There's some hope for Congress - not so much for the Paulson Proposal

Treasury Secretary Paulson, Federal Reserve Chairman Bernanke and Chairman of the SEC Chris Cox testified before the Senate Banking Committee today to try to get the Paulson Proposal passed. No joy.

WASHINGTON — Treasury Secretary Henry M. Paulson Jr. received an angry and skeptical reception on Tuesday when he appeared before the Senate Banking Committee to ask Congress to promptly give him wide authority to rescue the nation’s financial system.

Mr. Paulson urged lawmakers “to enact this bill quickly and cleanly, and avoid slowing it down with other provisions that are unrelated or don’t have broad support.”

The Federal Reserve chairman, Ben S. Bernanke, who appeared with Mr. Paulson, said the financial system “continues to be very unpredictable, and very worrisome,” and that inaction could lead to a recession.

But after hours of back-and-forth, the committee’s leaders said explicitly what had seemed clear all day: that they rejected the administration’s plan. “What they have sent us is not acceptable,” the committee chairman, Senator Christopher J. Dodd, Democrat of Connecticut, told The Associated Press.

The panel’s ranking Republican agreed. “We have to look at some alternatives,” Senator Richard C. Shelby of Alabama told The A.P.

One after another throughout the session, senators from both parties said that, while they were prepared to move fast, they were far from ready to give the administration everything it wanted in its proposed $700 billion plan to buy up and hopefully resell troubled mortgage-backed securities.

On the House side of the Capitol, the mood was apparently similar after Vice President Dick Cheney met with Republican members. “Hardly anyone in that room has decided yet how they’re going to vote on this,” Representative Phil Gingrey, Republican of Georgia, told Bloomberg News.

The weekend was not kind to the Paulson Proposal,nor should it have been. Besides, who trusts either Wall Street bankers or the Bush administration these days? Even Bush's hoped for replacement, John McCain, has had to run against the incompetence and corruption of the Bush administration.

The New York Times is also running this article: News Analysis: Experts See a Need for Punitive Action in Bailout.

The common denominator to many reactions is a visceral discomfort with giving Treasury Secretary Henry Paulson Jr. — himself a product of Wall Street — carte blanche to relieve major financial institutions of bad loans choking their balance sheets, all on the taxpayer’s bill.

There are substantive reasons for this discomfort, not least concerns that Mr. Paulson will pay too much, thus subsidizing giant financial institutions. Many economists argue that taxpayers ought to get more than avoidance of the apocalypse for their dollars: they ought to get an ownership stake in the companies on the receiving end.

But an underlying source of doubt about the bailout stems from who is asking for it. The rescue is being sold as a must-have emergency measure by an administration with a controversial record when it comes to asking Congress for special authority in time of duress.

“This administration is asking for a $700 billion blank check to be put in the hands of Henry Paulson, a guy who totally missed this, and has been wrong about almost everything,” said Dean Baker, co-director of the liberal Center for Economic and Policy Research in Washington. “It’s almost amazing they can do this with a straight face. There is clearly skepticism and anger at the idea that we’d give this money to these guys, no questions asked.”

Then there is the problem as seen from the point of view of retirees.

Also from the New York Times: Retirees Filling the Front Line in Market Fears .

“There’s a terrified older population out there,” said Alicia H. Munnell, director of the Center for Retirement Research at Boston College. “If you’re 45 and the market goes down, it bothers you, but it comes back. But if you’re retired or about to retire, you might have to sell your assets before they have a chance to recover. And people don’t have the luxury of being in bonds because they don’t yield enough for how long we live.”

Today’s retirees have less money in savings, longer life expectancies and greater exposure to market risk than any retirees since World War II. Even before the last week of turmoil, 39 percent of retirees said they expected to outlive their savings, up from 29 percent in 2007, according to a survey by the Employee Benefit Research Institute, an industry-sponsored group in Washington.

“This really highlights the new world of retirement,” said Richard Johnson, a principal research associate at the Urban Institute in Washington. “It’s a much riskier world for retirees, because people don’t have defined-benefit plans. They have pots of money and they have to worry about making it last.”

Don't forget. Retirees vote at very high rates. Congress has clearly not forgotten this.

Also don't forget - Congress wants to go home at the end of this week to campaign for reelection. Something is going to be done, and they will have to answer to the voters about it immediately.