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Lawmakers Want Strings Attached (Wall Street Journal)

By Michael R. Crittenden

WASHINGTON -- U.S. lawmakers are considering steps to alter the terms of the Treasury Department's financial-rescue plan, including forcing banks to lend funds they've received from the government and imposing new limits on executive compensation at firms that are part of the program.

In a growing number of letters, phone calls and public comments to Treasury Secretary Henry Paulson and his top officials, lawmakers are pushing Treasury to add strings to the $700 billion rescue plan. They complain that banks are using the billions invested by Treasury to fund acquisitions, repair their balance sheets and pay dividends, instead of increasing lending, the point of the program.

Rep. Dennis Kucinich and other critics hope their concerns about the financial-rescue plan can be addressed in a lame-duck session of Congress.

With Congress expected to return to Washington in a little over two weeks for a lame-duck session, critics hope their concerns can be translated into action. "We have to force these issues out into the open," said rescue-plan critic Rep. Dennis Kucinich (D., Ohio) in an interview.

Treasury in recent days has put pressure on banks to fulfill the program's goals, even as it has argued that banks will start lending again because that's how they make money. Officials have balked at adding criteria, worried that such a move would reduce participation in the program. Currently, there are few stipulations on how banks use the funds.

Ed Lazear, chairman of President George W. Bush's Council of Economic Advisers, defended the implementation of the rescue plan at a press conference Thursday. He noted there is little hard evidence that banks are not appropriately using federal funds. "We have to make sure that banks have the appropriate flexibility to do those things that will get credit markets going," Mr. Lazear said.

Making major changes to the plan during a lame-duck session would be difficult, a fact acknowledged by top Democratic lawmakers. House and Senate leadership aides say it would be difficult to pass any controversial legislation, citing the difficulty lawmakers had in passing the financial-rescue package in the first place, as well as the limited Democratic majority in the Senate.

"There's not much we can do other than jawbone," Sen. Charles Schumer (D., N.Y.) said in an interview earlier this week.

Senate Banking Committee Chairman Christopher Dodd (D., Conn.) offered a number of specific steps he is considering, including crafting a federal statute based on a New York state law that would allow the government to reclaim money from firms that accept federal funds but don't fulfill their commitments.

Current law would only allow the government, as a creditor, to take such a step if a company enters bankruptcy. Mr. Dodd said he wants to expand the government's right to address his concerns that companies may be using government funds to pay executives.

"We've got to make sure we deal with this," Mr. Dodd said, adding that he's tried lecturing firms "and it's not working."

Sen. Bernie Sanders (I., Vt.), another critic, plans to introduce legislation as soon as Congress returns in November that would put caps on executive compensation at firms that accept federal funds. In an interview, he expressed frustration that the rescue legislation was originally supposed to be used to buy up illiquid assets, but has since morphed into a vehicle for direct capital injections that healthy banks may be using to acquire weaker rivals.

"The goal seems to be changing every single day," Mr. Sanders said. "Are we comfortable that a handful of bankers are literally alone in a room deciding which banks get what?"

On Wednesday, House Speaker Nancy Pelosi (D., Calif.) and Senate Majority Leader Harry Reid (D., Nev.) sent a letter to Mr. Paulson raising concerns about lucrative "golden parachutes" at financial firms enrolled in the program.

Lawmakers are stepping up pressure on Treasury and the Bush administration through a series of hearings expected to occur in the coming weeks. House Financial Services Chairman Barney Frank (D., Mass.), who has said he is open to imposing limitations on the program, has already scheduled a Nov. 18 hearing on efforts by the Treasury and Federal Reserve to address the financial crisis.

Mr. Dodd likewise said he wants to hold a series of hearings. "The intent here certainly wasn't for healthy banks to buy healthy banks -- it's infuriating," he said.