Lawmakers Blast Shifts In Bailout Plan

Lawmakers complained Friday that the Bush administration is ignoring the will of Congress and slighting homeowners on the verge of foreclosure in its latest approach to spending $700 billion in economic rescue money.

"It's very clear that Treasury cannot and will not make the effort to keep people in their homes," said Rep. Darrell Issa, R-Calif., top Republican on the House Oversight and Government Reform subcommittee on domestic policy.

In a hearing on Capitol Hill Friday on whether Treasury is using the bailout plan to prevent foreclosures, Issa and others took turns pressing Neel Kashkari, Treasury's interim head of the $700 billion bailout package.

A particular sore point, notes CBS News investigative correspondent Sharyl Attkisson, was the change in use of bailout funds, in light of Treasury Secretary Henry Paulson's recent announcement that he was diverting the originally intended target of taxpayer money from purchasing illiquid assets (such as troubled mortgages) to providing banks with capital.

"You know, we can go ring-around-the-rosy here," Issa said to Kashkari, "but you're here today because Congress is feeling that you played a bait-and-switch game. And you're not convincing anyone that you haven't."

Rep. Dennis Kucinich, D-Ohio, chairman of the panel, said the Treasury Department had "abdicated its responsibility" to prevent home foreclosures.

He said the change in implementing the bailout announced by Treasury Secretary Henry Paulson this week "breaks with congressional intent, contradicts public assurances previously made by Treasury, and leaves the federal government without an adequate mechanism to stem the tide of home foreclosures."

Congressional dissatisfaction is especially significant because Congress can block release of the second half of the rescue money - $350 billion - or put new conditions on its use. In addition to directing more money to distressed homeowners, Democrats are pushing for inclusion of funds to help the auto industry.

Paulson, citing the worsening credit crunch, said this week that Treasury no longer planned to buy up troubled mortgage assets, but was instead looking into ways to shore up credit-card, auto-loan and other non-bank businesses.

Kashkari defended the shift, saying "both banks and non-banks may need more capital given their troubled asset holdings, continued high rates of foreclosures, and stagnant global economic conditions."

He also said that restoring stability to the overall financial system was the best way to help homeowners. If the government spent all $700 billion buying up mortgage loans, it would still reach only about 3 million of the 55 million mortgage loans in the country, he said.

Kashkari also was cool to proposals by the Federal Deposit Insurance Corporation to provide $24 billion in federal aid to companies lowering mortgage payments. The goal of the rescue plan was to make investments that eventually bring returns to the federal government, he said. The FDIC proposal "at the end of the day is a spending proposal" with no chance of getting the money back.

The exchanges grew tenser as discussion revolved around recent reports that the bailout money was being used indirectly to fund the payment of bonuses, compensation and dividends by financial firms.

Rep. Elijah Cummings, D-Md., said "it makes no sense" if Treasury isn't working to save people from being thrown out of their houses:

Cummings: "My people don't believe that you all care about them. And I hate to tell you that, but they don't and they're angry."

Kashkari: "Let me say two things, please. One, the legislation that we asked for, we asked for it to try to stabilize and prevent a complete financial collapse of our financial system, and that was not to help Wall Street. That was to help every American.
Cummings: "No. Let me tell you something. I understand that. That's why I voted for it."

Kashkari: "Yes, sir."

Cummings: "But let me tell you, when we gave that money, when we gave the banks money, they still weren't loaning any money."

"I wouldn't want to be asking my friend for some money to help me stay afloat," Cummings said, "Then my friend, who can barely afford to go to McDonald's, then walks around and see me in a restaurant costing $150 a meal. There's absolutely something wrong with that picture.

"And so I wonder, did you all - I mean, does that go through your head? Or is it just me? Am I missing something?"

Kashkari said, "I saw the same images that you saw of the parties. And I share your frustration with that."

Kashkari said that, to his knowledge, the money paid as bonuses had previously been set aside in a separate fund for that purpose, and was paid out as an incentive to keep people form leaving the struggling firm. "We need them to keep working so that they can sell off the assets and pay back the taxpayers," he said.

"Guess what? There are a whole lot of people that could replace them, because there are so many people losing their jobs," Cummings responded. "This is an employer's market today. Come on now. I guarantee you, there are people who are lined up saying, 'Please quit so I can get a job.' And that's what the American people are looking at, and they are frustrated.

"The problem is that a lot of the people that we represent won't even have a job at Christmas time and damn sure won't have a bonus!"

While defending Treasury's efforts, Kashkari told lawmakers, "I don't know how to work any harder than we're working."

To which Kucinich replied, "I don't think anyone questions you are working hard; the question is, who you're working for?"

Congress also bears responsibility, reports Attkisson. On Wednesday CBS News first reported that lawmakers had not filled the first slot on their own bailout oversight board. They finally named three members late Friday.

President George W. Bush also on Friday named a federal prosecutor to be a Treasury-based special inspector general to oversee the rescue plan and monitor how the money is spent.