Funding for Treasury’s ambitious $700 billion rescue plan for the financial markets appears increasingly likely to be scaled back or divided into tranches to help win the votes needed from nervous lawmakers in Congress.
No decisions have been made, but this is one of the options now actively being considered by congressional leaders and the White House Wednesday as they try to cobble together majorities in both parties in the House.
“That’s been suggested by some,” said Speaker Nancy Pelosi (DCalif.), who met with Treasury Secretary Henry Paulson Wednesday. More than in the past, the speaker left open the possibility that House action will now slip into next week, given the need for further adjustments.
“We’re going to get it right,” Pelosi said. “We’re going to do what we have to do. We’ll finish it when it’s ready. I would hope that it would be sooner rather than later.”
Under pressure to get the public and reluctant Republicans in Congress on board, President Bush will discuss the bailout proposal in a primetime television speech tonight.
As initially proposed, the Treasury plan called for Congress to approve the full $700 billion up front to maximize Paulson’s leverage and send a strong signal to the markets that Washington would meet its commitment to help resolve the credit markets crunch, which threatens the larger economy.
At a Senate Banking Committee hearing Tuesday, Sen. Charles Schumer (D-N.Y.) had raised the possibility of Congress approving just $150 billion as a down payment toward the $700 billion goal—and Schumer argued that this would be enough to test the effectiveness of Treasury’s strategy.
Paulson rejected the idea then as a “grave mistake,” but an administration official said Wednesday that it is an option for the secretary as long as the final package leaves enough room for his plan to be workable. Paulson met continued resistance at a meeting with House Republicans Wednesday morning, and the $700 billion in the original package makes it harder to swallow for conservatives inclined to oppose government intervention.
“It’s moving Wall Street’s debt to Main Street. That’s a tremendous amount of money,” said Rep Sam Graves (R-Mo.), who described himself as “very skeptical” about the bill.
While House Democratic leaders are demanding a strong showing of Republicans for the package, members said later that no more than 40 to 60 Republicans were on board at this stage. “And we only get to 40 to 60 because we have a lot of people retiring,” said Rep. Jack Kingston (R-Ga.)
Paulson left the later meeting with Pelosi without taking questions. Given the resistance from his party, House Republican Leader John Boehner of Ohio was reluctant to say that scaling back the package would solve the political impasse. “We don’t know that yet,” Boehner told Politico.
Democrats said Pelosi was now leaning toward this option as she tries to bring along her own caucus. But when asked after the meeting, the speaker made no commitment, saying only the idea was being considered.
But Mark Zandi, the chief economist for Moody’s Economy.com and someone respected by House Financial Services Committee Chairman Barney Frank (D- Mass.) said that Congress could afford to scale back the $700 billion number or finance the plan in tranches without ruining its effectiveness.
“I think that’s a reasonable thing to do,” Zandi told Politico. He said there was no “magic” to the $700 billion figure—and in fact its very size had scared some in the private investment community. And while it is important to have some psychological impact on the markets, Zandi said that “it’s a matter of judgment” and there was never a scientific rationale behind the higher number.
Frank had said earlier this week that he knew of no plan to break up the $700 billion into tranches. But Wednesday, he declined comment on what number would be in his committee’s bill. “I can’t get into specific while negotiating,” he said.
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Lawmakers likely to scale back bailout
By DAVID ROGERS | 9/24/08 1:24 PM EDT
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