Treasury Secretary Hank Paulson faced a tough crowd Monday in the Senate. Appearing before the Senate Banking Committee with Federal Reserve Chairman Ben Bernanke, Paulson withstood criticism from Senators on both sides of the aisle who were almost universally skeptical of his bailout plan and the short timeframe in which he wants to see it passed.
Senator Elizabeth Dole (R-N.C.) said that Paulson's three-page plan, which asks for $700 billion to buy distressed assets from failed banks but contains no provisions for oversight and demands little in return from financial institutions receiving aid, was "hastily concocted." Senator Daniel Akaka (D-Hawaii) said Congress "must not give Treasury a blank check." Echoing senators from both parties, he said, "we must do more to keep people in their homes."
The suspicion surrounding Paulson's plan was bipartisan. While everyone agreed that a bailout was necessary, senators from both parties asked Paulson and Bernanke why Congress was being asked to "rush into" a bailout. Senator Jon Tester (D-Mont.) demanded to know why Congress had just a week to allocate $700 billion dollars or face financial Armageddon. Who was supposed to see this coming? he asked. And why didn't they?
The taxpayers were everyone's foremost concern. How will the Treasury assure that Americans get a good deal when the federal government buys the distressed assets from failed banks? Will the taxpayers make a profit—or reap any benefit at all—when those assets are sold off down the road? Could Congress give the Treasury a smaller sum to work with, and then reconvene in a few months to evaluate progress and distribute a little more?
The other concern was oversight. Again, members from both parties found common ground. Senator Wayne Allard (R-Colo.) said he "invite[d] the administration to be more forthcoming" about how the bailout would work. Senator Mel Martinez (R-Fla.) stated plainly that the Republicans embraced this key Democratic talking point. "You are not asking for a blank check," he told Paulson. "We will not give you a blank check. There will be oversight." Paulson didn't try to fight it. "I welcome oversight," he said.
The more contentious issues—the ones that will actually put Democrats and Republicans at loggerheads and possibly delay passage of the bill—were treated gingerly.
Multiple Democrats brought up the idea of limiting executive compensation. Why, they asked, were Wall Street honchos taking home millions in bonuses ($39 billion collectively among The Street's five biggest firms in 2007) while simultaneously asking the American taxpayers to help their companies out of a jam of their own creation?
Paulson, a former chairman and CEO of Goldman Sachs who is smart enough to recognize that economic populism is the style of the day, said, "I share your frustration. I feel that frustration. Those practices throughout America also upset me." But he wouldn't offer his support to legislation that did anything about those practices. "I would respectfully submit that we can't do those as quickly as we need to," he said, to get the bailout package out the door in time to stabilize the markets.
The other ideas that Democrats are going to try and push into any bailout bill are a provision providing bankruptcy judges with the power to restructure mortgages for homeowners in foreclosure and, possibly, an additional middle class stimulus. On these, Paulson only said that the bailout should happen "quickly and cleanly," and that Congressional action should "avoid slowing it down with provisions that are unrelated."
Paulson and Bernanke can afford to quietly tip-toe around the Democrats' pet provisions. They don't need to argue against them. The fights over these measures are political ones — they will be fought by Democrats and Republicans in Congress and will have little bearing on whether or not Treasury gets the money it seeks.
And that, ultimately, may be the only positive Paulson and Bernanke can take out of the hearing today. Their plan was widely panned. They may not get their funds as quickly as they would like. When they do receive the money, it will have strings attached they did not desire. The White House that backs them has no political capital and demands no respect.
But, in the face of an economic crisis of historic proportions, the money will be there, and likely in massive sums. For all of the criticism Paulson faced today, no one threatened the most important part of his plan.