Financial industry lobbyists joined the Bush administration Monday to press for swift action on the government’s planned bailout of the financial markets instead of adding consumer-friendly proposals supported by congressional Democrats.
The aggressive lobbying drive was a second phase in the industry’s efforts to shape the $700 billion package that Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke sent to Congress to stabilize the markets. The two were expected to testify Wednesday morning on Capitol Hill.
Over the weekend, the industry succeeded in persuading the Bush administration to agree to a flexible interpretation of the types of bad assets the government would take on to help cleanse financial institutions’ books.
On Monday, the lobbyists and the administration resisted changes sought by congressional Democrats that would give courts power to rewrite mortgages to lower bankrupt homeowners’ monthly payments.
“Once the fund purchases the distressed mortgages, it doesn’t need a bankruptcy judge to rewrite the loan balance; it can write down the loan balance itself, without Congress giving bankruptcy judges that authority,” John A. Courson, chief operating officer of the Mortgage Bankers Association, said in a statement.
The Democrats also wanted to require companies that unloaded their devalued assets on the government to limit executive pay packages. Under the proposed change, financial institutions also would have to agree to revoke any bonuses awarded to executives that were based on bogus claims of rosy financial health.
“We are ... disappointed that some legislators have decided this is an opportunity to tack on their favorite pet items,” Courson’s statement added.
On Monday, the industry was in lockstep with the administration in urging speed.
“The markets need this ... and they need it fast,” the mortgage bankers’ statement said.
Over the weekend, industry groups including the Financial Services Roundtable prevailed on the administration to give a broad interpretation to the relief it would offer. Beyond devalued mortgage-related assets, the bailout could cover such things as distressed car loans and credit-card debt.
“Treasury should have the power to respond to this crisis flexibly,” Michael Paese, executive vice president for global advocacy at the Securities Industry and Financial Markets Association, said in an interview.
In a change over the weekend, the Treasury Department specified that foreign banks with significant operations in the United States would be covered by the bailout fund.
The administration also responded to banking industry complaints that new guarantees under the bailout plan ran the risk of sparking withdrawals by banks’ depositors.
The guarantees had been established to stem a wave of withdrawals from mutual fund accounts that had been sparked largely by panicked institutional investors.
Responding to complaints from banks that the new guarantees would put them at a competitive disadvantage for deposits, the Treasury Department said the guarantees will only cover funds that were in the accounts as of last Friday.
The administration was trying to bolster the teetering $3 trillion money-market mutual fund industry by using a $50 billion Treasury fund to provide temporary guarantees to money-market accounts.