House Republicans Undercut Bush on Rescue Plan, Stalling Talks
By Alison Vekshin and James Rowley
Sept. 26 (Bloomberg) -- Negotiations for a $700 billion rescue of the U.S. financial system stalled as House Republicans undercut the Bush administration and left it to congressional leaders to hammer out a compromise that would calm markets.
A day that included an unprecedented meeting of the two main presidential candidates joining the incumbent president, flanked by congressional leaders and Cabinet officers, ended decidedly short of agreement. Lawmakers are set to meet again later this morning.
A group of House Republicans led by Eric Cantor of Virginia said they wouldn't back a plan based on the approach outlined by Treasury Secretary Henry Paulson and backed by President George W. Bush and Democratic leaders.
The discord sent Paulson back into a late-night meeting on Capitol Hill with lawmakers. ``We are sitting down where were we were at the end of day one,'' Senator Bob Corker, a Tennessee Republican, said as he headed into the meeting.
The setback in the talks adds another layer of uncertainty to financial markets after the U.S. government closed Washington Mutual Inc. and it deposits were sold to JPMorgan Chase & Co. Yesterday, stocks surged on news of progress in the negotiations, with the Dow Jones Industrial Average rising 1.8 percent.
Republican lawmakers offered a plan calling for Wall Street firms to purchase insurance on mortgage-backed securities and advocating tax cuts and relaxed regulations. Treasury officials had rejected a plan focusing on insurance in favor of one that purchased troubled assets, Cantor said.
Late-Night Meeting
After the late-night meeting on Capitol Hill, House Financial Services Committee Chairman Barney Frank and Senate Banking Committee Chairman Christopher Dodd said some progress in negotiations had been made. They said House Republicans needed to participate for a plan to pass Congress.
``The president and his party have got to decide whether or not they want to be a part of this,'' Dodd said.
The White House issued a statement saying Bush still ``supports the core of Secretary Paulson's plan.''
Frank said Democrats have been working with Paulson to address several issues, such as executive compensation, accountability, foreclosures, and some kind of warrants provision to provide taxpayers an equity stake in the companies that get rescued.
``On all of those, the secretary to his credit has now agreed in principle, and we are working how to do it,'' Frank told reporters after meeting Paulson last night. ``There will ultimately be $700 billion available, but how soon and with what other steps, are still being debated.''
Republican Support
Yet any agreement has to include House Republicans, Frank said. House Speaker Nancy Pelosi won't push through legislation backed by a Republican administration without their help, he said.
``Ms. Pelosi will not bring a partisan bill to the floor,'' Frank said. ``If the House Republicans continue to reject the president's approach then there is no bill.''
The plan circulated by Cantor calls for a mortgage-backed security insurance fund, rather than taxpayer-funded purchases of those securities. The plan calls on the Treasury to design a system to charge premiums to mortgage-backed security holders to finance this insurance, according to a fact sheet.
Republicans also seek to ``remove regulatory and tax barriers that are currently blocking private capital formation.'' It also suggests that regulators call on financial institutions to suspend dividends, along with other steps to address liquidity problems.
`Wall Street Pays'
Cantor said the House Republican proposal ``does not leave the American taxpayers with the bag and makes sure that Wall Street pays for this recovery.''
Representative Jeb Hensarling of Texas said it shouldn't be ``Paulson's plan or no plan.''
It's not just House Republicans who are attacking the administration-backed plan.
``I don't believe this Paulson plan will solve the problems, it might exacerbate them,'' Richard Shelby, the top Republican on the Senate Banking Committee, said on MSNBC. ``Let's don't put a trillion dollars or more debt on our children and not even know if this will work.''
Republican presidential candidate John McCain and his Democratic counterpart Barack Obama met with Bush, Paulson and congressional leaders at the White House earlier yesterday. Democrats blamed McCain for initiating the meeting, which they said slowed down the pace of negotiations.
White House Meeting
Dodd said on CNN that the Republican plan threatens to force negotiations to begin anew. He said the White House meeting ``looked like a rescue plan for John McCain for two hours, and it took us away from the work we were trying to do today.''
Obama suggested the talks were damaged by politics.
``When you start injecting presidential politics into delicate negotiations you can actually create more problems rather than less,'' Obama said on CNN.
McCain's campaign said more negotiations were needed to draft legislation that would pass Congress.
``There is not yet a majority of Democrats and Republicans who are willing to vote yes for anything,'' said Steve Schmidt, a senior adviser to McCain's campaign.
Kevin Smith, a spokesman for House Republican Leader John Boehner, said the speed with which Dodd's plan was put together was designed ``to deny Senator McCain a role in trying to craft a bipartisan solution.''
Cantor was told by Boehner to start working on an alternative two days ago, Smith said. Pelosi was told yesterday.
Michele Davis, a spokeswoman for Paulson, said, ``Secretary Paulson appreciates the hard work by members on both sides of the aisle to address the threat we face to our economy,'' and urged lawmakers to resolve their differences.
Paulson has not rejected any ideas, Davis said.
