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Tuesday, September 23, 2008

Bailout Hearing in Real Time

Mike Nizza has this post in the LEDE Blog:

Too Little?
, 1:36 p.m. Senator Bunning, citing Alan Greenspan’s view that the $700 billion is nowhere near enough, asked Mr. Bernanke whether he may come back for more taxpayer money? Agreeing, Mr. Bernanke said that it’s hard to know how much is enough, and even raised the possibility that we may come back and say we didn’t need the whole $700 billion.
Dodd’s Vow, 1:25 p.m. The witnesses have spent most of the day trying to convince the panel to set aside punitive measures for executives until after the bailout. But Senator Dodd heard enough of that by 1:24 p.m., and decided to draw a line in the sand. Any bailout would include executive compensation, he said. Count on it.
The Background, 1:11 p.m. On Economix, the newest blog on NYTimes.com, there’s an excellent post that explains the bailout options. As Catherine Rampell writes, there are other options besides total inaction on the one hand, and Mr. Paulson’s $700 billion bailout on the other.
A Wall Street Apology?, 1:04 p.m. Do you think Wall Street owe the American people an apology? The question from Sherrod Brown of Ohio provoked quibbling from the professor-turned-Fed-chief Bernanke: Wall Street is an abstraction. There were many people who made mistakes, many regulators who made mistakes. Then, Mr. Paulson exercised his empathetic powers, saying, I share the outrage … There’s a lot of blame to go around. If any apologies are owed, we’ll find out later, they suggested.
The Bailout Tightrope, 12:34 p.m. David M. Herszenhorn, a New York Times business reporter, e-mailed with an observation on the hearing so far:
Senator Bennett did perhaps the best job of explaining the quandary in dealing with the financial system: if the price of distressed assets to be purchased by the government is set too low, the financial firms have to take steep, potentially crippling losses. If the price is too high, there’s little upside for taxpayers to get their money back or even profit.
And there is no second act, as Mr. Dodd said earlier.
Reacting to Paulson’s Line, 12:30 p.m. Inside the hearing room, snide laughter greeted Mr. Paulson’s line, This is all about the American taxpayer. What was your reaction?
Another Way to Look at It, 12:27 p.m. If it works the way it should work, this is not an expenditure, it’s an investment. — Secretary Paulson
Schumer Speaks, 12:24 p.m. Senator Schumer raised the idea of assessing a fee on larger institutions, similar to FDIC fees, to defray part of the cost of the bailout — rather than leaving it all on the taxpayer. Mr. Paulson says he’d be open to the idea of a broad industry wide tax or fee. Mr. Bernanke agreed, but said it was more important to address the too big to fail problem of institutions that the government has no choice but to rescue, which he said in an earlier answer was worse than we thought.
Next, Mr. Schumer proposed a staged bailout instead of one big one. How about doing this in stages, with, say, $150 billion now, and then come back in January and see how we’re doing?, he asked. Mr. Paulson said that he sought full authority up front, even though we are unlikely to spend the full amount by January.
Could you live with less? Mr. Schumer asked, specifically accepting a provision like that in the legislation. I think that would be a grave mistake, Mr. Paulson said. Give us the tools we need to make this work.
Big and Small, 12:19 p.m. Senator Enzi asked whether small community banks and credit unions would be left holding the bag by the program while big institutions got all the help. In response, Mr. Paulson assured him that if the intent was just to help a few big institutions, the administration would have designed an entirely different program with a different structure.
The 4th Witness, 11:55 a.m. While Mssrs. Paulson, Bernanke and Cox are receiving almost all of the panel’s attention, James Lockhart, director of the Federal Housing Finance Agency, just got a question from Senator Johnson.
What will the [government-sponsored enterprises] look like when they come out of conservatorship?
Lockhart’s answer: That depends on what Congress wants. He cited the July legislation enabling the Fannie/Freddy takeover and says that under it, there is now strong regulatory supervision of the mortgage agencies.
The Homeowners, 11:51 a.m. Senator Shelby turned to the homeowner who is going to lose his home. What about them? Mr. Paulson’s answer was that not everybody will be able to keep their home, but the damage would be greatly limited by jump-starting bank lending. Nothing is more important.
What If It Doesn’t Work?, 11:45 a.m. When Senator Shelby raised the possibility that the $700 billion plan may fail, Mr. Paulson defended his record so far. I believe Freddie and Fannie worked, he said. If the Federal Reserve didn’t step in with A.I.G., we’d be facing a major calamity.
From Paulson to You, 11:41 a.m. In response to a question, Secretary Paulson sought to clear the air about who the bailout was supposed to help. This is all about the American taxpayer, he said. That’s all we care about. He continued:
Any banking operation in the United states that is doing business with the American public is important. The American public in dealing with the financial system doesn’t know who owns that bank.
Later, he added, You ask me about taxpayers being on the hook? Guess what, they are already on the hook.
Market Update, 11:36 a.m. Here is a market update from Michael Grynbaum of The New York Times.
Stocks moved higher after the open, when Mr. Bernanke and Mr. Paulson began their testimony, but had fallen back by 11 a.m. The Dow Jones industrials were up about 20 points after losing a 100-point gain earlier in the morning. A broader measure of the stock market, the Standard & Poor’s 500-stock index, was up 0.2 percent.
Shares of banks and financial firms turned lower, erasing modest gains. Morgan Stanley and Goldman Sachs were both off about 2 percent; Bank of America, Citigroup, and Merrill Lynch all traded lower.
The modest gains in stocks came a day after the Dow lost 372 points amid a surge in oil prices and a sharp drop in the dollar. Investors remain nervous that the bailout plan will not offer a panacea to the host of problems plaguing the financial system.
Paulson Speaks, 11:03 a.m. So much for prepared statements. When the spotlight turned to Mr. Paulson, he began by addressing several themes that emerged from the panel in the previous hour or so. While he returned to the text released earlier today, he expanded on several other sections before finishing. Did the senators sound different notes than he expected?
