Posted on Sun, Mar. 22, 2009
last updated: March 15, 2013 11:58:40 AM
WASHINGTON — Forget about any more bailouts anytime soon.
Any Obama administration bid to seek more taxpayer money for failing banks will face stiff resistance in Congress, where Treasury Department credibility is ebbing fast and lawmakers are bowing before a constituent revolt.
Treasury Secretary Timothy Geithner is expected to roll out the details of his next financial rescue plan this week. But the administration faces resistance on several fronts: Its credibility has been badly damaged, with Geithner under withering scrutiny in Congress even as lawmakers' constituents are boiling mad and Republicans are increasingly united in opposing more bailouts.
News that executives at American International Group got $165 million in bonuses after taxpayers bailed AIG out to the tune of $170 billion triggered a political firestorm last week that's likely to burn for some time. It crystallized public revulsion at bailing out big banks.
"AIG has become the straw that broke the camel's back. It pushed people off the edge," said Sen. Mary Landrieu, D-La.
"Blanket bailouts have been taken off the table," added Sen. Ben Nelson, D-Neb.
Obama's fiscal 2010 budget outline listed another $250 billion as a "contingent reserve for further efforts to stabilize the financial system," and his aides said that amount could be leveraged to spend as much as $750 billion more buying bad assets from imperiled banks. Congress expects to vote on that budget blueprint next week.
Sen. Christopher Dodd, D-Conn., is a daily reminder of the bailout credibility problem. As the Senate Banking Committee chairman, and a 28-year Senate veteran, colleagues have long looked to him for guidance on complex financial issues.
Now, though, he's become a convenient target for bailout critics.
Here's why: First he said last week that he wasn't involved in a last-minute change to last month's economic stimulus bill that allowed AIG to pay the bonuses. The next day, Dodd reversed himself. He said his comments had been misinterpreted, that he'd "agreed reluctantly" to include the language permitting the bonuses, but "did so at the request of administration officials."
Republicans pounced and Democrats winced. Geithner confirmed on CNN that Treasury had asked Dodd to insert the language, but denied that he'd done it himself, placing responsibility on some unidentified Treasury staffer. That didn't help his credibility.
Many Democrats already had reservations about Geithner because of his lapses in paying income taxes; the latest news intensified their skepticism.
"This matter has been misjudged by the administration," said Landrieu, a moderate Democrat who's one of a handful of swing votes in the Senate.
Sen. Ron Wyden, D-Ore., emphatically agreed. He and Sen. Olympia Snowe, R-Maine, had won overwhelming Senate approval of a plan to sharply restrict and tax big bonuses at firms receiving government bailout money, only to see their provision dropped during last-minute negotiations with the House of Representatives. A miffed Wyden said "the Obama economic team" engineered the elimination of his terms. He said he wasn't sure if Geithner himself was behind it; still, suspicions focus most on him.
Helping to stoke the surliness on Capitol Hill are the lawmakers' constituents, who've never embraced bailouts since they started last year, as polls have made emphatically clear.
Each day seems to bring a new reason for voter outrage. On Thursday, for example, a House Ways and Means subcommittee reported that 13 of the top 23 bailout recipients owed more than $220 million in unpaid taxes.
"This certainly has a chilling effect. People are just outraged," said Rep. Dina Titus, D-Nev. She's a freshman who must stay very attuned to her constituents to hold onto her seat: She won last year with only 48 percent of the vote.
The AIG bonus mess is both a lawmaker's dream and nightmare. It's a dream because people understand the issue, so members of Congress can use it to show that they're in tune with their constituents' struggles. Hence the speed with which the House voted Thursday to tax back 90 percent of the bonuses.
Listen to Sen. Carl Levin, D-Mich. He noted that autoworkers recently "agreed to significant reductions in their pay and benefits. They are doing what they can to help their companies survive and help get our nation out of this economic ditch. . . . Contrast those auto workers with AIG executives."
There's a political dark side, however: Lawmakers also are open to charges that they should've known what they were doing in passing the stimulus bill with language permitting the AIG bonuses.
"It sounds to me like these guys were trying to cover their tracks," said Sen. Jon Kyl of Arizona, the assistant Republican Senate leader, referring to efforts to tax back the bonus money.
The biggest nightmare for lawmakers will come if they're asked for more bailout funds by a president who insists that they're critical to rescuing the economy.
"We're not out of the woods with these financial institutions," noted Sen. Bob Corker, R-Tenn., a Banking Committee member.
Nelson said that any new proposals almost certainly will have to be targeted and include specific conditions. Sen. John Ensign of Nevada, the Senate Republican Policy Committee chairman, said that any new plan would be considered only after "we get to the bottom of this to make sure it doesn't happen again."
Rep. Barney Frank, D-Mass., the House Financial Services Committee chairman, said the furor could cool if Congress begins tackling financial industry regulatory measures.
"If you show people you're going to do a more balanced set of things, that there's a conscious strategy to make the entire system better, you may be able to get more done," he said.
Frank and Geithner last week discussed potential changes, and Geithner and Federal Reserve Chairman Ben Bernanke are to testify before Frank's committee on Tuesday.
Their appearance could be the start of a long, hard slog. Getting the $700 billion bank bailout money approved last fall "was like pulling teeth," said Sen. Richard Durbin of Illinois, the Senate assistant majority leader.
So would the next time seem like a root canal?
"I think it would," he said.
(Steve Thomma contributed to this article.)
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