To contact the reporters on this story: Alison Vekshin in Washington at [email protected]; James Rowley in Washington at [email protected];
Last Updated: September 26, 2008 00:24 EDT
By Alison Vekshin and James Rowley
Sept. 26 (Bloomberg) -- Negotiations for a $700 billion rescue of the U.S. financial system stalled as House Republicans undercut the Bush administration and left it to congressional leaders to hammer out a compromise that would calm markets.
A day that included an unprecedented meeting of the two main presidential candidates joining the incumbent president, flanked by congressional leaders and Cabinet officers, ended decidedly short of agreement. Lawmakers are set to meet again later this morning.
A group of House Republicans led by Eric Cantor of Virginia said they wouldn't back a plan based on the approach outlined by Treasury Secretary Henry Paulson and backed by President George W. Bush and Democratic leaders.
The discord sent Paulson back into a late-night meeting on Capitol Hill with lawmakers. ``We are sitting down where were we were at the end of day one,'' Senator Bob Corker, a Tennessee Republican, said as he headed into the meeting.
The setback in the talks adds another layer of uncertainty to financial markets after the U.S. government closed Washington Mutual Inc. and it deposits were sold to JPMorgan Chase & Co. Yesterday, stocks surged on news of progress in the negotiations, with the Dow Jones Industrial Average rising 1.8 percent.
Republican lawmakers offered a plan calling for Wall Street firms to purchase insurance on mortgage-backed securities and advocating tax cuts and relaxed regulations. Treasury officials had rejected a plan focusing on insurance in favor of one that purchased troubled assets, Cantor said.
Late-Night Meeting
After the late-night meeting on Capitol Hill, House Financial Services Committee Chairman Barney Frank and Senate Banking Committee Chairman Christopher Dodd said some progress in negotiations had been made. They said House Republicans needed to participate for a plan to pass Congress.
``The president and his party have got to decide whether or not they want to be a part of this,'' Dodd said.
The White House issued a statement saying Bush still ``supports the core of Secretary Paulson's plan.''
Frank said Democrats have been working with Paulson to address several issues, such as executive compensation, accountability, foreclosures, and some kind of warrants provision to provide taxpayers an equity stake in the companies that get rescued.
``On all of those, the secretary to his credit has now agreed in principle, and we are working how to do it,'' Frank told reporters after meeting Paulson last night. ``There will ultimately be $700 billion available, but how soon and with what other steps, are still being debated.''
Republican Support
Yet any agreement has to include House Republicans, Frank said. House Speaker Nancy Pelosi won't push through legislation backed by a Republican administration without their help, he said.
``Ms. Pelosi will not bring a partisan bill to the floor,'' Frank said. ``If the House Republicans continue to reject the president's approach then there is no bill.''
The plan circulated by Cantor calls for a mortgage-backed security insurance fund, rather than taxpayer-funded purchases of those securities. The plan calls on the Treasury to design a system to charge premiums to mortgage-backed security holders to finance this insurance, according to a fact sheet.
Republicans also seek to ``remove regulatory and tax barriers that are currently blocking private capital formation.'' It also suggests that regulators call on financial institutions to suspend dividends, along with other steps to address liquidity problems.
`Wall Street Pays'
Cantor said the House Republican proposal ``does not leave the American taxpayers with the bag and makes sure that Wall Street pays for this recovery.''
Representative Jeb Hensarling of Texas said it shouldn't be ``Paulson's plan or no plan.''
It's not just House Republicans who are attacking the administration-backed plan.
``I don't believe this Paulson plan will solve the problems, it might exacerbate them,'' Richard Shelby, the top Republican on the Senate Banking Committee, said on MSNBC. ``Let's don't put a trillion dollars or more debt on our children and not even know if this will work.''
Republican presidential candidate John McCain and his Democratic counterpart Barack Obama met with Bush, Paulson and congressional leaders at the White House earlier yesterday. Democrats blamed McCain for initiating the meeting, which they said slowed down the pace of negotiations.
White House Meeting
Dodd said on CNN that the Republican plan threatens to force negotiations to begin anew. He said the White House meeting ``looked like a rescue plan for John McCain for two hours, and it took us away from the work we were trying to do today.''
Obama suggested the talks were damaged by politics.
``When you start injecting presidential politics into delicate negotiations you can actually create more problems rather than less,'' Obama said on CNN.
McCain's campaign said more negotiations were needed to draft legislation that would pass Congress.
``There is not yet a majority of Democrats and Republicans who are willing to vote yes for anything,'' said Steve Schmidt, a senior adviser to McCain's campaign.
Kevin Smith, a spokesman for House Republican Leader John Boehner, said the speed with which Dodd's plan was put together was designed ``to deny Senator McCain a role in trying to craft a bipartisan solution.''
Cantor was told by Boehner to start working on an alternative two days ago, Smith said. Pelosi was told yesterday.
Michele Davis, a spokeswoman for Paulson, said, ``Secretary Paulson appreciates the hard work by members on both sides of the aisle to address the threat we face to our economy,'' and urged lawmakers to resolve their differences.
Paulson has not rejected any ideas, Davis said.
To contact the reporters on this story: Alison Vekshin in Washington at [email protected]; James Rowley in Washington at [email protected];
Last Updated: September 26, 2008 00:24 EDT
