Confusion and Criticism over Treasury's Changing Plans as Saturday's G20 Meeting Begins
With each passing day it becomes more apparent that neither the Congress nor the Bush Administration has an appetite for significant new actions to aid the financial system or the economy at large before the end of the year. Congressional leaders on Thursday made it clear that passage of an economic stimulus package or a package to aid the auto industry were looking increasingly difficult. At the Treasury Department, consideration is being given to making Capital Purchase Program assistance available to non-bank financial institutions, but no guidelines for how that might happen or what form the assistance may take have emerged. Meanwhile, congressional Republicans have begun clamoring for more information on the actions Treasury and the Federal Reserve have already taken to assist ailing financial institutions and other companies.
Sen. Chuck Grassley (R-IA), Ranking Member of the Senate Finance Committee, sent a harshly worded letter to the Treasury Secretary and Federal Reserve Chairman "to express concerns and receive answers to questions" he has regarding implementation of the Emergency Economic Stabilization Act of 2008 (EESA). In a statement released along with his letter, Grassley said of the implementation thus far, "When you see so many changes, you wonder if they really know what they’re doing."
Senate Banking Committee Chairman Christopher Dodd (D-CT) told reporters yesterday that they do not have the votes in the Senate to pass new legislation to bail out auto manufacturers. Despite that, Dodd said that Treasury currently has the authority under the EESA to help the industry, but he wants to move cautiously toward a plan that Congress and the incoming administration can support. The Senate Banking Committee plans to hold a hearing early next week to examine ways to expand the $700 billion rescue package to non-bank institutions, including the auto industry.
The subject of mitigating mortgage foreclosures also continues to dominate Capitol Hill hearings and press conferences. The Federal Deposit Insurance Corporation (FDIC) today unveiled its "Loss Sharing Proposal to Promote Affordable Loan Modifications." According to the FDIC, only four percent of seriously delinquent loans are being modified each month. To encourage wider adoption of a systemic loan modification program, the FDIC proposes paying servicers $1000 to cover the expenses of modifying each loan and also having the federal government absorb up to 50 percent of the loss if a modified loan subsequently defaults. The FDIC estimates this program can help half of the current 4.4 million troubled loans, avoid roughly 1.5 million foreclosures, and cost approximately $24.4 billion. It is unclear yet whether Congress will push the Treasury Department to embrace this proposal.
Against this chaotic backdrop, leaders of the G20 nations will converge tomorrow on Washington for a one-day meeting on international financial regulation. While key foreign leaders may arrive with some concrete suggestions on potential steps to be taken, it is unlikely the Bush Administration would agree to anything substantive at this juncture. So expectations for this meeting are best calibrated in the direction of principles for further talks. That at least might be achievable.
