“There’s no short cut here,” said Rep. Barney Frank (D-Mass.). “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 was tapped Friday to represent the his party in the talks, and the Missouri Republican told Politico that he was going into the discussions “really trying to negotiate something that a lot of Republicans can be for.”
In welcoming Blunt’s selection, Frank renewed the Democrats’ offer to include some Republican ideas as an “option” for Treasury Secretary Henry Paulson. But the chairman warned that the core Paulson plan 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 Washington sorted through the wreckage left by a wild Thursday, in which presidential politics intruded on the already delicate negotiations and led to a divisive White House meeting on the $700 billion rescue plan.
Blunt’s appointment ends a short-lived 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 government intervention which seeks to 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 the uncertainty 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-Cal) 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 adviser to Republican presidential candidate John McCain said adding the insurace language—even as just an option— would be helpful. 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 Boehner later sent a letter to Pelosi urging her and Democrats to give more consideration to changes proposed by his conference.
“If such consideration is not given, a large majority of Republicans cannot – and will not – support Secretary Paulson’s plan,” Boehner wrote.
At the White House, the House Republican leader had bluntly warned: “I can’t invent votes,” for the package. But Frank angrily accused the minority of trying to undercut Paulson by crafting a late-breaking alternative proposal—with the tacit support of McCain. McCain’s campaign would deny this later, but the meeting degenerated into animated, often angry exchanges as a beleaguered President Bush had to struggle to maintain order and reassert himself.
When Democrats left to caucus in the Roosevelt Room, Paulson pursued them, begging that they not “blow up” the legislation. The former Goldman Sachs CEO even went down on one knee as if genuflecting, to which Pelosi is said to have joked, “I didn’t know you were Catholic.”
It was McCain who had urged Bush to call the White House meeting, but Democrats made sure Obama had a prominent part. And much as they complained later of being blindsided, the whole event turned out to be something of an ambush on their part—aimed at McCain and House Republicans.
“Speaking professionally,” said one Republican aide, “They did a very good job.”
The wild White House meeting may have the effect of uniting Democrats more. And only hours before, Frank and a bipartisan set of prominent senators had reached agreement Thursday on the framework for legislation authorizing the massive government intervention.
There would be a greater emphasis on efforts not just to relieve Wall Street firms of their bad debts but also to help homeowners threatened by foreclosure. Companies that benefit from the plan would be expected to limit pay and severance packages for their executives, and community banks are expected to benefit from a new $3 billion tax break as a result of their stock losses in the government takeover of the two mortgage finance giants, Fannie Mae and Freddie Mac.
Prior to the White House meeting, Sen. Bob Bennett (R-Utah) predicted legislation could be finalized in time for Congress to act this weekend. Sen. Judd Gregg (R-N.H.), who continued to represent Senate Republicans Thursday night and has close ties to the White House, conceded that portions of the package wouldn’t be to Treasury’s liking, but the agreement was a step forward.
“There are things they won’t be comfortable with — obviously there was a lot of give on both sides,” Gregg said. “I think they may be very concerned about some sections of it, but the overall thrust of it will be to give them the authority they need to address the underlying problem, which is to get these securities out of the blocking pattern that they are in, relevant to the credit markets. This will allow the Treasury secretary to go and clean up the credit markets using basically tax dollars.”
Frank said that Paulson recognized the need to compromise but “there is some tension between the needs of the members and the needs of the markets,” the chairman smiled.
“He thinks neurosis on the part of the mrkets deserves more credibility than neurosis on the part of elected officials [about] getting a bill passed.”