By Jason Simpkins
An insurrection among Republicans in the House of Representatives today (Friday) torpedoed any chance that the Bush administration's planned $700 billion plan would pass expeditiously, as members of the House refused to back U.S. Treasury Secretary Paulson's measures and offered up their own plan to solve the credit crisis – a plan they say does not cost the American taxpayer.
Discussions over the government bailout of the financial markets stalled late Thursday, when House Republicans said they would not participate in the passage of Paulson's deal.
"At the end of the day, it's a $700 billion bailout," Rep. Scott Garrett (R-NJ) told USA Today. "It puts the taxpayers on the hook."
A bipartisan group of negotiators Thursday expressed hope that a deal would pass sooner rather than later after discussions with Secretary Paulson led to an agreement in principle. That framework included $250 billion in immediate relief with another $100 billion available without congressional approval. The remaining $350 billion would be made available later with approval from congress.
The plan also included caps on compensation for company executives, which Paulson initially opposed. Rep. Frank on Sunday referred to lavish executive salaries and bonuses as a "perverse incentive" that encourages executives to take inappropriate or excessive risks in exchange for multi-million-dollar payouts, and therefore, part of the problem.
Paulson finally agreed yesterday, stating that "the American people are angry about executive compensation and rightfully so. We must find a way to address this in the legislation."
Stock warrants, which would provide the Treasury with equity stakes in participating companies, were also included in the agreement.
"Right now the price of admission [to the proposed Treasury program] is zero," Sen. Jack Reed, D-RI, said Tuesday. "It's not inappropriate to demand that if they benefit from this transaction in the future … that they will share that benefit with the taxpayers who made the benefits possible."
After a late night meeting on Capitol Hill, however, it became apparent that House Republicans would not support Paulson's plan, regardless of the stipulations.
House Financial Services Committee Chairman Barney Frank said no House Republican took part in negotiations, but that Rep. Spencer Bachus (R-Alabama) made a brief appearance to deliver a one-page statement that outlined the House GOP plan.
The GOP plan involves the creation of a mortgage-backed securities insurance fund, Bloomberg News reported. The holders of mortgage-backed securities would be charged premiums to finance this insurance. According to the plan's outline, Wall Street participants would be forced to fund their own bailout by injecting private capital, which could be raised, in part, by suspending dividends. Measures such as these would be facilitated, the Republicans said, by the removal of "regulatory and tax barriers that are currently blocking private capital formation."
The Republican plan also requires participating firms to disclose the value of mortgage-related assets currently on their books, a review of credit rating agencies, and an audit of failed companies to ensure their financial position was accurately portrayed.
After being confronted with stiff opposition from members of his own party, President Bush said in a speech Friday morning that he was optimistic a rescue package would be passed soon.
"There is no disagreement that something substantial should be done," he said. "We are going to get a package passed. We will rise to the occasion."
While Democrats hold a majority in the House of Representatives, Speaker of the House Nancy Pelosi has made it clear that she will not agree to a bill without the full support of Congress.
After talks at the White House crumbled Thursday night, Treasury Secretary Paulson reportedly knelt down in front of Pelosi and pleaded with the house speaker to not "blow up" the deal by withdrawing her party's support.
"I didn't know you were Catholic," Rep. Pelosi reportedly retorted in reference to Paulson's kneeling. She went on: "It's not me blowing this up, it's the Republicans."
A comment, to which Paulson responded with a sigh saying: "I know. I know."
News and Related Story Links:
- Money Morning:
While Lawmakers Reach Credit Crisis Compromise, Money Morning Bailout Plan Expert Displays Doubt
- New York Times:
Bailout Talks to Resume After Impasse
- USA Today:
Bailout negotiators to try again