Members of Congress pressed Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke to explain why lawmakers should move quickly--as early as Friday, September 26--to pass legislation that would approve a $700 billion financial rescue plan.
During testimony before the Senate Committee on Banking, Housing, and Urban Affairs September 23, chaired by Sen. Christopher Dodd (D-Connecticut), Paulson urged lawmakers to pass legislation enacting his Troubled Asset Relief Program (TARP), which would give Treasury $700 billion to buy up and hopefully resell the nation's troubled mortgages through what Bernanke called "reverse auctions." Bernanke stressed that Congress must act soon to pass the bill as the current reality is that the markets--because of the housing crisis--"are not supporting the economy...and credit is not going to be available."
Members of the committee said the hearing was probably the most important one they'd ever conducted, and voiced their skepticism about jumping the gun to approve a plan that was lacking in details. As Dodd noted in his opening remarks: Treasury's proposal "is stunning and unprecedented in its scope and lack of detail."
Paulson, too expressed his exasperation at the current economic crisis, but said, however, that because the mortgage crisis involves such complex securities, it's hard to discern how the reverse auctions will work--which is why the plan is slight on details. Indeed, he said, Treasury will have to hire a team of asset managers to help conduct and structure such auctions, and pretty much figure strategies out. Paulson said he asked Congress to give Treasury "broad authority" to deal with the situation because "we're dealing with complex securities and many different securities" and "we're going to have to use different approaches and different market based techniques."
Dodd said any plan must assure American taxpayers that their "hard-earned money is being used correctly and responsibly"; that proper oversight is put in place so that the "executors of this plan are accountable and their actions transparent"; and that it must address "the root cause of this crisis by putting an end to the rising number of foreclosures sweeping across the nation."
SEC Chairman Christopher Cox, who also testified with Paulson and Bernanke, said the current market turmoil has it "roots in the subprime mortgage crisis," and warned Congress that the unregulated credit default swaps market needed immediate attention. He said a "regulatory hole" existed in regulating the $58 trillion credit default swaps market. Cox said the SEC's enforcement division is not only investigating illegal activities in the subprime area but also taken up investigations of credit default swaps.
A day before the hearings, Cox told seniors during the SEC's third Senior Summit that despite the market turmoil, the SEC's summit "reminds us who we're fighting for and why our work is so important." For seniors, he said, "looking past the current market turmoil to the long run isn't an option" because they need access to their investments now. "That's why the SEC is working so hard to make sure that seniors' retirement savings are protected."