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 home owners 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 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 Sunday morning talk show This Week with George Stephanopoulus.
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 insisting 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-NY, 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."
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.
This speaks to the severity of the crisis. Treasury feels it necessary to tell investors the world over that the U.S. government will backstop virtually any financial product that is suffering from investor flight.
Paulson seemed to acknowledge as much on Meet the Press, when he noted that "This is a humbling experience to see so much fragility in our capital markets, and to ask, 'How did we get here.'"