BUSH TEAM, CONGRESS NEGOTIATE ON $700-B BAILOUT
WASHINGTON, SEPTEMBER 22, 2008 (STAR) The Bush administration asked Congress on Saturday for the power to buy $700 billion in toxic assets clogging the US financial system and threatening the economy as negotiations began on the largest bailout since the Great Depression.
The rescue plan would give Washington broad authority to purchase bad mortgage-related assets from US financial institutions for the next two years. It does not specify which institutions qualify or what, if anything, the government would get in return for the unprecedented infusion.
Democrats are pressing to require that the plan help more strapped borrowers stay in their homes and to condition the bailout on new limits on executive compensation.
Congressional aides and administration officials are working through the weekend to fill in the details of the proposal.
The White House hoped for a deal with Congress by the time markets opened Monday; top lawmakers say they would push to enact the plan as early as the coming week.
“We’re going to work with Congress to get a bill done quickly,” President George W. Bush said at the White House.
Without discussing specifics, he said, “This is a big package because it was a big problem.”
The proposal is a mere three pages long, but it gives sweeping powers to the government to dispense gigantic sums of taxpayer dollars in a program that would be sheltered from court review.
“It’s a rather brief bill with a lot of money,” said Sen. Chris Dodd, the Banking Committee chairman. “We understand the importance of the anticipation in the markets, but we also know that what we’re doing is going to have consequences for decades to come. There’s not a second act to this - we’ve got to get this right.”
Lawmakers digesting the eye-popping cost and searching for specifics voiced concerns that the proposal offers no help for struggling homeowners or safeguards for taxpayers’ money.
The government must bail out the financial system “because if we don’t, it will have a tremendous impact on American consumers, homeowners, taxpayers and the rest,” House Speaker Nancy Pelosi said in San Francisco.
But, she added, “We cannot deal with this unless this bailout helps families stay in their homes.”
Senate Majority Leader Harry Reid said “we cannot allow ourselves to be in denial about the threat now facing the world economy. From all indications, that threat is real, and the consequences of inaction could be catastrophic. Every single American has a stake in preventing a global financial meltdown.”
The proposal would raise the statutory limit on the national debt from $10.6 trillion to $11.3 trillion to make room for the massive rescue.
“The American people are furious that we’re in this situation, and so am I,” the House’s top Republican, Rep. John A. Boehner, said in a statement. “We need to do everything possible to protect the taxpayers from the consequences of a broken Washington.”
Signaling what could erupt into a brutal fight with Democrats over add-on spending, Boehner said “efforts to exploit this crisis for political leverage or partisan quid pro quo will only delay the economic stability that families, seniors, and small businesses deserve.”
Bush said he worried the financial troubles “could ripple throughout” the economy and affect average citizens. “The risk of doing nothing far outweighs the risk of the package. ... Over time, we’re going to get a lot of the money back.”
He added, “People are beginning to doubt our system, people were losing confidence and I understand it’s important to have confidence in our financial system.”
Neither presidential candidate took a position on the proposal. Republican nominee John McCain said he was awaiting specifics and any changes by Congress.
Democratic rival Barack Obama used the party’s weekly radio address to call for help for Main Street as well as Wall Street.
Their language reflected a tricky balance that politicians in both parties are trying to strike, just six weeks before Election Day: Back a plan that doles out hundreds of billions to companies that made bad bets and still identify with the plight of middle-class voters.
Besides mortgage help and executive compensation limits, Democrats are considering attaching middle-class assistance to the legislation despite a request from Bush to avoid adding items that could delay action. An expansion of jobless benefits was one possibility.
Bush sidestepped questions about the chances of adding such items, saying that now was not the time for posturing.
“I think most leaders would understand we need to get this done quickly, and you know, the cleaner the better,” he said about legislation being drafted.
Treasury officials met congressional staff for about two hours on Capitol Hill on Saturday. Discussions centered on how the plan would work, and Democrats proposed adding the executive compensation limits and new foreclosure-prevention measures. Details of those changes were not available Saturday. Bush and Treasury Secretary Henry Paulson conferred by phone for about 20 minutes in the afternoon, gauging how the negotiations were unfolding.
Among the key issues up for negotiation is which financial institutions would be eligible for the help. The proposed legislation doesn’t make it clear, leaving open the question of whether hedge funds or pension funds could qualify.
On Saturday night, Treasury released a fact sheet stating that eligible financial institutions “must have significant operations in the US” unless Paulson determines, after consulting with Federal Reserve Chairman Ben Bernanke, that “broader eligibility is necessary to effectively stabilize financial markets.”
The proposal does not require that the government receive anything from banks in return for unloading their bad assets. But it would allow Treasury to designate financial institutions as “agents of the government,” and mandate that they perform any “reasonable duties” that might entail.
The government could contract with private companies to manage the assets it purchased under the rescue.
Paulson says the government would in essence set up reverse auctions, putting up money for a class of distressed assets – such as loans that are delinquent but not in default - and financial institutions would compete for how little they would accept. - AP
Economy remains ‘solid’ amid US woes – Neri By Pia Lee-Brago Monday, September 22, 2008
Social Security System (SSS) president Romulo Neri said the Philippine economy remains “solid” as the financial meltdown of US investment bank Lehman Brothers only has a minimal effect on the country.
Neri, the former National Economic and Development Authority (NEDA) director general, said the SSS has been buying stocks despite the latest crisis in the financial system because of indications the stock market will recover this week.
“Very solid naman ang ating economy at maliit ang impact ng Lehman Brothers to us. It’s very minimal kaya tingin ko wala tayong problema,” Neri said in the weekly radio program “Para Sa Iyo Bayan” of Vice President Noli De Castro.
He noted that more than half of the investors in the domestic stock market are foreigners and the market immediately reacts if investors panic.
“More than one half of those that invest in our stock market are foreigners thus if they panic and quickly leave our stock market will immediately react,” Neri said. “Sa tingin ko magrerecover ang stock market. We in the SSS are buying stocks dahil medyo mura ngayon at kumikita kami ngayon sa mga binibili namin. I think by next week magrerecover na yan.”
On Friday, global stock markets soared after a punishing week as news of a US government plan to rescue banks from toxic mortgage debt brought hope of a letup in the world’s worst financial crisis in decades.
Analysts said the news of a US lifeline, along with new changes to short selling in the US, Britain and Ireland, also helped push markets higher.
Investors welcomed reports the US government was looking for ways to help distressed banks and resolve the latest crisis to hit its financial system.
Philippine financial markets rebounded sharply Friday on the back of collective efforts of the world’s central banks to calm down global financial markets and an assurance of a very limited exposure of local banks to bankrupt US investment banking icon Lehman Brothers.
The peso rallied against the dollar and share prices rose across the board, with the stock market’s main index gaining 4.69 percent, led by the financial sector, which jumped 7.53 percent.
Chief News Editor: Sol Jose Vanzi
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