Financial Reform Watch

While congressional leaders and the Administration continue to make progress in developing a compromise $700 billion package to shore up the financial markets, this morning’s news is that skeptics in both parties are making their voices heard very strongly. This skepticism is not likely to derail the plan altogether, but it may slow its path to enactment.

Events in public and in private this morning have brought out the opponents of Secretary Paulson’s plan. A public hearing at the Senate Banking Committee began at 10 a.m. this morning and continues as this is written. At the hearing, Fed Chairman Ben Bernanke emphasized the importance of quick action on the plan. He said financial institutions continue to be at risk and the pending plan will be important to staving off further failures. Secretary Paulson pressed again for a “clean” piece of legislation (meaning with minimal add-ons) but also telegraphed some flexibility on issues like oversight and mortgage assistance for homeowners. Members of the committee from both sides of the aisle hit the Administration hard for pushing a plan that appears to be a “blank check” for the Treasury Secretary.

In private, Vice President Dick Cheney and White House Chief of Staff Josh Bolten came to the Capitol to press Republicans to support the plan. It is clear from published reports that they received a frosty reception from many Members of their own party. One senior Democratic member told us this morning that a “no way” caucus was forming on his side of the aisle as well. The group may be small, but it is likely to be vocal.

The opponents from both ends of the spectrum feel they are being unwisely pressured to vote for bad policy. They are convinced the plan will cost more than the projected $700 billion, and there is great concern about what happens if the administration’s plan fails. As a result of these concerns, an increasing number of members are publicly discussing the potential for continuing this debate beyond this week.

The strength of the opposition may require the Administration to accept at least one provision it has been resisting very strongly up to now – a limitation on executive compensation at any firm that sells troubled assets to the Treasury. That is a “pound of flesh” that both liberal and conservative Members of Congress are likely to require to allow the package to advance.

Both Democrats and Republicans meet for their weekly caucus lunches at 12:30 today. There will be very frank and heated discussions in both lunches, but we should have a better idea of the landscape coming out of those. Our afternoon report will contain information on those meetings and more detail on the emerging outline of the plan.