Days after Treasury Secretary Hank Paulson rolled out a huge financial market bailout proposal to positive reviews, the battle lines across the political landscape have shifted. The prevailing sense, among tuned in observers, is that Paulson and the White House are now face a steep climb in Congress.
On Monday, several high ranking Democrats stepped up their opposition to Paulson's plan, which called for spending at least $700 billion over a period of time, with scant additional oversight added to the financial markets or, for that matter, to Paulson's actions themselves.
Barney Frank, the chair of the House Financial Services Committee, was one of the first out of the gates, telling ABC's Good Morning America: "I trust Hank Paulson. But I don't trust anybody to have the amount of power he asked for in the bill he sent us." Chris Dodd, chairman of the Senate Banking Committee, followed suit: this bill, he warned, will "turn $700 billion over virtually to one individual."
And while the rest of the caucus was initially vague about where it stood, their positions have became more sharply defined. A counter proposal was released through Dodd's office, calling for government intervention in the market, and adding elements that the Bush team initially resisted: limiting corporate compensation, assisting homeowners, inserting measures to prevent foreclosures, and demanding additional oversight of Treasury's actions. It is a pill Paulson may have to swallow.
"I think the White House and the Treasury are in a position where they have to take what Congress offers them. I don't see how they have any bargaining power," said James Galbraith, a professor of economics at the University of Texas. "If Congress crafts a bill that serves and protects the public interest while providing some measures that protect the financial market, the White House will have to take it."
One of the sticking points that could impede a possible resolution between the Dodd and Paulson plans, those familiar with the proceedings say, is the issue of executive compensation. This past weekend, word circulatied that Wall Street executives may not play ball (refusing, gently, to help unload the bad investments versus the somewhat promising ones) if Congress tried to cap the funds they earn. In essence, they would rather take their chances with failures and buyouts. And on Monday, President Bush put a voice to this position, declaring in a statement:
"We certainly understand and are sympathetic to the sentiment regarding the pay of CEOs and senior management of these firms, but we have to focus on the problem, and the problem is that we need these firms to participate in the program and sell us this debt. Having punitive measures would provide a disincentive for firms to participate, and that would make the program much less likely to succeed."
Democratic officials, in public, have said caps on executive compensation are a prerequisite to any arrangement. "Something on executive compensation should indeed be part of the package," said Sen. Chuck Schumer on MSNBC. "It is wrong to have executives who create all kinds of problems... then walk away with golden parachutes."
In private, the issue is more complicated.
"Obviously from the congressional point of view this is an important question," said Galbraith. "It is obvious that the Congress has to get something on compensation or they will be under severe attack. The risk is that they will help out an institution and then the top management will take a golden parachute and leave. On the other hand, it is tough to legislate. These are rich people. They don't need their jobs. If they choose to stay home and golf - and we might be better off if they do that - their companies could very well collapse."
The White House appears to have a weak hand on several other contentious fronts. A virtual consensus has emerged (save in the Bush administration) that an oversight board is needed to determine how the $700 billion is spent. And Congress will almost certainly mandate Treasury to issue reports on its actions more often than Paulson's proposal of twice a year.
John McCain's skeptical proclamations on the plan ensure that a good portion of the Republican Party, driven as much by politics as ideology, is willing to buck the president. Even Sen. Jim DeMint, no centrist flower, has come out in opposition to Paulson's proposal.
"We can't have taxpayers," said McCain in a town hall meeting in Pennsylvania, "footing the bill for bloated golden parachutes like we see in the Lehman Brothers bankruptcy, with the top executives asking for 2 ½ billion dollars in bonuses after they ran the company into the ground."
Moreover, the timing of the crisis has removed, in some respects, an incentive for quick action, providing legislators the window to do what they do best: debate and add wrinkles.
"I think, if the events of Thursday had happened last Monday and they didn't have a weekend to intervene they might have something done by Friday," said Steve Hayward of the conservative American Enterprise Institute. "Instead we had a weekend to think about it, to have people calm down."
Perhaps most importantly, Democrats are being aided by the deep distrust that voters feel toward this administration. There is simply very little incentive to play by Bush's rules.
"The Treasury is not in a take-it-or-leave-it position with Congress," said Robert Shapiro, president of Sonecon and the undersecretary of commerce during the Clinton White House. "The Treasury and Fed's mismanagement over the last two years helped bring up this brink, and they and a president with 30 percent approval are not in a position to dictate terms."
Because of this, observers and aides on the Hill predict that the final bailout is likely to be much closer to what Dodd has proposed then what Paulson initially offered. Though, to be sure, Republicans and Democrats will have to hash out many disagreements that deal with wide-ranging changes to banking industry oversight. And while many GOP officials will likely bemoan the final product, they lack the numbers or political unity to form an effective opposition. McCain, too, seems likely to jump on board, though with reservations about certain points. As will, observers say, Barack Obama. Neither wants to be seen as opposing the financial package being billed as the savior of the economy.
"My sense is," said James Kvaal, a domestic policy adviser for the liberal Center for American Progress, "that no one is going to want to stand in front of this train and risk being blamed for a financial collapse."