A leading platform for the right, the Journal editorial page endorsed the initiative as a “tool to avoid a deeper downturn” and even took a swing at former House Speaker Newt Gingrich—a leading Treasury critic— for being able to “pirouette as a fiscal conservative hero now that he’s a TV pundit.”
“No one tried harder than we did to avoid arriving at this pass, but now that we’re here our vote is that this government intervention is justified,” the Journal wrote. “The execution risks are real, as in any government exercise, but the risks of doing nothing are just as real for the economy and believers in free markets.”
Bush’s radio remarks will receive less attention but go much further than the president’s televised address Wednesday in addressing taxpayer concerns about the long term cost of the proposed $700 billion intervention. Wednesday’s speech frustrated many for not better using the national stage to break down the complex issue into simpler terms, and the radio address appears an effort to try make up for this lost opportunity.
“The final cost of this plan will be far less than $700 billion, and here’s why,” Bush said bluntly in his radio remarks.
“As fear and uncertainty have gripped the market for mortgage-related assets, their price has dropped sharply. Yet many of these assets still have significant underlying value, because the vast majority of people will eventually pay off their mortgages. In other words, many of the assets the government would buy are likely to go up in price over time. This means that the government will be able to recoup much, if not all, of the original expenditure.”
Winning over Republican support—especially in the House—is now the crucial battleground, almost as much as the final negotiations on the content of the legislation authorizing action.
House Financial Services Committee Chairman Barney Frank (D-Mass.) said Friday he is “convinced” now that agreement can be reached by Sunday but substantial Republican support will be needed if the bill is to get through the House.
“There’s no shortcut here,” said Frank. “The House Republicans are going to have to be supportive of this bill or we won’t get a bill.”
House Minority Whip Roy Blunt— tapped Friday to represent his party in the talks—told Politico that he was going into the discussions “really trying to negotiate something that a lot of Republicans can be for.”
And Sen. John McCain, the Republican presidential nominee, is back in Washington determined to reassert himself in the process even after a blow-up at the White House Thursday night.
“He said, `I want to see this done and I wish you best of luck in getting it done,'” said New Hampshire Sen. Judd Gregg, the lead negotiator for Senate Republicans, after conferring with McCain Friday.
After late-night staff talks running into Saturday morning, the principal negotiators, including Frank and Gregg, hope to meet Saturday afternoon. And there appears to be a greater willingness to expand the options available to Treasury Secretary Henry Paulson—and his successor in the next administration.
Frank welcomed Blunt’s participation and renewed the Democrats’ offer to include some Republican ideas as an “option” for Paulson. But the chairman warned that the core Paulson plan—now endorsed by the Journal— must remain intact.
“Unless they give in in their opposition to the central Paulson plan, I don’t see a bill,” Frank said.
Frank and Blunt spoke out even as Washinton sorted through the wreckage left by a wild Thursday. A White House meeting, urged by McCain and also attended by Obama and House and Senate leaders, on the $700 billion rescue plan ended on a sour note after several angry, animated exchanges.
Blunt’s appointment ends a short-lived Republican boycott of the talks that followed. But the path ahead remains very steep, and House conservatives are pressing for additional tax breaks as well as the elimination of small but symbolic provisions that would dedicate any profits from the assets to help an affordable housing program.
It has been a week now since Paulson first proposed the massive intervention in which the government would buy, hold, and sell mortgage-related assets that have increasingly dragged down the markets since the collapse of the U.S. housing bubble.
Apart from injecting new capital, Paulson and Federal Reserve Chairman Ben Bernanke hope the initiative will help break the downward cycle of “fire sale” prices that have discouraged private investment. Through various auction mechanisms, the government purchases could shed new light on the assets’ true value, and thereby remove some of the market uncertainty about their value that has discouraged lending.
Democrats have proposed that the $700 billion be parsed out in increments, beginning first with $250 billion and then $100 billion. The second $350 billion would also become available in time, but a future Congress could attempt to block its release by enacting a joint resolution—requiring the signature as well of the next president.
Even under these terms— which Treasury fears are too restrictive— House Republicans say the potential losses for the taxpayer are excessive. Rather than purchase bad assets, one alternative would be to extend government-backed insurance for the securities, with industry paying a fee for the added coverage that could improve their value.
Speaking with reporters Friday, Frank renewed an offer earlier this week by Speaker Nancy Pelosi (D-Calif.) that this insurance proposal could be added as an option for Paulson or any future Treasury secretary. The chairman said he had discussed the matter with Paulson, who was amenable as well.
“Frankly, he said, ‘If that was added as an option, it wouldn’t hurt, but I couldn’t use it,’” the chairman said of his discussion with Paulson. As for Frank himself? “I wouldn’t mind, but it doesn’t do anything. It’s useless but not harmful,” Frank said. “The problem was in displacing the other stuff.”
Blunt said Republicans want “meaningful” changes to the Paulson plan, not “some type of window dressing to say it’s there.” But a top McCain adviser said adding the insurance language—even as just an option— would be helpful, since even if Paulson were to reject the idea, the authority would still be available for a new president and secretary next year.
“Yes it would be helpful and other options like loans would be helpful too,” said Mark Salter, a longtime aide to the Arizona Republican. “The next president will have the options even if Paulson chooses not to use them.”
McCain met again with House Minority Leader John Boehner (R-Ohio) in the Capitol Friday before leaving for the presidential debate in Mississippi. And his campaign issued a statement that “he will return to Washington to ensure that all voices and interests are represented in the final agreement, especially those of taxpayers and homeowners.”
Those “voices” would certainly include the House Republicans, who have been much more vocal in their opposition than their Senate counterparts. McCain’s staff says he wants to be constructive, helping to build the support needed for a bipartisan package. But Democrats are leery and even fear that McCain is setting upa situation where he and House Republicans run against the rescue plan and try to tab Obama with the huge costs.
House Democrats remember the price they paid politically for a vote in 1993 on then-President Clinton’s deficit reduction plan—including tax increases. And the shadow of that experience hangs over cloakroom discussions between Democratic lawmakers today.
“It feels like ‘93…I think people feel very strongly about that,” said Rep. Alcee Hastings (D-Fla.). “And I also think people feel very strongly that Republicans, because of deregulation and other matters, contributed to the problem and they should be the ones wanting the correction.”