Journal News - Region's Reps Wary of 'Blank Check' Bailout

News Article

Gerald McKinstry and Jorge Fitz-Gibbon

Congressional leaders in the Lower Hudson Valley say the Bush administration's proposed $700 billion bailout of the financial industry is necessary - but falls short if it does not put taxpayers over shareholders.

Local lawmakers universally called for more regulatory oversight and a plan that helps Main Street as well as Wall Street and one that particularly protects homeowners over executives.

The push comes as Congress debates details of what may become the most significant rescue and reform of the country's banking system since the Great Depression.

An immediate plan should include protections for taxpayers, and other provisions for housing, oversight - and at some time in the future improved regulations, said Sen. Charles Schumer, D-N.Y., a member of the Senate Banking Committee.

"We must put taxpayers first, should this program work," Schumer said yesterday. "They must come ahead of bondholders, shareholders and executives, and we need to add to this legislation those types of protections."

Schumer's remarks came during yesterday's Banking Committee hearing, where both Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke testified.

"We do have to act," Schumer said. "But we have to act smartly, wisely and relevantly."

The legislation that the administration is pushing would allow the government to buy bad mortgages and other troubled assets held by struggling banks and financial institutions with an expectation of loosening the credit market.

If the housing market bounces back over the next few years, the government could resell the assets and possibly make a profit.

Paulson told the committee that the plan was the "single most effective thing we can do to help homeowners, the American people, and stimulate our economy," while Bernanke warned of a recession, higher unemployment and increased home foreclosures should Congress not approve Bush's plan.

Details of any final bailout plan remained fluid yesterday as members of Congress continue to debate its parameters and priorities.

While even some GOP members expressed concerns with what they viewed as an expensive government intrusion into the financial markets, representatives from the region, including Nita Lowey, D-Harrison; John Hall, D-Dover Plains; and Eliot Engel, D-Bronx, agreed that it is important to act swiftly but said there is a need for transparency and independent oversight over any government intervention.

"The size and scope of the administration's plan - and the lack of detail on critical questions - are unprecedented," Lowey said in an e-mailed statement.

Engel said, "I've been around here 20 years, and I've learned that when someone gives you three pages and tells you you have a deadline to approve it or disapprove it, you generally walk away and say, 'none of the above.' I know that we have to fix this problem. ... It's especially big for those of us that represent New York. But I'm not giving a blank check to anybody."

A final plan could be reached by week's end. The Senate's Joint Economic Committee, of which Schumer is the chairman, is to continue hearings today.

Although the extent of the crisis is hard to make out, the risks of not intervening are too great, said Westchester County Republican Party Chairman Doug Colety.

"I don't think anyone is sure what the price tag really is," Colety said. "I don't think the government can sit on the sidelines right now. ... I think it's important that the markets sense a commitment."

After meeting with New York Federal Reserve Bank President Tim Geithner yesterday, Sen. Hillary Rodham Clinton, D-N.Y., called for "broader economic reform." Clinton said that because millions of homeowners have negative equity and mounting mortgage debt and millions more have adjustable-rate mortgages ready to reset in the next two years, the Treasury's proposal wasn't comprehensive enough.

"The Treasury Department's plan may be necessary, but let's be clear: This is not a silver bullet and should not be considered as one," Clinton said. "Much more needs to be done to address the housing crisis, which is at the root of the current financial crisis."

In addition to wanting to help homeowners, lawmakers expressed concern that executives of failing financial institutions receive excessive compensation as their firms struggle.

During his remarks on the House floor yesterday, Hall said, "The well-paid executives who contributed so much to put us in this mess" shouldn't be able to walk away making millions by the same taxpayers who are struggling because of their negligence.

Hall's Republican opponent, Kieran Michael Lalor, said the bailout was "a necessary evil," though such help shouldn't be guaranteed in the future. Lalor also said it was important to "enhance regulatory clarity."

"It's very unclear what the rules were," he said. "Another problem is you have political figures in bed with these big lending institutions, and that kind of cozy relationship, there needs to be transparency there."

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