Bush Urges Quick Passage of Bailout Package
By Lori Montgomery, David Cho and Howard Schneider
Washington Post Staff Writers
Monday, September 22, 2008; 10:38 AM
President Bush this morning warned lawmakers against trying to make too many changes to the proposed financial bailout legislation, saying the plan needs to be passed quickly and relatively intact to stem damage to global financial markets.
Weekend negotiations "made good headway" in crafting a bill to bolster a system weighed down by problem home mortgages, Bush said. But with proposals circulating to include provisions for homeowners in the bill or to use it to limit executive compensation, Bush cautioned that too many added provisions could impede approval of critically needed legislation.
"Obviously, there will be differences over some details, and we will have to work through them," Bush said, but "the whole world is watching to see if we can act quickly to shore up our markets and prevent damage to our capital markets, businesses, our housing sector, and retirement accounts.
"Failure to act would have broad consequences far beyond Wall Street. It would threaten small business owners and homeowners on Main Street."
Bush's remarks come after a weekend lobbying push by administration officials to win congressional support for legislation allowing the Treasury to buy suspect U.S. mortgage loans from U.S. and foreign-owned banks, at a possible cost of as much a $700 billion.
Coming in response to a financial crisis that has reordered Wall Street and raised concern about a collapse of the global financial system, the proposal won the endorsement over the weekend of the Group of 7 industrialized nations. Following a Sunday conference call, G-7 finance ministers and central bank officials said that they "welcome the extraordinary actions taken by the United States to enhance the stability of financial markets and address credit concerns," including the plan to take bad U.S. mortgages off the books of banks throughout the world.
Negotiations over the bailout plan will continue this week, as investors and the financial community take stock of a landscape changing by the day. Over the weekend, Wall Street's last two investment banks -- Goldman Sachs and Morgan Stanley -- were converted to commercial banks and subjected to the closer regulatory scrutiny that entails. This morning, the Securities and Exchange Commission expanded its temporary ban on "short-selling" of financial stocks to cover nearly 100 additional companies, including manufacturing firms such as General Motors and General Electric that have large financing arms.
After sharp rallies late last week, major Wall Street indexes were all down on Monday in excess of 1 percent, with the Dow Jones industrial average off by more than 150 points in early trading.
Congressional Democrats considering the Bush administration's emergency plan to shore up the U.S. financial system countered with their own demands yesterday, presenting draft legislation giving the government power to cut salaries of chief executives at firms that participate in the bailout and slash severance packages for their top management.
Democratic leaders have broadly embraced the administration's proposal to spend up to $700 billion to take troubled assets off the books of faltering firms and are not questioning the need to give the Treasury Department expansive authority to halt the meltdown in world markets. But by attempting to limit executive pay, they risk alienating key Republicans who object to such restrictions and delaying passage of the rescue plan, which in turn may stir renewed fear in the markets.
Treasury Secretary Henry M. Paulson Jr. was working last night to press House leaders to strike an agreement on the bailout bill by early this morning, according to three sources familiar with the matter. No deal with the Senate appeared close last night.
Sources familiar with Treasury's thinking said that the department is also continuing to monitor troubled financial firms and may have to intervene in the markets again this week, before Congress acts on the bailout, to address specific flash points.
Democrats sought to add oversight provisions and taxpayer protections to the proposal, which amounts to the largest government intervention in the private markets since the Great Depression. "We will not simply hand over a $700 billion blank check to Wall Street," House Speaker Nancy Pelosi (D-Calif.) said in a statement.
Under the proposal drafted by House Democrats, the Treasury would be required to force faltering firms that want to sell their troubled assets to the government to "meet appropriate standards for executive compensation." Those standards would include a ban on incentives that encourage chief executives to take "inappropriate or excessive" risks, a mechanism to rescind bonuses paid for earnings that never materialize and limits on severance pay.
Although Democrats have long sought to revamp the structure of compensation on Wall Street, their current demands are focused more narrowly on those financial firms choosing to avail themselves of the bailout.
The Democratic measure also would require the Treasury to use its status as the new owner of billions of dollars in mortgage-backed assets to reduce foreclosures by forcing banks to rewrite loans for distressed homeowners and forgive a portion of their debt. And it calls for a strict regimen of oversight, including independent audits and regular reports to Congress.
