By James Politi and Daniel Dombey in Washington
Published: September 23 2008 21:45 | Last updated: September 24 2008 00:36
Congressional Republicans on Tuesday voiced their strongest objections to date about the Bush administration’s $700bn financial rescue plans, dealing a blow to White House ambitions for them to be quickly approved.
As Hank Paulson, Treasury secretary, and Ben Bernanke, chairman of the Federal Reserve, predicted grim consequences if the plan were rejected, the Republicans’ Senate leadership called for new provisions on executive pay, which the administration opposes, while others cast doubt on the whole package.
Ben Bernanke and Christopher Cox of the SEC
Mitch McConnell, Senate minority leader, said. “I think the taxpayers should expect no less than strict limits on the type of executive compensation that might be possible for those involved in these partially government-controlled enterprises.”
Growing Republican doubts will make it harder for momentum to build in favour of the proposal. Harry Reid, the Democratic Senate majority leader, on Tuesday said the Republicans needed to “start producing some votes for us”. Although the Democratic leadership supports the need for a rescue package, many rank-and-file members are wary of pushing through what could be an unpopular $700bn (€480bn, £380bn) intervention in an election year.
The political unrest surrounding the bail-out plan was on display throughout Tuesday’s tense hearing before the Senate banking committee – the first since the new authorities were demanded by the administration over the weekend.
Richard Shelby, the top Republican on the Senate banking committee, warned “we could very well spend $700bn and not resolve the crisis”. He called on the US to exhaust “all reasonable alternatives” before committing itself to the plan.
Elizabeth Dole of North Carolina said: “I am very sceptical of this proposal and am extremely frustrated that we find ourselves in this position.” Jim Bunning of Kentucky added: “This massive bail-out is not the solution, it is financial socialism, it is un-American.”
Meanwhile, Democrats pressed the administration to agree that the government should automatically take stakes in the companies it acquires, as well as curbs on executives’ pay and bankruptcy reform that would allow judges to modify the terms of mortgage loans.
Chuck Schumer, the New York senator and chairman of the joint economic committee, suggested the bail-out could be smaller and its effect evaluated in January.
After the hearing Chris Dodd, the Democratic chairman of the banking committee, said the Treasury proposal was “not acceptable”. “A lot of reservations have been expressed this morning by Democrats and Republicans on this matter ... This is not going to work.”
Mr Paulson had argued during the hearing that the full amount was needed to stabilise markets and that limits on executive pay and mandatory government stakes in participating firms could undermine the plan’s effects. “The best protection for the taxpayer, and the first protection for the taxpayer, is to have this work,” he said.
The administration aims for approval of its bail-out plan this week. Yesterday, Dick Cheney, US vice-president, sought to win over the conservative Republican Study Committee after 31 of its members signed a letter last week decrying the “the increasing propensity, size and frequency of government interventions”.
A second hearing on the plan is scheduled for Wednesday