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Congress worked through the weekend to craft a bipartisan bill to create an entity that would purchase hundreds of billions of dollars of bad assets that threaten to bring the financial markets to a halt.
Staffs for Senate Banking Chairman Christopher Dodd and House Financial Services Chairman Barney Frank were attempting to write a bill after receiving an outline from Treasury Secretary Paulson.
Congressional leaders want to pass the measure this week, but such timetables were in a state of flux as they worked in uncharted territory to construct the government bailout.
Much of the focus will be on buying up the debt of poorly performing home loans and mortgage-backed securities, which many argue are the crux of the current financial crisis that has triggered a worldwide credit crunch.
Frank said on C-SPAN Friday that he thought that establishing a separate entity would be difficult under such quick time constraints and that lawmakers might grant Treasury the authority to have such powers to buy such bad debt. "This is an emergency situation," Frank said. The goal is to have legislation ready by Tuesday.
Paulson and Federal Reserve Chairman Bernanke are slated to appear Tuesday in front of the Senate Banking Committee and Wednesday in front of Frank's panel.
The questions that they must resolve are numerous: They must decide whether there should be a monetary cap on the fund and who should select the director.
They also must decide which assets to buy and whether to engage in an auction or buy them at a set premium over current prices. That could be another problem because prices for many of these troubled securities do not exist, said Doug Elmendorf, a senior fellow at The Brookings Institution.
The government could take an equity stake in firms that participate in the program. But Elmendorf noted it would be difficult to set the eligibility for firms that would qualify, and would not focus on the companies in the most trouble.
Another consideration is to what extent Democrats would want to ensure taxpayer protection and to aid borrowers at risk of losing their homes.
That includes whether the government could guarantee that it shares in any potential profits with the firms receiving assistance or places limitations on executive compensation for firms that use such assistance -- a condition placed on executives at Fannie Mae and Freddie Mac as part of the housing-stimulus bill.
Another possible idea is requiring banks that take federal aid to accept a major change in bankruptcy laws, allowing judges to reduce the principal of the mortgage to a home's current market value.
That proposal is bitterly opposed by the lending industry, which contends it would increase interest rates on mortgages because investors would be unsure whether they could realize expected returns on their investments.
Leaders of both parties have so far pledged cooperation. "We are committed to quick, bipartisan action while ensuring that we uphold key principles -- insulating Main Street from Wall Street and keeping people in their homes by reducing mortgage foreclosures, restoring market confidence, and protecting American taxpayers from incurring hundreds of billions of dollars of debt," House Speaker Pelosi said in a statement Friday.
House Minority Leader Boehner said in a statement: "We share very real concerns that a collapse in our financial markets could imperil bank accounts, retirement savings, and jobs for countless Americans, and we must work together to protect their interests as well as the interests of all taxpayers. At the same time, Congress and the administration must keep this plan as simple and straightforward as possible."
The unfolding financial situation will set the tone for the legislative calendar this week, with plans for a continuing resolution to fund the federal government into FY09 particularly volatile.
Senior Democratic aides speculated that the effort is likely to make it easier to enact some of the stimulus package provisions Democratic leaders hope to put into the CR and that the measure could still be completed next week.
Pelosi had initially sought to pass a CR and a stimulus package separately, but last week she said some of the stimulus effort might have to go into the CR.
House Democratic leaders have indicated that items from the stimulus package that could end up in the CR include an unemployment insurance extension and low income energy assistance.
"We're doing a lot of investing in, some would say 'bailing out' companies that had a whole lot of assets, but now we have people who don't have a whole lot of assets, have lost their home and who are facing heating bills that are spiking up very seriously, facing a tough time buying groceries because grocery prices have spiked, and they may be out of a job," House Majority Leader Hoyer said.
Lawmakers this week will try to put the finishing touches on a collection of outstanding tax relief provisions, ranging from disaster aid for recent hurricanes and flooding to continued deferral of taxes on overseas income by troubled financial services firms.
A House-Senate dispute over offsets still rages, and adding to the uncertainty is the new financial rescue plan the Bush administration and congressional leaders are seeking to fast-track this week.
The universe of tax-cut measures, totaling almost $150 billion, includes a one-year fix for the alternative minimum tax, which both parties would like to pass before adjourning for the elections. But its fate is tied up with the other disparate provisions, at least on the Senate side, where Republicans are insisting that they all travel together as a sort of omnibus tax bill.
That is because some of the business tax-cut provisions, including the overseas financing tax break, would be exempt from pay/go rules, which is a non-starter with House Democrats. The dispute has entangled a roughly $18 billion package of renewable energy tax incentives, which both parties have agreed to offset.
