Congress: second thoughts on that financial bailout

Bailout mania! Catch the feeling!

Or, maybe not. Whoa – $700 billion, you say? Maybe even 1 trillion? That’s a heap o' taxpayer cash, Mr. Paulson. We could build a bridge to every nowhere in America for that.

Washington has had two work days now to absorb the details of the Bush administration’s proposed financial rescue package, and the city’s mood is swinging back and forth like a pendulum. Or a teenager before the prom.

Shock and awe at the problem, and a sort of gratitude that somebody was doing something about stuff few people on Capitol Hill understood, has been replaced by cold sweat about the cost. Plus a worry about how much power, exactly, lawmakers might be handing over to an unelected Treasury-based bureaucracy.

The bottom line: That bailout bill may not get whooped through Congress in a few days, after all.

It’s not just Democrats who are voicing opposition. It was Rep. Jeb Hensarling (R) of Texas, leader of the conservative Republican Study Committee, who criticized what he called the “bailout mania” sweeping Washington.

And here’s Richard Shelby, top-ranking Republican on the Senate Banking Committee: The Bush plan is “neither workable nor comprehensive, despite its enormous price tag.”

Meanwhile, liberal Democrats have two main talking points: 1. These are the same people who brought us Iraq. 2. Henry Paulson seems like a nice man, but didn’t he used to work on Wall Street?

There is one point that already seems to draw a bipartisan consensus, and that is that those Wall Street executives – the ones with bonuses the size of subcommittee appropriations, who get driven in Ferraris by supermodel chauffeurs to their loft apartments in the Hamptons – have to pay. In some painful manner.

Both House and Senate are working on provisions to prevent payment of bonuses to executives who took “excessive” risk. Wall Street titans who are counting on floating down to earth via their golden parachutes (big severance packages) also might want to plan another way to earth, just in case Congress limits those, too.

Think tank position papers are a good way to see which way the partisan winds are blowing. The liberal Center for Economic and Policy Research in a piece titled “Progressive Conditions for a Bailout” says “There should be serious efforts to severely restrict executive compensation at any companies that directly benefit from the bailout."??

CERP also pumps for a new financial-transaction tax and strict limits on leverage for all financial institutions. You can read the full text of their proposals here.

The conservative Heritage Foundation agrees that Wall Street severance packages should be at risk. The new bailout institution “should be allowed to refer cases to the Justice Department for civil suits to recover bonuses or termination compensation” for overpaid execs, says its bailout analysis.

The government should not just be a passive holder of damaged assets, says Heritage. Instead, it should be allowed to restructure them or take any other action to protect taxpayers’ interest.

But Heritage takes issue with the idea – currently bubbling up in Congress – for the government to get equity in companies themselves in return for help.

“Bureaucrats should not have a say in the management of any firm,” says Heritage. You can read their proposals here.

Hearings on the bailout this week in Congress should provide a good idea of how strong any opposition to the bailout is and what changes House and Senate leaders will try to make.

Will the markets read delay as a negative and tank further? That might put further pressure on Congress to drop objections and move faster. We’ll see in the next few days.