Treasury Seeks Authority to Buy $700 Billon in Assets (Update3)
By Alison Fitzgerald and Laura Litvan
Sept. 20 (Bloomberg) -- The U.S. Treasury today asked Congress for authority to buy as much as $700 billion in soured mortgage-related assets from the nation's financial institutions in the most far-reaching federal intrusion into markets since the Great Depression.
The legislation is aimed at ending a yearlong crisis that toppled four financial giants, forced two into mergers and has brought credit markets to the brink of paralysis. It would give Treasury Secretary Henry Paulson sweeping power to hire managers and award contracts to private companies without review by courts or government agencies.
``It sounds like Paulson is asking to be a financial dictator, for a limited period of time,'' said historian John Steele Gordon, author of ``Hamilton's Blessing,'' a chronicle of the national debt. ``This is a much-needed declaration of power for the Treasury secretary. We can't wait until the next administration in January.''
Paulson is seeking authority to step in as buyer of last resort for mortgage-linked assets that few other financial institutions in the world want to buy, following government takeovers of mortgage giants Fannie Mae and Freddie Mac and insurer American International Group Inc. Congressional Democrats, including House Financial Services Committee Chairman Barney Frank, have already indicated they will use the legislation as a vehicle to help homeowners avoid default.
``We're going to be buying up a lot of mortgage paper,'' Frank, a Massachusetts Democrat, said yesterday. ``Between Fannie Mae and Freddie now owned by the federal government and the mortgage paper we'll be acquiring here'' and the Federal Deposit Insurance Corp. running failed bank IndyMac Bancorp Inc., ``we should now be able substantially to reduce foreclosures,'' he said.
`Common Understanding'
President George W. Bush said he called leaders in both houses of Congress and ``found a common understanding of how severe the problem is and how necessary it is to get something done quickly.''
``This is going to be a big package because it's a big problem,'' Bush said following a meeting with Colombian president Alvaro Uribe at the White House. ``We need to get this done quickly, and the cleaner the better.''
Democratic Presidential nominee Barack Obama said in a radio address that he ``fully supports'' Paulson and Federal Reserve Chairman Ben S. Bernanke's efforts to stabilize the financial system. The plan, however, should benefit both main street and Wall Street, he said.
Republican Presidential nominee John McCain ``looks forward'' to reviewing the proposal while focusing at least in part on ``minimizing the burden on the taxpayer,'' said Jill Hazelbaker, communications director for the McCain campaign.
Debt Ceiling
The proposal would raise the nation's debt ceiling to $11.315 trillion from $10.615 and require the Treasury secretary to report back to Congress three months after Treasury first uses its new powers, and then semiannually after that.
Paulson would gain discretion to act as he ``deems necessary'' to hire people, enter into contracts and issue regulations related to a revival of U.S. mortgage finance, according to a three-page proposal. The Treasury would be required to simultaneously promote market stability and protect the taxpayer.
The Treasury plans to hire managers to purchase the assets through so-called reverse auctions, seeking the lowest prices, a person briefed on the proposal said yesterday. The document specifies that Treasury may buy only assets from U.S.-based financial institutions issued or originated on or before Sept. 17.
`Clear Abdication'
The proposal is ``a clear abdication of all oversight and fiscal authorities to a Secretary of Treasury that has bungled this crisis from the beginning,'' said Joshua Rosner, an analyst at the independent research firm Graham Fisher & Co. in New York. ``This is Marxism. And I mean Groucho not Karl.''
The House will pass legislation to implement the plan by the end of next week, and the Senate will act soon after, Frank said yesterday in an interview on Bloomberg Television's ``Political Capital with Al Hunt.''
Still, lawmakers are likely to use the emergency plan as a vehicle for advancing their other priorities.
The proposal would probably include a ``second stimulus'' plan with infrastructure funds, low-income energy aid and Medicaid assistance, Frank said. Congress will begin weighing broad regulation of hedge funds, private-equity firms and investment banks when it reconvenes next year, he said.
`Irresponsible Borrowers'
``We must ensure that the solution we design doesn't reward particular companies, or irresponsible borrowers or lenders, or CEOs, some of whom helped cause this mess,'' he said.
Still, some lawmakers have expressed doubts about the risk and cost.
U.S. Representative Jeb Hensarling of Texas said yesterday, before the plan was distributed, that ``I remain skeptical, fearful, and unconvinced that this is the proper remedy for our nation at this time.''
Bush today said he's unconcerned that the price tag on the package may seem high.
``I'm sure there are some of my friends out there that are saying, I thought this guy was a market guy, what happened to him,'' the president said. ``My first instinct was to let the market work, until I realized, while being briefed by the experts, how significant this problem became.''
Bush said the financial crisis is putting ``hundreds of billions of dollars at risk,'' but ``over time, we're going to get a lot of the money back.''
