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Congress Haggles Over Bailout Plan

TSC Staff

Lawmakers were reportedly grappling Sunday over what to add to the Bush administration's plan for a sweeping rescue of the financial system.

The plan didn't appear in danger of being delayed or stopped, according to a report in The Wall Street Journal. But some members of Congress want provisions inserted that are aimed at protecting taxpayers -- who will be on the hook for the plan's cost -- and providing relief to homeowners, the report said.

The Treasury Department wants Congress' blessing to buy up to $700 billion in bad mortgage-related debt. The hope is that such purchases will stem the financial crisis that has shuttered investment banks, forced mergers and caused panic among investors. At the root of the crisis are soured mortgages, but Wall Street amplified their impact using derivatives and leverage.

The plan would raise the limit on the nation's debt to $11.3 trillion from $10.6 trillion to enable the Treasury to carry out the rescue

But disagreements are emerging over what to add to the proposal. Perhaps the biggest dispute concerns whether firms that sell bad debt to the Treasury should have limits placed on what they pay their executives, the Journal report said. Some Democrats are pushing for such a provision, but Treasury Secretary Henry Paulson is resisting such efforts, the report added.

Paulson is resisting efforts to limit the pay of executives whose firms participate in the program and plans to fight it "hard," the Journal reports, citing a person familiar with the matter. Paulson fears the provision would render the program moot, since many firms might choose not to participate.

The Treasury's latest draft, sent to Congress on Sunday, also could let overseas firms participate, and it leaves the door open for hedge funds to sell distressed assets to the government, according to the Journal.

The Treasury and Federal Reserve began discussing the plan with congressional leaders Thursday. News of the talks late in the week, along with the Securities and Exchange Commission's decision to temporarily prohibit short-selling, helped the markets recover much of the massive losses they incurred earlier in the week.

The government finds itself crafting a massive rescue for the financial sector after more piecemeal attempts by the Treasury and Fed, including a massive loan to AIG (AIG) and the takeover of Fannie Mae (FNM) and Freddie Mac (FRE), have failed to stem the sector's hemorrhaging.