WASHINGTON President Bush's $700 billion rescue plan for Wall Street ran into trouble Sunday as Democrats insisted on provisions for struggling homeowners and limits on CEO pay that Treasury Secretary Henry Paulson opposes.
With the cost of the proposed bailout effort equal to about $2,000 for every man, woman and child in the United States, Democrats began pushing for language in the rescue plan that would steer additional aid to homeowners struggling to stay in their homes and prevent foreclosures.
But Paulson, making the rounds on the Sunday morning talk shows, insisted that that issue has already been addressed through administration and congressional efforts already under way. Congress should pass the legislation the administration seeks, he said.
"What I am saying is we need this to be clean, and we need to be quick" in passing it, Paulson said on ABC's This Week with George Stephanopoulos.
The issue of CEO pay on Wall Street has been a controversial one, especially after the chiefs of Citigroup and Merrill Lynch both exited late last year as problems mounted in the financial sector. They left with compensation packages worth tens of millions of dollars, and several months later American taxpayers are being asked to clean up the mess.
Recognizing the growing public anger, Paulson told ABC that it was appropriate to limit the perks and pay of the departing heads of mortgage-finance giants Fannie Mae and Freddie Mac. Those two government-chartered private companies were seized by Treasury on Sept. 6, and since they are now in government hands it is appropriate to limit compensation, he said.
But Paulson made it clear that under the administration's current plan, the government would not be taking over additional firms, just assuming the risk of their bad securities.
That, too, is being challenged by Democrats, who are seeking that the government receive stock warrants or some similar sweetener that ensures that there is windfall to the U.S. Treasury in exchange for the risk of taking on bad assets. These warrants are being sought by Sen. Charles Schumer, D-N.Y., chairman of the Joint Economic Committee of Congress. But Paulson, this time on NBC's Meet the Press, said his plan should make the taxpayers whole, once the housing market recovers and the mortgage securities are resold.
"They will be held, and then they will be resold at some time. And so we can't determine what the cost is today. That's going to be based upon how quickly the economy recovers, what happens in the mortgage market," he said. "But I can assure you the cost won't be anything like what is put out to buy these investments and these assets. And when the assets are sold, the money will come back into the treasury."
Congressional leaders endorsed the plan's main thrust, saying passage might occur in a matter of days. But they said 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.
The proposal "does not include the necessary safeguards," said House Speaker Nancy Pelosi, D-Calif. She called for "independent oversight, protections for homeowners and constraints on excessive executive compensation."
Congressional Democrats said they understood the need for urgency but insisted that the measure needed to provide help for homeowners threatened with losing their homes. And some GOP leaders told the White House on Sunday to prepare to accept more oversight and guarantees that the Treasury will recoup some of the bailout money.
Paulson's talk show appearances helped flesh out the details of a plan that has been developing almost by the hour. When it was first announced on Friday, the administration provided no details, including how much the program would cost.
On Saturday, the administration circulated a three-page-long draft of legislation for the program that sought authorization to spend $700 billion repurchasing mortgages and mortgage-backed securities from firms with headquarters in the United States.
But by Saturday evening, when the Treasury Department put out a fact sheet, important details had changed.
The program would not be limited just to mortgage-related assets, but to any asset Paulson thought appropriate. Gone was the limitation on U.S.-headquartered firms, replaced by a provision requiring substantial U.S. presence a limitation Paulson also could waive.
The administration, which has been scrambling to deal with all the tumult, also announced late Sunday that it was modifying a $50 billion Treasury fund to provide government guarantees for money-market mutual fund accounts. In a significant revision announced, the Treasury Department said it would only guarantee funds that were in the accounts as of last Friday, indicating that money deposited after that date would not be guaranteed.
The American Bankers Association praised Treasury's about-face. "By limiting this new guarantee to funds that existed on or before last Friday, they have eliminated the incentive for people to move money out of bank accounts to seek a higher government guarantee," ABA President Edward Yingling said in a statement.In another change, Treasury said that funds deposited in tax-exempt money-market mutual funds as of last Friday would also be covered. Originally, the department had said those funds would not be covered because it might jeopardize their tax-exempt status.
Contributing: Martin Crutsinger and Charles Babington, The Associated Press.