WASHINGTON — 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 administration also is seeking authority to acquire troubled non-mortgage assets, if necessary, without further congressional approval, according to a Treasury Department fact sheet. That would allow the administration to buy up bad credit card or car loan debt, should that become necessary.
The sweeping nature of the administration's request has led to conflicts with congressional negotiators, people familiar with the ongoing talks said Saturday.
The size of the proposed buyout is staggering and would likely hamper the ability of the next president to pursue new domestic programs without major tax increases.
One point of contention between Congress and the administrastion is how the purchases would be financed. Another is who would supervise the Treasury's purchase of the bad debt, according to a person familiar with the talks.
The administration's proposal assigns the responsibility to Treasury Secretary Henry Paulson and gives him authority to hire whatever people or outside firms he needs to to do the job. The Treasury Department fact sheet said Paulson intends to contract with private asset managers to execute the program, a step that would raise conflict of interest concerns given that many believe the crisis in the result of Wall Street practices.
As part of its proposal, the administration also asked Congress to raise the nation's debt ceiling from its current level of $10.6 trillion to $11.3 trillion.
Both sides said they would like a final bill ready before markets open on Monday.
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," New York Democrat Sen. Chuck Schumer, 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 about the plan. “We need to do everything possible to protect the taxpayers from the consequences of a broken Washington," Rep. John A. 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 on 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." But the administration said it would also like the authority to include non-U.S. entities, at Paulson's discretion.
The proposal anticipates the purchase of individual mortgages as well as the complicated mortgage-backed securities at the heart of the current crisis.
Under the draft, Paulson, or his successor, would be required to report to Congress after three months, and then on a semi-annual basis until the assets had all been sold or liquidated.
The draft makes no mention of how the process of buying bad assets would happen, but it is widely believed to involve what's called a reverse auction process.
In a regular auction, a seller asks a starting price and bids go upwards. In a reverse auction, however, the buyer _ in this case the government agency _ asks for a price and sellers decide whether or not they will sell at the price and could even bid the price downwards.
Congress and the Bush administration are working through the weekend to craft legislation that would be voted on next week to allow Treasury unprecedented powers to help end a financial crisis that began in August 2007 and slowly gathered speed to reach hurricane proportions this week when the entire U.S. financial system was in panic by Thursday.
Democrats vow to push for legislation that will help keep homeowners from foreclosure, and some are pushing for a second stimulus plan along with the bailout package. President Bush has urged Congress to pass clean legislation and quickly.
But lawmakers seek to score points. Sen. Bernie Sanders, an independent from Vermont, called on Saturday for a surtax on the wealthiest Americans, who presumably have benefited during Wall Street’s boom years, to help pay for the bailout.
Sanders proposed a five-year, 10 percent surtax on income over $1 million a year for couples and over $500,000 for single taxpayers. That would yield more than $300 billion in revenue to offset some of the costs.