In one case, he was simply underscoring a point in the text meant to dissuade senators from refusing to approve the bailout until wider regulatory issues are fixed. Here was the key line from his prepared text:
Many of you also have strong views, based on your expertise. We must have that critical debate, but we must get through this period first.
Don’t Overdo This, 10:58 a.m. We must prevent panic both in the markets and in our government, said Sen. Wayne Allard, Republican of Colorado. Overreaction, in the long run, will be worse for our economy.
Against God’s Timetable, 10:55 a.m. The Associated Press reported a Congressional zinger on whether rushing to a decision would be wise:
Just because God created the world in seven days doesn’t mean we have to pass this bill in seven days, said Rep. Joe Barton, R-Texas.
Setting the Tone, 10:42 a.m. A comment from Senator Dodd at the outset of the hearing seemed worth noting as the opening statements continue:
Regardless of how some may feel about the decisions these leaders have made and the impact they have had, we all ought to be able to agree that these four individuals are good, talented, knowledgeable and experienced individuals who I think want to do the very best for our country.
Not Mincing Words Dept., 10:39 a.m. Senator Jim Bunning, Republican of Kentucky, has emerged as one of the most strident enemies of the bailout proposal, and he did not disappoint today. It’s financial socialism, and it’s un-American, he said in his opening statement. On Friday, he offered a eulogy for the economy, saying, The free market for all intents and purposes is dead in America.
Senator Elisabeth Dole, Republican of North Carolina, had some harsh words for the mortgage giants that the government took over earlier this month. Fannie and Freddie have utterly failed to deliver on their intended purpose, she said. In fact, they have done just the opposite.
White House Reassurances, 10:18 p.m. The White House was urging faith in the legislative process and free markets this morning. From Steven Lee Myers, a New York Times reporter covering the White House, a statement from President Bush on today’s proceedings:
Now there’s a natural give and take when it comes to the legislative process, Mr. Bush said in brief remarks with the president of Pakistan, Asif Ali Zardari. There are good ideas that need to be listened to in order to get a good bill that will address the situation. But I’m confident Mr. President, as I’ve told you and other leaders, that there will be a bipartisan bill. That the Republicans and Democrats will come together to get this legislation passed, which is necessary to address the financial situation and provide a rescue plan to make sure that there’s some stability in the markets.
And Sheryl Gay Stolberg of The Times reports on another contingent at the White House:
The vice president and the other White House officials will be talking to members of the Republican Study Committee, the group of free-market conservatives whose members have raised objections to the plan. Tony Fratto, Mr. Bush’s deputy press secretary, said Mr. Cheney and others hoped to reassure the critics that the proposal is an emergency response to a critical problem, and not an abandonment of the belief that our markets work and our free market system works.'
Working the Hearing Room, 10:06 a.m. So far, each senator has spent some time railing against Wall Street, but Senator Mike Enzi’s criticisms earned several rounds of applause in the hearing room before Senator Dodd brought down the gavel. After threatening to clear the room if they didn’t settle down, he demanded silence. This is a serious hearing, Mr. Dodd said.
Mr. Enzi has been pushing for punitive measures against the leaders of companies who are responsible for the bad investments. Those C.E.O.’s and decision makers at the financial institutions who caused this crisis must feel the pain of recovery, he said on Monday.
The position was backed by experts interviewed for an article in The New York Times today:
It absolutely has to be punitive, [Dean Baker, co-director of the liberal Center for Economic and Policy Research in Washington,] said. If they sell us the junk, then we own the company. This isn’t a way to make these companies and their executives rich. This should be about keeping them in business so the financial system doesn’t collapse.
Opening Statements, 9:51 a.m. It may come as no surprise that the world’s greatest deliberative body is expressing a bipartisan feeling against rushing things too fast. At the same time, they are combining the call for debate with an acknowledgment that time is indeed a critical factor.
– Senator Dodd, the Democratic chairman of the panel: I understand speed is important. But I am far more interested in whether or not we get this right. There is no second act to this.
– Senator Richard C. Shelby, Republican and ranking member of the panel: Before I sign off on something of this magnitude, I want to make sure we’ve exhausted the alternatives
For Mr. Dodd, a larger issue was at stake in Mr. Paulson’s plan. After reading this proposal, I can only conclude that it is not just our economy that is at risk, but our constitution as well. Mr. Shelby echoed the point, saying the Treasury department was continuing its ad hoc approach on a grand new scale.
Punch List, 9:47 a.m. Richard Beales of Breaking Views has compiled a list of questions for Treasury Secretary Henry M. Paulson Jr.. First one: Where does the $700 billion figure come from? We’ll come back to this later.
Take Your Seats, 9:34 a.m. In a packed room in the Dirksen Senate Office Building, Senator Christopher J. Dodd has opened a hearing on Turmoil in US Credit Markets featuring the chiefs of the Treasury Department, the Federal Reserve Board, the Securities and Exchange Commission and the Federal Housing Finance Agency.
Flanking Mr. Dodd are the members of the Senate Banking Committee, which represents the first major hurdle for the Bush administration’s plan to bail out the mortgage industry to the tune of $700 billion. Underscoring the urgency of the situation were strict time limits on members of a body known for wordiness.
After short statements from members of the committee, a question-and-answer session with senior government officials was expected to end before 1 p.m. Eastern time.

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