The Senate is expected to approve the package on Tuesday, after a series of votes: first on the energy provisions; then a test vote on a fully-offset AMT patch, which is expected to fail; then the rest of the business and individual tax cut extensions, including the AMT fix, with partial offsets.
The energy incentives and the combined AMT/extenders bill are expected to garner 60 votes and would replace the text of the underlying House tax bill. The entire package would then come up for a vote, which, aided by a tacit White House endorsement, should be approved overwhelmingly.
The House has rejected that approach and is already laying plans to separate the provisions into two bills. The first would combine the AMT fix and disaster aid portions into a single package without offsets that should pass easily.
The second would be a fully offset bill combining the renewable energy incentives with the other expired and expiring provisions affecting businesses and families.
Senate Republicans are already signaling a fight over the fully offset extender bill, which could drag the fight out until after the elections.
House Democrats are expected to trim back extensions of the business tax cuts and individual provisions, such as the research and development credit and state and local sales tax deduction, by one year, to cut costs and make them pay/go compliant.
They also might tweak the energy provisions, taking out some new items added by the Senate.
And the House's top tax-writer, Ways and Means Chairman Charles Rangel, is pushing a $1.1 billion measure that would restructure New York City Liberty Zone credits enacted after the Sept.11, 2001, terror attacks, which the Senate took out of its bill due to GOP opposition.
The provision has been in President Bush's budget requests, but House Republicans say it is unjustified and have taken to calling it the "Rangel earmark," seeking to link criticism of it to the New York Democrat's recent ethics troubles.
After taxes, the Senate might seek to take up energy legislation, depending on the status of the economic stimulus, continuing resolution and other outstanding issues.
Party leaders would need to agree on a way to limit amendments, an impasse that has stalled a bill curbing oil market speculation.
Senate Majority Leader Reid has said he would allow votes at least on a competing package from Democratic and Republican leaders, as well as on one the House approved last week.
A bipartisan "Gang of 20" plan will not be offered until after the November elections. Coalition members say the climate is too political beforehand.
And in addition to working on the bailout package, Frank and Dodd must resolve a dispute over reauthorization of the federal government's flood insurance program, which expires at the end of the month. Frank said he would push for a seven-month extension of the federal government's flood insurance program because the Senate has refused to negotiate over a long-term reauthorization.
Dodd wants a full revamp of the program, saying that such an overhaul is needed to reassure residents who are recovering from Hurricane Ike that they will be able to receive their claims.
Senate Banking ranking member Richard Shelby has said he believes the Senate should hold firm on its measure, which is more restrictive than the House version -- which would expand the program to offer wind coverage.
The final bill will not include the wind-damage option because of opposition from the insurance industry and some lawmakers who contend it would place the federal government on the hook for more liability beyond its $17.5 billion debt.
House members have reservations over the Senate bill because it would waive pay/go budget rules by paying off the program's debt as a result of claims of 2005's hurricanes Katrina and Rita.
After Frank protested, the Senate then proposed to reduce the program's borrowing authority, which stands at $1.5 billion in the Senate version. Frank said that offer also was problematic.
Frank would like to have state insurance commissioners represented on a commission established under the Senate bill that would explore options to increase coverage for natural disasters.
The House is slated to consider legislation that would curb some questionable credit card practices, a measure that is bitterly opposed by the banking industry.
The bill, sponsored by Financial Services Financial Institutions Subcommittee Chairwoman Carolyn Maloney, D-N.Y., would require companies to give customers a 45-day notice of any interest rate increase and prevent a practice known as double-cycle billing, in which a bank assesses interest on the entire amount charged during one month unless the bill was paid in full.
It would also bar a practice called "universal default," in which customers are charged a higher interest rate if they miss a payment on another card or if their credit score has dropped.
The Senate meets today at 3 p.m. for morning business.
The House meets today at 10:30 a.m. for morning hour and noon to consider suspension bills. Votes will be postponed until 6:30 p.m. On Tuesday the House meets at 9 a.m. for morning hour and 10 a.m. for legislative business. The chamber meets at 10 a.m. Wednesday and Thursday and 9 a.m. Friday.
Senate Agriculture Chairman Tom Harkin and Senate Homeland Security and Governmental Affairs Disaster Recovery Subcommittee Chairwoman Mary Landrieu, D-La., will hold a joint hearing on disaster recovery assistance on Wednesday.
Harkin and Landrieu said in a release that witnesses will testify about the effectiveness of agricultural disaster assistance programs in the wake of the Midwest floods, Hurricane Gustav and Hurricane Ike.
