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June 4, 2012

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Bailout’s biggest obstacle: Doubt

Lawmakers of both parties, objecting to $700 billion plan, no longer trust administration

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Wednesday, Sept. 24, 2008 | 2 a.m.

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Rep. Shelley Berkley was arriving at McCarran airport Friday when staff notified her that Treasury Secretary Henry Paulson would hold a conference call within the hour to explain the $700 billion Wall Street bailout to lawmakers.

She went home, dialed in and began fuming.

“It was absolutely outrageous, sitting there listening to the secretary of the Treasury saying in the most cavalier manner he needs $700 billion in 48 hours,” Berkley said.

“Did he not have a single clue?”

“These people have been feeding at the trough; there has been no oversight,” she said. “I’m not willing to give this administration another blank check.”

Congress is under enormous pressure to approve by week’s end the Bush administration’s plan for an unprecedented bailout of Wall Street. Lawmakers have been told the failure to act would result in a global financial meltdown from which it would take decades to recover.

But lawmakers on both sides of the aisle are protesting, for different reasons.

Conservative Republicans question whether the government should get involved at all and Democrats are pushing back against what many Americans see as a handout for Wall Street at the expense of Main Street.

Senate Majority Leader Harry Reid and his counterpart in the House, Speaker Nancy Pelosi, said they understand the urgency but are not about to give approval without concessions — including greater oversight, help for homeowners facing foreclosure and a ban on exorbitant executive pay.

“The Bush administration has called on Congress to rubber-stamp its bailout legislation without serious debate or efforts to improve it. That will not happen,” Reid said.

Nevada’s Republican lawmakers struggled with their own doubts.

Sen. John Ensign and Rep. Dean Heller view the historic government intervention as anathema to their view of how the economic world is supposed to work.

“Knowing ... the right thing to do is very difficult,” Ensign said. “This is unbelievably complex ... What do you do? And that’s not clear to me yet.”

Heller posed a question to the Treasury officials during the morning meeting with Vice President Dick Cheney: Are there any guarantees this will work?

The answer did not give him confidence.

“I’ve got to figure out two things,” Heller said. “Whether or not government should be involved in this ... And if it is decided government should get involved, how involved should it be?”

Porter declined to talk to the Sun but issued a statement saying, “It is critical that any federal intervention is transparent.”

“I join my constituents in their anger and frustration for the situation we find ourselves in today,” Porter said.

Democrats are pushing to amend the package. Perhaps the most popular change they propose would limit multimillion-dollar pay-packages for outgoing corporate executives. The idea has some support from Republicans, including Heller. Ensign agrees that high-priced exit packages are wrong, but he’s not sure logistically how to stop them.

Democrats are pressing to allow bankruptcy judges to rewrite mortgages to reflect fallen home prices, giving homeowners in Las Vegas and other cities a way to avoid foreclosure. (Judges in bankruptcy cases can write down values of vacation homes.)

Republicans objected when the measure was offered as part of mortgage relief legislation earlier this year, and Heller said he would oppose it again.

Additionally, Democrats want to install oversight of the Treasury Department before it begins the bailout task of scooping up the risky mortgage-backed securities that investment houses can no longer unload to willing buyers.

Reid and Pelosi have also made it clear they are looking for administration support for an economic stimulus package that could include extra jobless benefits, food stamps, hurricane relief or an infrastructure jobs program. That may have to wait until later, however.

For now, many questions remain. What price will the government pay for the bad assets? Will the government take ownership in the companies after buying up their securities? What long-term regulations are needed to prevent abuses in the future?

“Democrats believe that there should be protection for the taxpayers who are footing the bill for this legislation,” Reid said.

At the same time, lawmakers in both parties find themselves less than trusting.

Berkley talks about having gone along with President Bush as he rushed the country into the Iraq war, only to learn later there were no weapons of mass destruction.

Similarly, many lawmakers feel burned after having quickly approved the Patriot Act in the nerve-racking days after 9/11, only to find out the government was secretly spying on Americans.

Heller, Porter and others have supported housing legislation to shore up mortgage giants Fannie Mae and Freddie Mac, then watched as the government intervened to arrange a deal for investment house Bear Stearns and take over the insurance company AIG.

“I’m a little shell-shocked here because we have been told so many times this is the last step,” Heller said of an administration whose policies he has largely aligned with for two years. “My job is to figure out whether or not they’re telling the truth.”

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