Democrats battle bailout fatigue

Lawmakers agree that big financial institutions are in trouble. But they want more help for their constituents.

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This includes moving on a tougher version of legislation to curb irresponsible subprime lending, as well as new legislation to curb credit card abuse, especially targeting soaring fees for overdrafts.

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But one of the most toxic issues for politicians is public anger over the treatment of titans of finance seen as the cause of the problem.

On March 20, the Financial Services panel is calling a hearing including the US Attorney General, federal and state regulators, and state attorneys general to ask: “What are your plans to prosecute those people whose irresponsible and, in some cases, criminal actions helped bring about this crisis?”

The panel also wants answers on plans to recover funds from “people who caused this loss of taxpayer dollars and investor dollars” and “restrictions on their ability to go forward”.

Federal Reserve chairman Ben Bernanke on Tuesday reaffirmed the need for governments around the world to take “forceful and, when appropriate, coordinated actions to restore financial market functioning and the flow of credit.”

But he added that government rescues are costly to taxpayers and “in the present crisis, the too-big-to-fail issue has emerged as an enormous problem.”

Increasingly, lawmakers on both sides of the aisle are expressing doubts that further big-bank bailouts will solve the nation’s credit freeze.

On Monday, House Agriculture Committee chairman Collin Peterson (D) of Minnesota told the National Farmers Union Convention that he expected the banks will ask for $1 trillion to $2 trillion more in aid. In exchange, he said that the Obama administration should require a breakup of the big banks.

“I’ve got bailout fatigue,” says Sen. Ben Nelson (D) of Nebraska, who is often a key swing vote in the Senate.

Senator Nelson and other skeptics of new bailouts are beginning to doubt a key assumption of the financial strategy of both the Bush and Obama administrations: that some banks are too big to fail.

“I have to be convinced that there’s more than just a chance that [further bailouts] can be helpful,” Nelson says.

Facing near uniform opposition from Republicans, such doubts among Democratic centrists could scuttle future administration requests for further bank bailouts.

“If you don’t have a working banking system, you don’t come out of this thing, so we have to do it,” says Sen. John Rockefeller (D) of West Virginia, who chairs the Senate Commerce Committee. “Will it be popular? No.”