The Senate Agriculture Committee will hold a hearing on the confirmation of Agriculture Undersecretary for Farm and Foreign Agriculture Services Mark Keenum to be a member of the Farm Credit Administration board. Keenum, a longtime aide for Sen. Thad Cochran, R-Miss., is popular with the committee, but the hearing could be an opportunity for questions on the implementation of the 2008 farm bill, most of which goes into effect on Oct. 1, the beginning of FY09.
After a weekend of negotiations on the FY09 defense authorization bill, members of the House and Senate Armed Services committees hope to conclude conference talks on the Pentagon policy measure by early this week.
The so-called "Big Four" -- the chairmen and ranking members of the two committees -- are expected to meet behind closed doors today to resolve any lingering differences in the two versions of the bill.
The goal, aides said, is to proof-read the final report on Tuesday, in the hopes of voting on it and sending it to the president's desk by the time Congress leaves town later this week.
The Senate passed its version on Wednesday night, giving lawmakers and aides just a few days to negotiate a measure that often takes weeks of bicameral discussions.
Both the House and Senate bills authorize a 3.9 percent pay raise for the military -- a half a percentage higher than requested by the Bush administration.
The bills authorize billions of dollars for weapons programs and set Pentagon policy on issues ranging from procurement reform to the role of private security contractors in war zones.
Also this week, the Senate Armed Services Committee will hold a hearing on Iraq and Afghanistan Tuesday with Defense Secretary Gates and Gen. James Cartwright, the vice chairman of the Joint Chiefs of Staff.
Lilly Ledbetter, the former Goodyear Tire & Rubber Co. employee whose discrimination suit was thrown out by the Supreme Court, is slated to testify before the Senate Judiciary Committee Tuesday.
It is one in a series of hearings held by Judiciary Chairman Patrick Leahy on Supreme Court decisions, spokesman David Carle said, but comes during a period of economic turmoil. "It has to do with the trend toward siding with big corporations over workers," Carle said.
The high court threw out Ledbetter's case because she had failed to sue within 180 days of the discrimination. A bill that would have nullified the ruling passed the House but stalled in the Senate in the spring.
Another House-passed pay equity bill is pending in the Senate. That legislation would increase penalties for pay discrimination and allow victims to sue for punitive and compensatory damages.
The Senate Aging Committee will hold a hearing on end-of-life choices Wednesday. Spearheaded by Sen. Sheldon Whitehouse, D-R.I., the panel will consider the choices facing patients who are terminally ill and need to designate someone else to make medical decisions, Whitehouse spokeswoman Alex Swartsel said.
"There are a lot of different barriers to making those choices effective at this point and making sure that they're being honored," she said. Whitehouse has not introduced specific legislation on the issue, she said.
The House Education and Labor Committee will hold a hearing Thursday to consider ways to protect retiree health benefits.
The Senate Judiciary Committee will try again Thursday to authorize a subpoena of secret memos prepared by the Justice Department's Office of Legal Counsel on interrogation practices and other terrorism-related issues.
Judiciary Chairman Patrick Leahy since 2003 has sought copies of some of the memos, which the White House has turned over to the Intelligence Committee and in redacted form to the Judiciary Committee.
Backed by Judiciary ranking member Arlen Specter, Leahy scheduled a subpoena vote last Thursday, but the move was blocked by Minority Whip Kyl. Calling the subpoena too broad, Kyl exercised a committee rule letting members postpone any vote for a week. Leahy, who retaliated by postponing votes on eight nominations, rescheduled the votes to Thursday.
The Senate Homeland Security and Governmental Affairs Management Subcommittee has scheduled a hearing Tuesday on possible reforms to the organizational structures and missions of federal agencies involved in public diplomacy.
The Homeland Security and Governmental Affairs Federal Financial Management Subcommittee has a hearing Thursday on the rising cost growth of major defense department weapons systems.
In the House, the Oversight and Government Reform Management Subcommittee has scheduled a Wednesday hearing on presidential transition preparation.
Both chambers expect this week to consider legislation to help put mental health benefits offered by insurers on equal footing with traditional medical coverage but in different capacities.
The Senate will take up compromise mental health parity legislation, the policy of which it worked out with the House, as part of a larger tax extenders package.
Anticipating that the tax extenders package might face opposition in the House because it is not fully offset, House members, led by Ways and Means Health Subcommittee Chairman Fortney (Pete) Stark, D-Calif., plan to consider the compromise mental health parity measure as a standalone bill. House staff told stakeholders last week they planned to offset the standalone bill with tax measures and restrictions on physician-owned hospitals that are controversial because physicians refer patients to businesses in which they have a financial stake.
The plan attracted ire from across the Capitol because a handful of GOP senators adamantly oppose restricting physician-owned hospitals.