To contact the reporter on this story: Laura Litvan in Washington at [email protected]; Alison Fitzgerald in Washington at
Last Updated: September 20, 2008 13:43 EDT
By Alison Fitzgerald and Laura Litvan
Sept. 20 (Bloomberg) -- The U.S. Treasury today asked Congress for authority to buy as much as $700 billion in soured mortgage-related assets from the nation's financial institutions in the most far-reaching federal intrusion into markets since the Great Depression.
The legislation is aimed at ending a yearlong crisis that toppled four financial giants, forced two into mergers and has brought credit markets to the brink of paralysis. It would give Treasury Secretary Henry Paulson sweeping power to hire managers and award contracts to private companies without review by courts or government agencies.
``It sounds like Paulson is asking to be a financial dictator, for a limited period of time,'' said historian John Steele Gordon, author of ``Hamilton's Blessing,'' a chronicle of the national debt. ``This is a much-needed declaration of power for the Treasury secretary. We can't wait until the next administration in January.''
Paulson is seeking authority to step in as buyer of last resort for mortgage-linked assets that few other financial institutions in the world want to buy, following government takeovers of mortgage giants Fannie Mae and Freddie Mac and insurer American International Group Inc. Congressional Democrats, including House Financial Services Committee Chairman Barney Frank, have already indicated they will use the legislation as a vehicle to help homeowners avoid default.
``We're going to be buying up a lot of mortgage paper,'' Frank, a Massachusetts Democrat, said yesterday. ``Between Fannie Mae and Freddie now owned by the federal government and the mortgage paper we'll be acquiring here'' and the Federal Deposit Insurance Corp. running failed bank IndyMac Bancorp Inc., ``we should now be able substantially to reduce foreclosures,'' he said.
`Common Understanding'
President George W. Bush said he called leaders in both houses of Congress and ``found a common understanding of how severe the problem is and how necessary it is to get something done quickly.''
``This is going to be a big package because it's a big problem,'' Bush said following a meeting with Colombian president Alvaro Uribe at the White House. ``We need to get this done quickly, and the cleaner the better.''
Democratic Presidential nominee Barack Obama said in a radio address that he ``fully supports'' Paulson and Federal Reserve Chairman Ben S. Bernanke's efforts to stabilize the financial system. The plan, however, should benefit both main street and Wall Street, he said.
Republican Presidential nominee John McCain ``looks forward'' to reviewing the proposal while focusing at least in part on ``minimizing the burden on the taxpayer,'' said Jill Hazelbaker, communications director for the McCain campaign.
Debt Ceiling
The proposal would raise the nation's debt ceiling to $11.315 trillion from $10.615 and require the Treasury secretary to report back to Congress three months after Treasury first uses its new powers, and then semiannually after that.
Paulson would gain discretion to act as he ``deems necessary'' to hire people, enter into contracts and issue regulations related to a revival of U.S. mortgage finance, according to a three-page proposal. The Treasury would be required to simultaneously promote market stability and protect the taxpayer.
The Treasury plans to hire managers to purchase the assets through so-called reverse auctions, seeking the lowest prices, a person briefed on the proposal said yesterday. The document specifies that Treasury may buy only assets from U.S.-based financial institutions issued or originated on or before Sept. 17.
`Clear Abdication'
The proposal is ``a clear abdication of all oversight and fiscal authorities to a Secretary of Treasury that has bungled this crisis from the beginning,'' said Joshua Rosner, an analyst at the independent research firm Graham Fisher & Co. in New York. ``This is Marxism. And I mean Groucho not Karl.''
The House will pass legislation to implement the plan by the end of next week, and the Senate will act soon after, Frank said yesterday in an interview on Bloomberg Television's ``Political Capital with Al Hunt.''
Still, lawmakers are likely to use the emergency plan as a vehicle for advancing their other priorities.
The proposal would probably include a ``second stimulus'' plan with infrastructure funds, low-income energy aid and Medicaid assistance, Frank said. Congress will begin weighing broad regulation of hedge funds, private-equity firms and investment banks when it reconvenes next year, he said.
`Irresponsible Borrowers'
``We must ensure that the solution we design doesn't reward particular companies, or irresponsible borrowers or lenders, or CEOs, some of whom helped cause this mess,'' he said.
Still, some lawmakers have expressed doubts about the risk and cost.
U.S. Representative Jeb Hensarling of Texas said yesterday, before the plan was distributed, that ``I remain skeptical, fearful, and unconvinced that this is the proper remedy for our nation at this time.''
Bush today said he's unconcerned that the price tag on the package may seem high.
``I'm sure there are some of my friends out there that are saying, I thought this guy was a market guy, what happened to him,'' the president said. ``My first instinct was to let the market work, until I realized, while being briefed by the experts, how significant this problem became.''
Bush said the financial crisis is putting ``hundreds of billions of dollars at risk,'' but ``over time, we're going to get a lot of the money back.''
To contact the reporter on this story: Laura Litvan in Washington at [email protected]; Alison Fitzgerald in Washington at
Last Updated: September 20, 2008 13:43 EDT
