[Peace-discuss] Democrats sell birthright for pot of message

[C. G. Estabrook]

	Original Treasury bailout plan is dead,
	but revised plan emerging
	By David Lightman and Margaret Talev
	McClatchy Newspapers

WASHINGTON — The Treasury's plan to spend up to $700 billion of taxpayers' money 
to bail out the nation's financial system was recognized as dead Wednesday as 
lawmakers in Congress made clear that they're going to make significant changes.

Treasury Secretary Henry Paulson, who has spent two days urging members to pass 
legislation quickly and cleanly, conceded Wednesday that any bill will have to 
have limits on executive pay at troubled firms and hinted he would accept other 
changes.

"The American people are angry about executive compensation and rightfully so," 
Paulson told the House Financial Services Committee.

His willingness to publicly agree to the pay provision was another strong sign 
that Congress and the administration were working toward the same goal — 
enactment of a major financial bailout package, and soon.

"It means we are closer," said Financial Services Committee Chairman Barney 
Frank, D-Mass. He predicted that House and Senate Democrats would have an 
agreement by Thursday to present to Republicans.

President Bush was to urge passage of a consensus plan in a nationally televised 
address Wednesday night.

Republican presidential candidate John McCain said he would suspend his campaign 
Thursday and head to Washington to help pass a bailout plan. He urged Democratic 
nominee Barack Obama to delay their first debate, scheduled for Friday night. 
Obama rejected the idea, saying voters need to hear from the presidential 
candidates now.

Members of Congress talked privately with administration officials throughout 
the day about changes to the plan. Several provisions sought by lawmakers from 
both parties were expected to be added, notably strong oversight of any bailout, 
more aid to homeowners facing foreclosure and possibly trimming back the cost of 
the package, at least initially.

"Over the last 24 hours, I've seen signs of greater cooperation from my 
colleagues in Congress," said Sen. Charles Schumer, D-N.Y., who's on the Senate 
Finance Committee. "Despite many of their well-founded reservations, (they) 
recognize the magnitude of the problems we face and the importance of getting 
something done."

One measure of Congress's disgust with the original Treasury plan came Wednesday 
when Federal Reserve Chairman Ben Bernanke and Paulson met privately with House 
Republicans. Afterward, Rep. Tom Davis, R-Va., said that only four members 
raised their hands at the end when there was a request for a show of hands for 
support of the original White House bailout proposal.

Instead, members worked to iron out a consensus plan.

Rep. Spencer Bachus of Alabama, the top Republican on the House Financial 
Services Committee, said that Frank was including him in the discussions and 
that there was progress toward a bill. "There's a realization that we have to do 
something and that we can't leave town until we do," Bachus said.

A number of other ideas were surfacing, most aimed at reassuring taxpayers 
who've been flooding congressional offices with e-mails and phone calls, largely 
in opposition to the Treasury plan or simply puzzled as to whether or not they'd 
wind up bailing out renegade companies and executives.

"People are saying what does that have to do with me? The connection has not 
been made," said Rep. Maxine Waters, D-Calif. She brought together black and 
Hispanic business and community leaders in Washington to help push for more 
consumer aid.

House Republican leader John Boehner of Ohio had similar thoughts, saying that 
Americans are "furious" and are "trying to understand will this plan in fact work."

"Right now what we have before us is a 'trust me' proposal," said Rep. Deborah 
Pryce, R-Ohio, which she said wouldn't work because Americans' trust in the 
administration is broken.

"I want you to make the case to me so that I can make the case to my 
constituents," she told Paulson and Bernanke.

Despite his concession on executive pay, Paulson offered few other compromises 
to the House committee.

At one point, Rep. Gary Ackerman, D-N.Y., asked if he favored allowing courts to 
review a government action. The original Treasury plan would have barred courts 
from reviewing management of the bailout. A proposal authored by Senate Banking 
Committee Chairman Christopher Dodd, D-Conn., would allow a bailout decision to 
be overturned if it was "arbitrary, capricious, an abuse of discretion or not in 
accordance with the law."

Paulson would say only that details need to be negotiated. "We need to get the 
right balance," he said, without elaborating.

Rep. Carolyn Maloney, D-N.Y., asked Bernanke how he and Paulson came up with the 
$700 billion figure.

"It's not science to figure out how much is going to be needed to stabilize the 
firms and the markets," Bernanke said. "But there are various metrics one can use."

Among them, he said, is that "there's about $14 trillion outstanding of 
residential and commercial mortgages. So $700 billion is about 5 percent of that 
amount, which is similar to some of the loss rates we've seen in some of these 
categories."

He also said that assets of U.S. commercial banks are "in a similar $10 
(trillion) to $12 trillion category," so the $700 billion "seems an appropriate 
size relative to the scale of the problem."

Many lawmakers were not convinced.

"Would there not be merit in considering an initial set of purchases of certain 
classes of troubled assets in the amount of, say, $100 billion?" asked Sen. Sam 
Brownback, R-Kan. "Then we could evaluate results, and move on with $100 billion 
worth of purchases of other classes of troubled assets."

Schumer pressed Bernanke hard on this point, asking him as an economist why $700 
billion was necessary.

"You asked me my opinion as an economist," Bernanke said with a smile. 
"Unfortunately, this is a matter for psychology." A $700 billion federal 
commitment would reassure global financial markets that Washington was committed 
to the rescue in a way that $100 billion increments would not, he said.

But $700 billion, Schumer replied, "is an awful lot for psychological reassurance."

Members also were considering relief for homeowners with troubled mortgages, 
perhaps a multibillion-dollar fund that would allow them to refinance fixed 
loans that would be guaranteed by the Federal Housing Administration.

Meanwhile, Bernanke offered an unusually dismal picture of the economy in 
testimony before the Joint Economic Committee.

"Given the extraordinary circumstances, greater than normal uncertainty 
surrounds any forecast of the pace of the activity," the Fed chairman said, 
referring to future economic growth. "Financial stress could prove a significant 
drag on growth. The downside risks to the outlook thus remain a significant 
concern."

He predicted that the nation's gross domestic product "is likely to expand at a 
pace appreciably below its potential rate in the second half of this year, and 
then gradually pick up as financial markets return to more normal functioning 
and the housing contraction runs its course."

The economy's problems stem largely from the financial crisis, he said, "through 
several channels, most notably by restricting the availability of credit." He 
added that households "also appear to be having more difficulty of late in 
obtaining non-mortgage credit."

Agreement on details of a revised bailout proceeded slowly, and officials were 
starting to doubt that a package could be approved by the end of the week.

One scenario being pushed was for congressional leaders and the administration 
to announce an agreement in principle by Friday, and then enact it late next 
week, after a long weekend to give staff time to craft legislative language and 
let lawmakers go home to campaign. The November election is less than six weeks 
away.

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