The proposal was presented to Treasury officials during marathon negotiating sessions this weekend over the bailout plan. House Republicans sent Treasury a separate set of demands, including the suggestion that a joint committee of Congress be created to oversee the program. And Senate Democrats yesterday were still assembling a list of provisions they hope to add, including new powers for bankruptcy judges to modify mortgages on primary residences, an idea House Democrats said yesterday that they had abandoned.
Though lawmakers had promised to work across party lines and between chambers to speed the rescue plan to passage by Friday, that process was not working smoothly.
Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate banking committee, said it's still possible to meet the deadline. But "this is of such import, if it takes a little longer to get right, then so be it," Dodd said. "I'm all for moving as quickly as we can, but I'm far more interested in getting it right."
On the Sunday morning television talk shows, Paulson said he has asked his counterparts in other nations to consider establishing similar programs.
Yesterday, British Prime Minister Gordon Brown said he would travel to New York on Wednesday to discuss what he called the "first crisis of the global economy." Brown said a "global regulatory system" should be established to govern a world where national borders often have little meaning. He added that Britain "was paying a price" for problems that started in the United States.
Though lawmakers on Capitol Hill were not working in unison, they were voicing similar concerns yesterday about whether the bailout plan includes enough oversight and protections for taxpayers.
The administration's proposal would give the Treasury secretary sweeping authority to purchase assets from any financial institution, whether headquartered in the United States or abroad, over the next two years. It would place no limit on when the assets could be sold. And it would allow the Treasury secretary to spend up to $700 billion without oversight or review by other federal agencies or the courts.
"It's the biggest amount of money with the least amount of detail I think I've ever seen in my life," said Douglas W. Elmendorf, a Brookings Institution economist who has worked in the Treasury Department and at the Federal Reserve. "The secretary does whatever he wants and spends whatever he wants."
Lawmakers across the spectrum are demanding more oversight of the bailout. House Democrats have the most specific proposal, which would order the Government Accountability Office to establish a permanent outpost within the Treasury to monitor the bailout program. That office would have unfettered access to the activities and financial documents of the rescue program, and would be required to submit reports to Congress every 60 days.
Many lawmakers also want additional protections for taxpayers. House Republicans, for example, have asked that any profits generated by the sale of the bad assets be used to reduce the budget deficit and not for any other purpose.
Where the parties appear to diverge is over Democrats' demand for government authority over the paychecks of executives whose companies participate in a taxpayer bailout. House Republicans oppose the idea, aides said, and Sen. Richard C. Shelby (R-Ala.), a key figure in the debate, said yesterday on CBS's "Face the Nation" that he thinks compensation should be set by corporate boards.
Speaking on the same program, Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said voters would protest a program that appears to permit corporate executives to pocket taxpayer dollars.
"It would be a grave mistake to say that we're going to buy up the bad debt that results from the bad decisions of these people, and then allow them to get millions of dollars on the way out the door," Frank said. "The American people don't want that to happen, and it shouldn't happen."
The idea does have a recent precedent: When regulators took over mortgage financiers Fannie Mae and Freddie Mac this month, they not only removed the firms' top executives but also eliminated $12.59 million in "golden parachutes" that had been promised in severance pay and bonuses. The executives, Daniel H. Mudd of Fannie Mae and Richard F. Syron of Freddie Mac, will now get a combined $9.43 million upon their exit.
Speaking on "Fox News Sunday," Paulson acknowledged "excesses" in executive compensation but said the debate should be put off for another time.
"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," Paulson said.
Paulson expressed more openness to the idea of foreclosure relief for homeowners whose loans are being financed by the securities the government would buy. "I think there should be a mortgage relief component to this," he said, without elaborating.
For nearly a year, Paulson has touted an initiative that calls on banks to voluntarily modify mortgages held by struggling homeowners so they can stay in their homes. Paulson said in a recent interview that this effort, called Hope Now, has helped 1.7 million households. But Democrats are skeptical, noting that the data are vague about the extent of assistance provided.
Paulson again warned lawmakers to resist adding too many provisions to the bill.
"We want this to be clean, and we want this to be quick, and it's urgent that we get this done," he said.
Correspondent Mary Jordan in London contributed to this report.