Congress ready: 'Mother of all bailouts'
$700 billion and counting, 'doesn't mean we will stop there'-- Henry Paulson,
"These critters are going to Rape America !"
Congressional leaders appear ready to act quickly on the Bush administration's demand for authority to bail out as much as $700 billion in bad mortgage debts, but not without adding some conditions and possibly added costs of their own.
Democratic leaders are demanding limits on pay for executives of financial firms that unload their bad debts on the government in what one Republican leader is calling "the mother of all bailouts.'' And they are renewing their push for a new job-creating economic stimulus package, with an added cost of $50 billion, as the White House presses Congress to approve a bailout before adjournment for elections at the end of this week.
Yet, despite the enormousness of the federal action which Treasury Secretary Henry Paulson is pressing Congress to swiftly approve - possibly exceeding what Congress has spent on the war in Iraq, and pushing the federal deficit to new record highs - it is clear that he has convinced congressional leaders of the urgency of acting to avert a meltdown in credit for American consumers.
"We need to act quickly, and we will in my view,'' Sen. Chris Dodd (D-Conn.), Senate Banking Committee chairman, said today on ABC News' This Week. "We don't have any choice but to act,'' Dodd said. "I can tell you that (Senate Majority Leader) Harry Reid and (House Speaker) Nancy Pelosi are prepared to act quickly and deliberatively.''
Even as they wrestle with the price-tag of the biggest government intervention in the economy since the Great Depression, Paulson is conceding that the cost could escalate down the road. The Treasury may not need to borrow all $700 billion of the capital that it is seeking to rescue lenders, the secretary said today, or it could eventually require more.
"We're talking about hundreds of billions of dollars that are needed,'' Paulson said on CBS News' Face the Nation. "That doesn't mean we will go all the way there... and that doesn't mean we will stop there and not go for more.''
See the $700-billion-bailout story in the Tribune, and here in the Swamp
But for now, the Treasury is seeking the authority to borrow as much as $700 billion to purchase mortgage-related assets from banks and other financial institutions which the secretary maintains are "clogging'' the system and preventing the market from loaning needed money to businesses - a credit crunch that threatens to freeze lending for everything from homes and automobiles to college tuition if it is not averted.
When Paulson and Federal Reserve Chairman Ben Bernanke explained the urgency of the situation in a private evening session with congressional leaders last week, Dodd said, "There was a pause for about 10 seconds... The air went out of the room.''
To support the Treasury's massive new borrowing power, Paulson is asking Congress to lift the ceiling on the federal debt to $11.3 trillion. With a national debt now totaling about $9.6 trillion, Congress had raised the ceiling to $10.6 trillion just this year as part of a housing bill aimed at easing the home mortgage crisis.
While the cost of this bailout could exceed the $600 billion that has been spent on the war in Iraq, and push the annual federal budget deficit well beyond the record high of $482 billion that is projected for 2009, Paulson maintains that Treasury stands to recover much of the money by eventually reselling the mortgage assets that it purchases from distressed financial institutions.
"The Iraq war was expenditures. This is purchasing assets, holding assets and selling assets, with money coming back to the Treasury,'' Paulson said. "I'm not saying that there is not going to be a considerable cost to the taxpayer. But... the price you get for those assets will be based on how the economy does. The ultimate cost will be well below what was spent.