Bailout plan frustrates Congress

One senator said the U.S. hasn’t seen the end of the cost yet, calling the situation ‘the mother of all bailouts.’

Chicago Tribune

WASHINGTON — Even while they see no alternative to approving the biggest financial bailout since the Great Depression, lawmakers from both parties are expressing frustration and resentment at the startling magnitude of the $700 billion price tag.

“This makes me angry,” House Minority Leader John Boehner, R-Ohio, said Sunday on ABC’s “This Week.” “I think it makes the American people angry that their tax dollars have to be put at risk.” Still, he added, “We face a crisis, and if we don’t act and if we don’t act quickly we are going to jeopardize our economy.”

Democrats said that while they will reluctantly go along with the bailout, they will insist on provisions that limit the pay of executives and demand some reciprocal action from the companies being rescued.

As the scope of the bailout’s cost is becoming clear, it is beginning to dawn on members of Congress that it will push the federal deficit to record highs and possibly exceed the cost of the Iraq war. Lawmakers know voters may ask why companies that messed up are being rewarded, and why $700 billion is suddenly available when so many other national needs — health care, infrastructure — have gone unaddressed.

Democrats in particular appear anxious to avoid any sense that high-rolling executives, bankers and Wall Street investors were living the high life when times were good, but now will suffer no consequences in bad times.

Sen. Richard Shelby, R-Ala., ranking Republican on the Senate Banking Committee, warns that the nation has not seen the end of the cost.

“This is not going to be $700 billion ... this is going to be a trillion at least. We don’t know the endgame in this,” Shelby said Sunday on CBS’ “Face The Nation.” “I can tell you, when we add another trillion dollars to the debt of the taxpayer, sooner or later there is going to have to be a reckoning.”

Shelby added, “This is the mother of all bailouts.”

Even administration officials acknowledge they dislike asking taxpayers to bear this burden. But they argue the alternative is the American economy grinding to a halt, which would hurt taxpayers a lot more.

For all their shock at the price tag, congressional leaders are almost certain to approve the bailout. But they will insist on adding some conditions — and possibly costs — of their own.

Democrats, for example, are demanding limits on pay for executives of financial firms that unload their bad debts on the government. And they are renewing their push for a new job-creation package, with an added cost of $50 billion.

Still, it is clear that Treasury Secretary Henry Paulson has convinced congressional leaders of the urgency of action. The White House is pressing Congress to approve the bailout before it adjourns at the end of the week.

to allow members to campaign for the Nov. 4 elections.

“We need to act quickly, and we will, in my view,” Sen. Chris Dodd, D-Conn., the Senate Banking Committee chairman, said on “This Week.” “We don’t have any choice but to act. I can tell you that [Senate Majority Leader] Harry Reid and [House Speaker] Nancy Pelosi are prepared to act quickly and deliberatively.”

While the costs could escalate even further, the Treasury Department is seeking authority to borrow as much as $700 billion to buy mortgage-related assets from banks and other financial institutions. Paulson argues that these “illiquid assets” are “clogging” the system and preventing the market from loaning needed money to businesses.

That credit crunch, in turn, threatens to freeze lending for everything from homes and automobiles to college tuition.

When Paulson and Federal Reserve Chairman Ben Bernanke explained the urgency of the situation in a private evening session for congressional leaders last week, Dodd said, “There was a pause for about 10 seconds ... the air went out of the room.”

To support the Treasury’s massive new borrowing power, Paulson is asking Congress to lift the ceiling on the federal debt to $11.3 trillion. With a national debt now totaling about $9.6 trillion, Congress had raised the ceiling to $10.6 trillion just this year as part of a housing bill aimed at easing the home mortgage crisis.

Paulson is pressing for a “clean” measure, saying that Democratic calls for limits on executive compensation are “punitive.”

“We have a difference on what’s ‘clean,’” Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, responded on “Face the Nation.” “It would be a grave mistake to say that we are going to buy up the bad debt that comes from the irresponsible decisions of these people — and then let them take millions on the way out.”

Democrats also are pressing for aid for homeowners in danger of losing their homes. And they said any companies receiving taxpayers’ help have a duty to give something in return.

“People have a lot of ideas about what they think ought or ought not to be in this package,” Dodd said. “If we’re going to spend taxpayers’ money ... what is the reciprocal obligation?”

While the cost of this bailout could exceed the $600 billion that has been spent on the war in Iraq and push the annual federal budget deficit well beyond the record high of $482 billion that is projected for 2009, Paulson maintains that Treasury stands to recover much of the money by eventually re-selling the mortgage assets that it purchases from distressed financial institutions.

“The Iraq war was expenditures. This is purchasing assets, holding assets and selling assets, with money coming back to the Treasury,” Paulson said Sunday. “I’m not saying that there is not going to be a considerable cost to the taxpayer. But ... the price you get for those assets will be based on how the economy does. The ultimate cost will be well below what was spent.”

He added, “I don’t like the fact that the American taxpayer is bearing the burden, but it is far better than the alternative.”