The Bush administration on Saturday asked Congress for $700 billion in taxpayer money to get bad mortgage assets off the books of troubled financial institutions in a bid to end the U.S. economy's most serious financial crisis since the Great Depression, according to a draft of proposed legislation circulating in the capital.
The proposal was surprisingly simple: Less than three pages, it would raise the national debt ceiling from $10.6 trillion to $11.3 trillion. And it would place no restrictions on the administration other than requiring semiannual reports to Congress, allowing the Treasury to buy and resell mortgage debt as it sees fit.
The staggering amount would likely hamper the ability of the next president to pursue new domestic programs without major tax increases.
Members of Congress and administration officials were locked in negotiations over the proposed legislation, with both sides saying they would like a final bill ready before markets open Monday.
A person familiar with the talks said there had been major disagreements over who would pay for the expected cost and how.
Congressional negotiators also want the bill to spell out more clearly who would supervise the Treasury's purchase of the bad debts; the administration's proposal simply assigns the responsibility to Treasury Secretary Henry Paulson and gives him authority to hire whatever people or outside firms he needs to do the job.
In public statements, some Democrats were critical that the proposal didn't include relief for average mortgage holders.
“This is a good foundation of a plan that can stabilize markets quickly,” Sen. Charles Schumer, D-N.Y., chairman of Congress' Joint Economic Committee, said in a statement. “But it includes no visible protection for taxpayers or homeowners. We look forward to talking to Treasury to see what, if anything, they have in mind in these two areas.” The top Republican in the House also voiced reservations.
“We need to do everything possible to protect the taxpayers from the consequences of a broken Washington,” Rep. John Boehner of Ohio said in a statement.
But he also warned against efforts to load up the legislation with additional provisions that would require debate. “Efforts to exploit this crisis for political leverage or partisan quid pro quo will only delay the economic stability that families, seniors, and small businesses deserve,” he said.
Paulson announced the plan to buy up bad mortgages Friday but provided no details on how the administration intended to make that happen.
The proposal circulated Saturday added some detail, but still left unclear precisely how the government intended to take control of the bad loans or where the money would come from to pay for them.
Most precise was the expected cost – $700 billion. But the remainder of the program would be left to Paulson to design, the proposed legislation said.
Under the proposed law, the Treasury Department would be authorized to purchase “mortgage-related assets from any financial institution having its headquarters in the United States.”
That provision would seem to anticipate the possible purchase of individual mortgages as well as the complicated mortgage-backed securities at the heart of the current crisis.
It also would exclude foreign-based banks and hedge funds from taking part in the program, though U.S.-based hedge funds, which invest on behalf of the ultra wealthy, would be able to participate.
Under the draft, Paulson, or his successor, would be required to report to Congress after three months, and then on a semiannual basis until the assets had all been sold or liquidated.
The New York Times contributed.