WASHINGTON (AP) _ Treasury Secretary Henry Paulson said Sunday that U.S. credit markets remain frozen and Congress must move quickly to pass a $700 billion bailout package for financial firms. But key Democrats said the legislation needs changes to provide better protections for taxpayers and homeowners in danger of losing their homes.
"The credit markets are still very fragile right now and frozen," Paulson said in an interview on NBC television's Meet the Press. "We need to deal with this and deal with it quickly."
Paulson made the rounds of the television talk shows to stress the need for speed in getting the bailout package approved. The administration spent the weekend negotiating the details of the proposal with members of Congress with the expectation that it can be passed in the next week.
Paulson said that "it pains me tremendously to have the American taxpayer put in this position but it is better than the alternative."
Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee, said that what Congress was being asked to approve was the "mother of all bailouts."
Shelby estimated it would end up costing more like $1 trillion rather than $700 billion when the costs of the government taking over mortgage giants Fannie Mae and Freddie Mac and insurance giant American International Group Inc. were added.
Democrats said they understood the need for urgency but insisted that the measure needed to provide help for homeowners threatened with losing their homes, perhaps by changes in bankruptcy laws to allow for mortgages to be modified, and by capping pay and benefit packages for executives at the huge Wall Street firms that will be selling their bad debt to the government.
"I don't want the American taxpayer to get this bad debt and then the guy (whose company once held the bad loans) gets millions of dollars on his way out the door," said House Financial Services Chairman Barney Frank, a Massachusetts Democrat.
Paulson and President George W. Bush have argued that the alternative would be credit markets that remain frozen, meaning that businesses will fail because they cannot get the loans they need to operate and the economy will grind to a halt because consumers, who account for two-thirds of economic activity, won't be able to get the credit they need to keep spending.
On Saturday, Bush said the White House is ready to work with Congress to quickly enact legislation to allow the government to purchase hundreds of billions of dollars worth of bad debt linked to the collapse of the housing market.
The administration proposal would be the biggest government intervention since the Great Depression of the 1930s. It would dole out huge sums of money to financial firms to purchase their holdings of bad mortgage-backed securities so that these firms can resume normal lending operations. The bad mortgage debt has been at the heart of the current credit crisis which hit more than a year ago but erupted with special ferocity in the past two weeks forcing extraordinary government actions.
Two weeks ago, the government seized control of the nation's two largest mortgage companies, Fannie Mae and Freddie Mac, and then last week, it took control of the country's largest insurance company, American International Group Inc.
The measure that the administration sent up to Congress on Saturday is a mere three pages in length. While Paulson emphasized the need for speed, Democrats said Sunday that they could do it quickly while also adding necessary protections for taxpayers and help for people facing the threat of mortgage foreclosures.
Senate Banking Committee Chairman Christopher Dodd of Connecticut appearing on ABC television's "This Week" said if all of this help was being directed to Wall Street there was also a need to provide help for people on Main Street.
But Paulson, also appearing on ABC, said, "We need this to be clean and to be quick."
Paulson resisted suggestions being made by Democrats that the program be changed to include further relief for homeowners facing mortgage foreclosures and to include an additional $50 billion stimulus effort. Some Democrats have also suggested capping compensation of executives at firms who get the bailout help.
Paulson said he was concerned that debate over adding all of those proposals would slow the economy down, delaying the rescue effort that is so urgently needed to get financial markets moving again.
"The biggest help we can give the American people right now is to stabilize the financial system," Paulson said.
Sen. Charles Schumer, a New York Democrat, said that he believed there would be changes to Paulson's plan and that agreement could still be reached quickly.
Schumer said that he was pushing to get a provision where the government would receive stock warrants in return for the bailout relief and for creation of a government oversight board to supervise the huge operation, which under Paulson's plan would be run out of the Treasury Department. He said Paulson seemed receptive to changes when he had discussed his ideas with him.
"I have told him ... we need changes related to housing, we need to put the taxpayer first ahead of bondholders, shareholders," Schumer said on "Fox News Sunday."
However, Republican lawmakers said that the Democratic efforts risk slowing down a measure that was urgently needed.
"This would be the most serious financial crisis that the world has ever dealt with. It is not a time to be playing games," said House Republican Leader John Boehner.
Paulson said in the interviews that he had been talking to other governments about the need for them to offer similar relief because the current financial crisis is global.
He said that the outdated U.S. regulatory system for financial markets must be overhauled but the first job is to get the most sweeping rescue package since the Great Depression passed by Congress in coming days.
The proposal would raise the statutory limit on the national debt from $10.6 trillion to $11.3 trillion to make room for the massive rescue.