, Eastern Standard Time, in Shanghai. If people wake up in Shanghai - and they are already really freaked out about what's going on in their stock market, they've been dumping their stocks - there was the chance that they would see this and lose confidence in the American government's ability to at least halt this financial crisis. They would start pulling more and more money out.
And then there's that ricochet effect. People wake up in New York and they the Asian markets have gone down. They see no progress. So there was a need to really, I think, halt this. And then in terms of the economy in general, you know, it's a little bit of cliche, but credit, this is the oil that runs the engine of the economy. And without credit, things were freezing up. You were hearing people having maybe a little more trouble getting loans, certainly businesses having trouble getting overnight loans to pay their vendors, to pay their employees.
And if that starts to freeze up, the whole economy begins to freeze. And so, I think that they knew that there was a real crisis of confidence, not just in the United States, but worldwide. And they felt a real need to address it as soon as possible.
HANSEN: And they basically had a similar agreement earlier in the week, but politically it seems like everyone had to get involved in order to get maybe the best deal for the American people?
LANGFITT: You know, we don't know. I mean, we've never done this before. And what will be fascinating to see is five or eight years from now, what are these securities worth? Does this end up being as Treasury Secretary Paulson hopes, that it actually doesn't end up costing the American taxpayer that much?
HANSEN: NPR's business reporter Frank Langfitt. Thanks a lot, Frank.
LANGFITT: Happy to do it, Liane.