Congress appeared Tuesday to be coalescing around an outline to allow the Treasury Department to purchase up to $700 billion of bad mortgage assets from troubled banks, despite political sniping throughout the day.
The challenge for lawmakers, especially House Financial Services Chairman Barney Frank and Senate Banking Chairman Christopher Dodd, will be to quickly turn their ideas into a bill before they adjourn, securing concessions from Treasury Secretary Paulson, picking up enough GOP support and tamping down red flags from their respective caucuses.
Frank said his staff and Dodd's will start work this morning to meld their drafts into a single measure before Financial Services hears from Paulson and Federal Reserve Chairman Bernanke.
"You can't do it one house, the other house, as if we were marking up a defense authorization bill. There's got to be one answer to this that involves all the principals sitting down and trying to work at it, and then coming up with a product you can go back to your colleagues with," Dodd said.
On Tuesday, Paulson conceded any bill would have significant oversight, such as a board or an inspector general to monitor the program. Dodd and Frank said any bill would have to have some feature to stem foreclosures, such as requiring Treasury to encourage servicers to take advantage of a new $300 billion program to allow at-risk borrowers to refinance into fixed loans guaranteed by the Federal Housing Administration.
A growing chorus -- especially Republicans -- is calling for limits on executive compensation for firms that participate in the program despite administration resistance.
"A lot of them are very successful banks and investment houses that have done very well, have been responsible, are holding performing assets that have value. They were not necessarily irresponsible players, and so you have to be careful about how you deal with them," White House spokesman Tony Fratto said.
But such a stance is not likely to stand as many Senate Republicans called for such language after hearing from Paulson Tuesday during their Caucus lunch.
"I think executive compensation ought to be a part of this. If we are going to advance taxpayers' dollars and if the government ends up in effect taking an equity position in businesses, I think the taxpayers should expect no less than strict limits on what kind of executive compensation might be possible for those involved in these partially government-controlled enterprises," Senate Minority Leader McConnell said.
Democrats also seem intent to grant Treasury warrants to buy stock in participating firms, so the government could make a profit if the firms' stocks rise later. Paulson testified Tuesday that firms might be hesitant to participate if they knew it would seriously affect their bottom line, a charge Democrats dismissed.
The most vulnerable part of the package is language to require banks that take federal aid to accept a major change in bankruptcy law by allowing judges to reduce the principal of the mortgage to a home's current market value. Frank and Dodd support it, but Republicans are uniformly against it, with Senate Minority Whip Kyl calling it a poison pill.
House Democratic moderates have held up such stand-alone legislation over concerns that it could raise interest rates -- a notion that is disputed by consumer groups and at least one academic study.
The Blue Dog Coalition has remained largely silent, but House Democratic leaders are counting on their support to ensure passage. Following a closed-door meeting of the Blue Dogs Tuesday, sources said it remained unclear how many will back the package.
"A lot of folks right now are extremely puzzled, what it will be and how it would work," said one Blue Dog. "People are just unsure."
Several members speaking anonymously said they are unlikely to back the measure if it doesn't have significant GOP support.
"It there is not at least half [of] Republicans [supporting the bill], many of us won't support it," the lawmaker said.
While some top GOP aides predicted Minority Leader Boehner and other leaders could get the GOP votes needed, others were less confident. They cited the highly negative response to the plan at a closed meeting Tuesday of GOP lawmakers with Vice President Cheney and White House Chief of Staff Bolten where the two pushed for the immediate need to pass the plan.
"I don't think that is possible," said one top GOP source. "If you see a couple of days of big (New York Stock Exchange) drops you will probably see attitudes change a little."
In the Senate, it appeared that while some Republicans may vote against it, there has been no talk of a filibuster. "I don't think anyone is in a filibustering kind of mood," said Sen. Mel Martinez, R-Fla.
Sen. Tom Coburn, R-Okla., who has held up more than 100 bills at a time in the name of fiscal discipline, said he would not use any of his stalling tactics to slow consideration of the legislation. "I won't try to stop it," Coburn said.
And according to one GOP aide, Sen. Jim DeMint, R-S.C., was not likely to take any stalling actions. He is perhaps the most conservative senator in the chamber and an outspoken opponent of the bailout.
One GOP aide who expressed confidence the bailout would pass said DeMint or anyone else who slowed consideration would surely feel the ire of colleagues. "If he does that," the aide said of DeMint, "there's going to be some fireworks."
This article appears in the September 27, 2008 edition of NJ Daily.