Strapped homeowners could get government help renegotiating their mortgages as part of the $700 billion financial bailout legislation taking shape in Congress.
Congressional leaders and the Bush administration are haggling over details of the massive rescue plan, including Democrats’ demand that executives at failing financial firms that receive the government help can’t get “golden parachutes” on their way out the door.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, the architects of the bailout, faced tough questions at a hearing Tuesday from lawmakers in both parties about the eye-popping cost, how the rescue would work and how taxpayers would be affected.
Paulson was in talks with Democrats about their proposal that the government be able to purchase equity in faltering companies as part of the plan, so taxpayers could benefit from future profits.
The administration is balking at another key Democratic demand: allowing judges to rewrite bankrupt homeowners’ mortgages so they could avoid foreclosure.
Congressional aides said the House could act on a bill Wednesday or Thursday, with the Senate following soon thereafter.
“We have gotten closer,” Rep. Barney Frank, D-Mass., the House Financial Services Committee chairman, said late Monday. “We’re not there yet.”
Still, lawmakers on both the right and left already were assailing the deal-in-progress.
Sen. Hillary Rodham Clinton said she is worried that taxpayers could be left “holding the bag.” Interviewed Tuesday morning on CBS’s “The Early Show,” she said she agrees that the situation is critical and that something must be done quickly, however. “The house is on fire,” she said, “and we’ve got to call the fire department and put the fire out.”
Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee, blasted the emerging plan as “neither workable nor comprehensive.”
“In my judgment, it would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted and may actually cause the government to revert to an inadequate strategy of ad hoc bailouts,” Shelby said.
Lawmakers on both extremes of the political spectrum assailed the plan as a massive, poorly conceived bailout. Conservative House Republicans and liberal House Democrats both huddled privately Monday to express their concerns, and they were drafting their own legislative alternatives.
The emergency legislation would give the government broad power to buy up devalued assets from troubled financial firms in a bid to unlock the flow of credit and stabilize badly shaken markets in the United States and around the globe.
In an expansion of its original proposal, the Bush administration is asking for broad power to buy up virtually any kind of bad asset — including credit card debt or car loans — from any financial institution in the U.S. or abroad in order to stabilize markets.
Frank said he and Paulson had agreed to create a congressional oversight board as part of the bailout and to require that the government come up with a plan to avoid foreclosures on any mortgages it acquires in the rescue. A government official with knowledge of the talks confirmed the administration backs those provisions.
There still were divisions on which tottering financial firms would be helped and what kind of assets the government could buy as part of the bailout.
Lawmakers in both parties appeared to be coalescing around the idea that executive compensation limits should be part of the bailout, although Paulson says he is concerned that such curbs would discourage companies from participating.
Investors were uncertain just how successful the administration’s plan would be in unfreezing credit markets, which many businesses depend on to fund day-to-day operations, and for propping up the still-weak housing market.