Democrats battle bailout fatigue
Lawmakers agree that big financial institutions are in trouble. But they want more help for their constituents.
But the rank-and-file Democrats, including some committee chairs, are losing patience with big bailouts that have yet to ease the economic woes of their constituents.
“People are enormously harmed and they don’t know how they or events around them will improve,” says Rep. Jane Harman (D) of California, describing a recent event with families facing foreclosure in Compton, Calif.
“I think the way to sell any more bailout packages here is to start with individual people like them and explain why these programs will reach them,” she added, after a meeting with Treasury Secretary Timothy Geithner and House Democrats on Monday night.
“The 30,000 foot view is not really helpful. It’s the three-foot view that needs to be focused on,” she added.
Most Americans are convinced that big banks have already taken more than their share of federal bailouts. A Newsweek poll last week found that 62 percent of Americans think the federal government has spent too much so far helping troubled large banks and other financial institutions, and an earlier USA Today/Gallup Poll had 59 percent opposed to “giving aid to US banks and financial companies in danger of failing.”
But Democratic leaders say that the Obama administration will likely need to come back to the Congress for more bailout money – as soon as there’s evidence that the votes are there to support it.
For now, there is not enough political support in Congress to pass new legislation, should it be required, says Rep. Barney Frank (D) of Massachusetts, who chairs the House Financial Services Committee.
“I don’t want the right kind of remedies constrained by the political fear,” he said at a briefing on the panel’s agenda last Thursday. “It may be the case where, if you don’t put enough into it at the beginning, in terms, for instance, of the toxic assets, you wind up costing more, he added.
In a bid to rebuild support for more help for US credit markets, the Financial Services panel is reviving a reform agenda aimed to show how government intervention is also helping consumers.
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.
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.
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.”