WASHINGTON – Senate Democrats are proposing to add U.S. government aid for homeowners and limits on executive compensation to the government's $700 billion Wall Street financial bailout.
A draft of the plan obtained Monday shows that Senate Banking Committee Chairman Chris Dodd also wants the government to get a stake in the companies helped by the unprecedented rescue.
The measure would end the program at the end of next year, instead of creating a two-year initiative as the Bush administration has requested. It also would add layers of congressional oversight, including an emergency board to keep an eye on the program with two House and Senate appointees.
Rep. Barney Frank, chairman of the House Financial Services Committee, said the House and Senate will put out essentially the same bill. He said the bill will not provide "golden parachutes," or loaded compensation packages, for executives who lost money for their firms.
Frank said people are in peril and hurting their livelihoods. He blamed the failure to regulate Fannie Mae and Freddie Mac for the troubles today.
"The magnitude of this request for intervention is the same as the magnitude of the mistakes that were made by a lack of regulation," Frank, D-Mass., said.
Also Monday, President Bush said "the world is watching" Washington as it tries to come up with an economic recovery plan that will prevent the bottom from falling out of Wall Street, and urged lawmakers on Capitol Hill to avoid gumming up a bailout bill with additional provisions.
The president said the urgency this economic problem warrants begs Democrats and Republicans to come together and create a fix in short order.
"It would not be understandable if members of Congress sought to use this emergency legislation to pass unrelated provisions, or to insist on provisions that would undermine the effectiveness of the plan," the president said in a statement.
"I appreciate members of Congress in both parties resisting the urge to do so, and keeping the rescue bill focused on solving the crisis in our financial markets," he said.
Bush made his comments not long after two Democratic banking panel leaders said they want to move quickly, but not hastily, to pass the bailout bill pushed by Treasury Secretary Hank Paulson.
"The last thing any of us want is to be back here in a month coming up with some new plan because this didn't work. It's important that we act quickly, but it's more important that we act responsibly," Senate Banking Committee Chairman Christopher Dodd said Monday on CBS.
Dodd said he has great faith in Paulson, a former Goldman-Sachs CEO, to deal with the crisis. However, he said a legislative relief package also should be tailored to protect taxpayers in the best way possible.
He said they should be "first in line" to get money back once conditions in the industry stabilize and recover.
Frank agreed that more should be set aside for homeowners who have been unable to keep up with payments once their subprime adjustable rate mortgages spiked.
Paulson "is being entirely unreasonable" to expect Congress to pass a bill immediately without examining it and adding certain provisions the Democrats want, such as limiting pay for executives of the troubled companies in need of the bailout.
"We want to limit those as a condition for giving them aid," Frank, D-Mass., told ABC's "Good Morning America." "If Secretary Paulson would agree to that, we could move quickly."
Paulson has spent the past week sorting out the details of a bill, and spent the day Sunday explaining the effect of legislation to buy up bad mortgage loans that have been weighing down financial companies since they became engulfed in a severe credit crisis 14 months ago.
Making the rounds of four of the five Sunday talks shows, Paulson stressed that time was critical to get the proposal passed because of the urgent need to get global credit markets functioning more normally after they essentially froze up following a number of shocks last week.
Bush warned against failing to act, saying it would have "broad consequences" both within the U.S. and abroad.
"Indeed, the whole world is watching to see if we can act quickly to shore up our markets and prevent damage to our capital markets, businesses, our housing sector and retirement accounts. Failure to act would have broad consequences far beyond Wall Street. It would threaten small business owners and homeowners on Main Street," he said.
Several lawmakers have said they also want to include additional oversight authority. Rep. Christopher Shays, R-Conn., who also serves on the panel, said members "need enough time to debate this" and echoed Frank's concerns about executive pay. "We don't have these great golden parachutes and so on. In the end we're doing it for the taxpayers."
Frank said that lawmakers "are building strong oversight" into the measure, including establishing an oversight board that will report to Congress at least monthly.
"The private sector got us into this mess," Frank said, "The government has to get us out of it. We do want to do it carefully."
Republican presidential candidate John McCain, speaking Monday morning on NBC's "Today" show, said, "We are in the most serious crisis since World War II."
He also said that despite the ballooning national debt, he would not raise taxes if elected.
Congressional leaders have endorsed the main thrust of the administration plan, but also have said that it must be expanded to include help for people on Main Street as well as the big Wall Street financial firms who have lost billions of dollars through their bad investment decisions.
"We will simply not hand over a $700 billion blank check to Wall Street and hope for a better outcome," House Speaker Nancy Pelosi said Sunday in a statement. "Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive compensation."
But Pelosi, concerned about spooking markets with the possibility that the bailout package might not win approval, predicted that Congress would pass the measure this week once Democrats won the changes they are seeking.
The shift toward a more deliberative process that could add provisions to the brief bailout language comes one day after the government approved a request by investment houses Goldman Sachs and Morgan Stanley to change their status to bank holding companies.
That change will allow the nation's two largest remaining investment firms to set up as commercial banks, which will mean they can take deposits and increase their liquidity significantly. It will also grant them permanent access to emergency loans supplied by the Fed rather than the temporary loan status they have had since last March when the Fed moved to prop up investment banks following the forced sale of Bear Stearns.
The surprise Fed announcement announcing approval of the status change for Goldman and Morgan Stanley was yet another indication of how quickly events are moving on Wall Street.
The stock of the two companies had come under pressure as investors began to worry about their future following the bankruptcy last week of investment bank Lehman Brothers and the forced sale of another investment bank, Merrill Lynch, to Bank of America.
In other action late Sunday, the administration announced that it was modifying a program announced just last Friday to try to bolster the teetering $3 trillion money-market mutual fund industry by using a $50 billion Treasury fund to provide temporary guarantees to money-market accounts.
Responding to complaints from banks that this change would put them at a competitive disadvantage for deposits, the Treasury said Sunday that the guarantees will only cover funds that were in the accounts as of last Friday. The guarantees had been put in place to stem a wave of withdrawals from mutual fund accounts that had been sparked largely by panicked institutional investors.
The banking industry had complained that the new guarantees ran the risk of sparking withdrawals by their depositors, who might decide to transfer their bank deposits to money-market mutual funds. Both accounts now have government backing and the mutual funds would not have the $100,000 limit imposed on deposit insurance for banks.
In another change that highlighted how quickly Treasury is being forced to put new programs into place, Treasury said Sunday that funds deposited in tax-exempt money-market mutual funds as of last Friday would be covered by the new guarantees. Originally, the department had said those funds would not be covered because it might jeopardize their tax-exempt status.
Paulson and Bernanke made the joint decision last week that the only way to calm turbulent markets was to deal with the root cause of all the troubles, billions of dollars of bad mortgage debt sitting on the books of major financial companies.
The Associated Press contributed to this report.