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The Free Press
September 23, 2008 |
Justin Hyde
Staff Writer |
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Relief from foreclosure joins huge rescue plan |
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Michigan residents facing foreclosure stood to get help from the federal government as part of a $700-billion bailout for financial markets, as lawmakers and the Bush administration tacked Monday toward compromise on the rescue package.
Although many details remained unsettled, officials from both parties took great pains to sell the plan as a necessary evil to prevent a credit meltdown that would touch every part of the economy. They argued that the cost of doing nothing would be far worse than $700 billion.
Supporters have some selling to do: Michigan lawmakers said constituents who had contacted them since U.S. Treasury Secretary Henry Paulson unveiled the plan Friday were almost universally opposed to it.
"I think people have a right to be angry," said Rep. Sander Levin, a Royal Oak Democrat. "We have to somehow channel those deep concerns into a plan that will help us. The roof caving in would hurt everybody."
A vote on the plan could come as soon as Wednesday, as Congress races to complete its work before adjourning at the end of the week.
Rep. Barney Frank, D-Mass., who heads the House Financial Services Committee, said Monday that the administration had agreed to several changes, including foreclosure relief and more oversight of the program.
But he said talks were continuing over whether the package would include limits on executive pay or changes in bankruptcy law, and the Treasury Department later contradicted some of Frank's comments.
"The magnitude of this request for intervention is reflective of the magnitude of mistakes in deregulation," Frank told reporters.
The plan would allow the U.S. Treasury to buy mortgage-backed debt and other investments from financial firms that can't trade such securities today because buyers don't trust them in light of defaults and sinking home values. The $700 billion was the Treasury's first estimate of the size of the problem, and concerns grew during the weekend that the government would have to purchase even more securities to make the plan work.
Frank warned that the Wall Street crisis was threatening to freeze lending in new areas such as auto loans, saying the problems would only get worse if consumers couldn't buy cars and automakers had to cut production further.
"There's a real clog from all these bad decisions, due to bad regulations," Frank said.
Several lawmakers from both parties had criticized the deal as too sweet for Wall Street bankers, whom they blamed for causing the bad-debt boom in the first place. The plan also has been expanded to cover assets owned by foreign banks based on U.S. loans -- a provision that was still under negotiation Monday.
"High-paid Wall Street executives who created this crisis ought not get golden parachutes while middle-class families in Michigan face job losses and high gas and grocery prices," said Rep. Mike Rogers, a Brighton Republican. "Nobody came to help the domestic auto industry as they shed 350,000 jobs and as Washington, D.C., heaped $80 billion in new regulatory costs on them."
Michigan ranked fifth in the nation last month for foreclosures; its unemployment rate of 8.9% leads all other states. The auto industry shed 38,000 jobs last month, and all three Detroit automakers face some kind of cash crunch, with General Motors Corp. drawing $3.5 billion in credit Friday.
Frank said among the changes Democrats had proposed and the Bush administration agreed to were:
# Aid for people facing foreclosures whose loans are bought by the government. With mortgage loans frequently chopped up and sold among several buyers, renegotiating the terms for people who fall behind has become increasingly difficult. In addition to buying securities based on mortgages, Democrats want the Treasury to buy the loans themselves -- greatly increasing the government's ability to rework payments. Frank said such help could be in place a few weeks after the bill passes.
# An independent oversight board that would review the deals the Treasury makes. The original plan barred courts from reviewing any decision made by the Treasury.
# Allowing the government to buy stock and stock warrants in addition to bonds. Frank said this would let the government take a portion of any profits if a bank recovers thanks to government aid. The Treasury Department later indicated it had not fully agreed with the proposal.
Frank said that although the true cost of the plan is impossible to estimate, it is "not remotely going to cost anything like $700 billion," because the government would eventually sell the bonds and stock, recouping much of what it spends.
The Bush administration has not agreed to any limits on executive pay, Frank said, nor has it agreed to let judges modify mortgage loans in bankruptcy court. Frank and Sen. Christopher Dodd, D-Conn., have been the main Democratic negotiators in the proposal with Paulson.
President George W. Bush said Congress should not load the bill with extras.
"The whole world is watching to see if we can act quickly to shore up our markets and prevent damage to our capital markets, businesses, our housing sector and retirement accounts," Bush said in a statement. "Failure to act would have broad consequences far beyond Wall Street. It would threaten small-business owners and homeowners on Main Street."
Michael Barr, a professor of banking law at the University of Michigan, said having the government buy whole loans instead of just bonds and other mortgage-backed securities raised the chances that the plan would help homeowners facing foreclosure.
As for limits on executive pay, "to me it's the correct moral judgment, but it's not essential to the program."
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