WASHINGTON - Beyond all the talk of illiquidity, distressed assets and reverse auctions, Treasury Secretary Henry Paulson had a very simple request for members of Congress on Tuesday:
Give us what we need. Quickly. And, please, stay out of the way.
Testifying before the Senate Committee on Banking, Housing and Urban Affairs, Paulson and Federal Reserve Chairman Ben Bernanke pleaded with lawmakers to approve, with a minimum of legislative meddling, a $700 billion bailout that would give the Treasury Department tremendous power to determine how to purchase and dispose of "toxic" assets from financial institutions, some of which are now being investigated by the FBI as it looks into potential mortgage fraud.
But members of Congress - feeling the wrath of constituents jamming phone lines to complain about the taxpayer-funded bailout - sharply grilled Paulson and Bernanke. The bailout package does not appear to face serious trouble, but top Democrats suggested it may not be finished by week's end, as the White House is demanding.
"I understand speed is important," said Banking Committee Chairman Chris Dodd (D-Conn.). "But I'm far more interested in whether or not we get this right."
Senate Majority Leader Harry Reid (D-Nev.) added, "We've been pushed into doing a lot of things during the Bush years. And any time they pushed too hard, it usually winds up not working out very well. So we want to complete our work here."
As a result, it appears increasingly likely the package will contain more oversight for those buying the distressed assets; limits on executive compensation for companies participating in the program; language providing taxpayers an equity stake in some of the transactions; and perhaps a provision allowing bankruptcy judges to modify some mortgages.
Tuesday's session was partly an exercise in political theater, as lawmakers expressed anguish and anger over a package they are ultimately likely to support. Paulson and Bernanke, for their parts, warned of bleak consequences if Congress did not act quickly, saying this could result in a massive credit crunch that would prevent businesses from operating and Americans from obtaining mortgages and car loans.
"I believe if the credit markets are not functioning, that jobs will be lost, unemployment will rise, more houses will be foreclosed upon, the [gross domestic product] will contract, that the economy just will not be able to recover," Bernanke said.
The Treasury program would establish a fund to buy mortgage-related assets and other distressed securities to clear them from the books of financial firms, in what officials are calling a "reverse auction." That, the administration says, would restore the flow of credit through the financial system. The Treasury would then wait for the purchased assets to gain value and resell them on the open market.
"I think it is important to state that this is not an expenditure of 700 billion," Bernanke told the senators. "This is a purchase of assets. And if the auctions are done properly and if valuations are done properly, the American taxpayer will get good value for their money."
But the situation has left members of an already unpopular Congress in a difficult predicament as Election Day approaches. They risk supporting a mammoth taxpayer-funded bill that could further alienate voters who are suffering financial problems of their own, or, alternatively, doing nothing and watching the economy worsen. That may explain why so few have been willing, so far, to express a definitive opinion on the legislation.
A poll released Tuesday by the Pew Research Center found that 57 percent of those surveyed believed the government was doing the "right thing" by offering the bailout plan, while 30 percent believed it was doing the wrong thing.
The White House sent Vice President Dick Cheney to the Hill on Tuesday to placate nervous fiscal conservatives in the House, who were close to open revolt. Some Republicans on the Banking Committee also were openly hostile to the proposal.
"The Treasury's plan has little for those outside of the financial industry," said Sen. Richard Shelby (R-Ala.). "It is aimed at rescuing the same financial institutions that created this crisis with their sloppy underwriting and reckless disregard for the risks they were creating, taking, or passing on to others."
Sen. Jim Bunning (R-Ky.) called the program "financial socialism" and "un-American."
Paulson was particularly resistant to suggestions that Congress legislate the manner in which the securities would be valued, bought or sold, saying that almost "certainly wouldn't work." He asked that the Treasury be given as much flexibility as possible to carry out the transactions, while ultimately being accountable to an oversight board established by Congress.
If the bill is drawn too restrictively, he argued, it would discourage companies from participating.
"What we're asking for is some broad powers with some good strong oversight, and we think that is the best way to protect the taxpayer," Paulson said.Copyright © 2014, Los Angeles Times