Still No Consensus on Treasury Rescue Plan

Washington continues its bipolar approach to dealing with the Bush Administration's proposed plan to purchase, manage and sell troubled assets from financial institutions. Key leaders continue to work on the contours of a plan so that it can be voted on late this week. At the same time, rank and file Members, particularly on the GOP side, are turning up the volume on their objections. We continue to believe prospects are good for enactment of a plan to create a $700 billion investment to purchase assets. However it is clear that several pounds of flesh will be extracted from Secretary Paulson along the way.

Since yesterday, it has become more evident that executive compensation limits of some kind will be included in the final plan. The Administration still opposes this strongly, but they will have little choice but to accept it. Otherwise, there appears to be agreement on including outside oversight over Treasury on the program, protections against foreclosures on homeowners, and the option for Treasury to take warrants for stock from companies that sell assets to them.

While the outline of the plan takes shape, adequate support to pass it is still being built. As an illustration of the problem, no Senate Republican has come out in support of the administration plan. One influential Senator, Judd Gregg (R-NH), ranking member of the Budget Committee, has warned colleagues that the cost of not acting outweighs the cost of acting. Several Senators have suggested modifications to the plan, such as Sen. Chuck Schumer’s (D-NY) proposal that industry pay into a fund to help finance the bailout, modeled after the FDIC and bank deposits. Secretary Paulson was receptive to that, but he rejected as too risky Sen. Schumer’s other suggestion to provide bailout funds in $150 billion tranches.

Republicans are beginning to coalesce around what yesterday was perceived as a Democratic proposal to limit executive compensation. Senate Minority Leader Mitch McConnell (R-KY) acknowledged to a Capitol Hill newspaper that most of his Republican colleagues support limits on CEO compensation at firms bailed out by the government. Despite Federal Reserve Chairman Bernanke’s warning that it would erode “investor confidence,” many Republicans are also pushing for temporarily suspending mark-to-market accounting rules as part of the package.

Paulson met with House Republicans this morning, and the White House is briefing House Members at 3 p.m. The House Banking Committee has scheduled Paulson and Bernanke to testify at a hearing this afternoon at 2:30. In an unusual move, the committee is starting the hearing at noon to receive testimony from concerned Members of Congress, in other words a “venting session.”

The White House released a Pew Research Poll conducted over the weekend showing that 57 percent of the public favors the Wall Street bailout. Our group’s conversations with Members of Congress and staff suggest that the constituent phone calls are trending strongly in the opposite direction, with about 90 percent opposed to the bailout. Despite the negatives, Congressional leaders on both sides remain committed to taking action. Both the Speaker of the House Nancy Pelosi and Senate Republican Conference Leader Lamar Alexander (R-TN) have used the language that Congress must “insulate Main Street from Wall Street.” The key questions to be resolved are the timing and details of a final package.

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