Sen. Tom Coburn, R-Okla., a physician, has vowed to use procedural hurdles to keep a mental health parity bill with physician-owned hospital restrictions attached from moving before Congress adjourns at the end of this week, a spokesman said.
Stark will hold a subcommittee hearing Tuesday on the private health insurance market.
Stark plans to focus on any areas of individual health plans -- those not purchased through an employer -- that need to be reassessed, such as coverage of pre-existing conditions.
Health insurers tend to turn down or reject individuals with less-than-stellar medical backgrounds to avoid risk, according to Stark's office.
Senate Finance Chairman Max Baucus plans to delve into the private health insurance market in his own hearing Tuesday. Baucus will hear from a former insurance company actuary, a top official from Blue Cross and Blue Shield of Massachusetts, an executive vice president with a nonprofit healthcare system in Seattle and the Oklahoma insurance commissioner.
Senate and House lawmakers will hold hearings this week to assess the Homeland Security Department's response to the 2008 hurricane season and the government's ability to cope with future disasters.
The hearings come in the wake of a GAO report released last week by Senate Homeland Security and Governmental Affairs Chairman Joseph Lieberman and ranking member Susan Collins that found gaps in the ability of FEMA, which is part of Homeland Security, to handle disasters.
The House Transportation and Infrastructure Economic Development Subcommittee has scheduled a hearing Tuesday on the effects of this year's floods and hurricanes and how effectively new FEMA policies were implemented after Hurricane Katrina.
The Senate Homeland Security and Governmental Affairs State, Local, and Private Sector Preparedness Subcommittee plans a hearing for Wednesday on FEMA's future preparedness planning.
GAO's report examined the response capabilities of five major charities, including the Red Cross and Salvation Army.
"Capabilities assessments are preliminary, but current evidence suggests that in a worst-case, large-scale disaster, the projected need for mass care services would far exceed the capabilities of these voluntary organizations without government and other assistance --despite voluntary organizations' substantial resources locally and nationally," GAO said in its report.
"Meanwhile, FEMA's initial assessment does not necessarily include the sheltering capabilities of many voluntary organizations and does not yet address feeding capabilities outside of shelters," GAO added.
Lieberman said FEMA must get a grip on the resources available to it from charity organizations and take the necessary steps to fill any preparedness gaps.
"Although FEMA and the rest of the federal government have made significant progress in becoming prepared to handle a catastrophe, the GAO report reminds us of what we already know: The nation is not fully prepared for an event the size of Katrina," Lieberman said in a statement.
Also on Wednesday, the Senate Judiciary Terrorism Subcommittee plans a hearing on how to reduce risks associated with the government's visa waiver program, which allows foreigners from certain countries to come to the United States for up to 90 days without a visa.
Critics say the program could be exploited by terrorists or others. The hearing was postponed last week.
The Senate Intelligence Committee plans a rare public hearing Tuesday to review the Justice Department's proposed guidelines for collecting intelligence inside the United States.
Under the proposed guidelines, FBI agents would have the ability to conduct physical surveillance, carry out interviews and use informants during national security investigations without first opening a preliminary case.
The bureau would not have to inform suspects that they are a target of a national security investigation.
Members of the Senate and House Judiciary committees expressed skepticism over the guidelines last week, peppering FBI Director Robert Mueller with questions and criticism during separate hearings. The lawmakers said the FBI has refused to give their committees copies of the proposed guidelines, which is impeding their oversight authority.
"Allowing the FBI authority to use a vast array of intrusive investigative techniques with little or no predicate facts or evidence raises concerns and may potentially lead to the kinds of abuses we have seen with national security letters and with other vast grants of authority with minimal checks in the past," Leahy said.
Mueller said the guidelines would replace five separate rules and give FBI agents the ability to be more proactive and more flexible.
The Senate Commerce Committee Tuesday holds the latest in a series of hearings on the nation's Feb. 17 shift from analog to digital television signals amid mounting concerns that the federal government might have underestimated the amount of consumer education and government coupons for converter boxes that will be needed.
Witnesses will include FCC Chairman Kevin Martin, National Telecommunications and Information Administration Acting Chief Meredith Baker and Bill Saffo, mayor of Wilmington, N.C., where analog signals were terminated Sept. 8 under the only test run.
On Thursday, the FCC considers new rules for reauctioning spectrum to be tapped by first responders for a nationwide wireless broadband network designed to improve their communications capabilities. The agency hopes to enter into a public-private partnership to enable construction of the network, but failed to attract a minimum bid when it sought to sell the frequencies this year.
This article appears in the Sep. 27, 2008, edition of National Journal Daily.