U.S. money czars on hot seat

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CHARLES DHARAPAK/ASSOCIATED PRESS

Fed Chair Ben Bernanke, left, and Treasury Secretary Henry Paulson seated at the witness table before testifying before the Senate Banking Committee on Sept. 23, 2008.
Paulson, Bernanke and Cox face anger from both sides of the Senate over financial system bailout dismissed as `unacceptable' for its lack of oversight, accountability
September 24, 2008 Tim HarperWashington Bureau

WASHINGTON–Congressional momentum toward quick passage of a historic, $700 billion (U.S.) economic bailout package came to a screeching halt yesterday in a Senate committee room heavy with anger and skepticism.

The triumvirate of would-be saviours – Treasury Secretary Henry Paulson, Federal Reserve Chair Ben Bernanke and Security and Exchange Commission Chair Christopher Cox – sought quick passage of the package, citing imminent economic apocalypse, albeit in understated jargon designed to exude calm.

Instead, they received a pummelling from senators from both sides of the aisle, many running for re-election in November.

Republicans and Democrats told the trio they were seeking a blank cheque which would leave American taxpayers holding the bag while providing golden parachutes for reckless Wall Street executives who brought this woe upon themselves.

The administration's three-page plan contained no oversight or accountability and was therefore "unacceptable,'' Connecticut Senator Christopher Dodd, a Democrat and the chair of the banking committee, said following a hearing which lasted almost five hours.

A new round of uncertainty on Capitol Hill about the fate of the rescue plan sent stocks plunging again, with the Dow beginning the day in positive territory before finishing down 161 points.
Negotiations on a package acceptable to a majority in Congress continued yesterday, with White House Economic Adviser Keith Hennessey telling CNBC that there was room for discussion on details of the plan.

But it was becoming clear passage would neither be swift, nor easy.
"This proposal is stunning and unprecedented in its scope and lack of detail," Dodd said.
"It would do nothing, in my view, to help a single family save a home ... it would do nothing to stop even a single CEO from dumping billions of dollars of toxic assets on the backs of American taxpayers, but at the same time do nothing to stop the very authors of this calamity to walk away with bonuses and golden parachutes worth millions of dollars."
Then Dodd took direct aim at the unfettered power Paulson was conferring on himself.
"After reading this proposal, I can only conclude that it is not just our economy that is at risk, but our constitution as well," he said.

Many observers called yesterday's hearing the most important financial meeting ever held in the capital.

And many U.S. legislators now believe the rush to action after the 9/11 attacks conferred too much power in the White House and led to speedy passage of the flawed U.S. Patriot Act.
So they resolved not to be stampeded yesterday – after hearing from outraged constituents over the weekend who wanted to know what they were going to get for such a massive outlay of taxpayers' money.

Paulson said he shared much of that outrage, admitting the crisis was "embarrassing" for the United States of America.
"You worry about taxpayers being on the hook?" he said at one point. "Guess what – they're already on the hook.

"Regrettably, not every homeowner is going to save their home," Paulson said.
As he was speaking, the U.S. government housing agency reported that house prices dropped another 0.6 per cent in June, bringing the cumulative decline across the U.S. to 5.8 per cent since housing prices peaked in April 2007.

Even before Paulson unveiled his plan, the U.S. deficit for the 2009 fiscal year was already projected to be a record $438 billion. And if only half the bailout money is used in this fiscal year, the deficit could soar to $900 billion.

Richard Shelby of Alabama, the ranking Republican on the committee, said the Paulson plan combined with an estimated $300 billion already spent propping up failing Wall Street firms has pushed the bailout price tag to $1 trillion.

He said Wall Street bet the government would ride to its rescue if it created this mess "and it appears that is the one bet which will pay off."

Both presidential candidates, Republican John McCain and Democrat Barack Obama, will vote on a final package, but neither is involved in crafting the bill.

McCain said yesterday that congress must "trust, but verify,'' but he said inaction was not an option.

Obama told a press conference the Bush administration was showing "stubborn inflexibility'' in its determination to force quick passage of the bailout plan and he said taxpayers must benefit because they are bearing the risk in the plan.

With files from Reuters News Agency