Updated from Sunday, Sept. 21
Lawmakers in Washington are grappling over proposed changes to the Bush administration's plan for a sweeping rescue of the financial system.
While the plan doesn't appear in danger of being delayed or stopped, some members of Congress want provisions inserted that are aimed at protecting taxpayers, who will end up footing the cost of the plan.
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.
Disagreements, however, have emerged 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. Some Democrats are pushing for such a provision, but Treasury Secretary Henry Paulson is reportedly resisting such efforts since such a provision could keep many firms from choosing to participate.
House Speaker Nancy Pelosi (D., Calif.) stated three specific provisions that Democrats demand from the bailout legislation, saying in a press release Monday:
"Congress will respond to the financial markets crisis by taking action this week in a bipartisan manner that will protect the taxpayers' interests. The Administration's $700 billion proposal does not include the necessary safeguards. Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive executive compensation."
The contents of the legislation remain murky. Part of the problems in the negotiations may arise from the types of securities to be bought by the fund. Paulson and the Treasury Department wrote in the following statement in a fact sheet released on Sunday:
"The purchases are intended to be residential and commercial mortgage-related assets, which may include mortgage-backed securities and whole loans. The Secretary will have the discretion, in consultation with the Chairman of the Federal Reserve, to purchase other assets, as deemed necessary to effectively stabilize financial markets."
What exactly are other assets? The range of security could possibly include anything from real estate to credit default swaps (many of which might have been used in complicated financial transactions). Congress would certainly want to question the exact nature of these transactions.
Calls to the Treasury for comment haven't been returned. 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 Wall Street Journal
Early reports had guessed Congress would act quickly on the legislation. However, Chair of the House Financial Services Committee Rep. Barney Frank (D., Mass.) and Chair of the Senate Banking Committee Sen. Chris Dodd (D., Conn.) both appeared on
"The Morning Show," pleading for patience and additional oversight.
The Associated Press
Dodd has insisted on the formation of an oversight board to oversee the
Securities and Exchange Commission
, the FDIC and the Treasury Department.
A timeline for action is unclear.
The Treasury and Fed began discussing the plan with congressional leaders Thursday. News of the talks late in the week, along with the SEC'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
and the takeover of
, have failed to stem the sector's hemorrhaging.