In our ongoing effort to provide our clients and friends of the firm with updated information and insight on developments related to legislation to support the financial markets, the Foley & Lardner LLP Financial Crisis Response Team is pleased to provide the following summary of today’s events in Washington.
The negotiations over the financial markets rescue plan have been reconstituted and Members from both parties and both chambers are at work with Administration officials to reach a solid agreement that has a realistic chance of getting support. The group will likely meet through the weekend. The timing on reaching such an agreement is still unclear at this time but the possibility exists that if an agreement can be reached early in the weekend, the package could be attached to a continuing resolution bill which could be considered on Sunday. Alternatively, if a deal is reached beyond that point, Congress would have to consider the bill in mid-week.
The restart of negotiations was spurred by two developments. Earlier in the day, it was announced that two new Republican leaders were selected by their Congressional leaders to act as the main negotiators in crafting a new financial markets rescue plan. House Minority Whip Rep. Roy Blunt (R-MO) and Senate Budget Committee Ranking Member Sen. Judd Gregg (R-NH) were named to work with House Financial Services Committee Chairman Rep. Barney Frank (D-MA), Senate Banking Committee Chair Sen. Chris Dodd (D-CT), and representatives from the Administration. The talks began in the late morning at the Capitol. Prior to the meeting, Sen. Gregg met with the media and said that “it is clear that the Wall Street water flows to Main Street very quickly and this factor puts everyone at risk. We need to stay here and work until we reach a deal.” Sen. Gregg went on to say that there was not a deal yesterday but the bipartisan and bicameral talks have “made significant progress” and noted that about 60% of the work done yesterday is agreeable, but there is still more work left to be done. He concluded that “our goal must be to craft a plan that helps settle the markets to help both Wall Street and Main Street.”
These two members are viewed as good selections for reaching an agreement. Rep. Blunt, while he is very conservative, is the second ranking House Republican and is able to aggressively advocate for aspects of the Republican Study Committee’s plan. Sen. Gregg is a critic of using taxpayer money as envisioned in the original plan and has earned a great deal of trust among his Senate colleagues in working to prevent a giveaway of money while working to give reassurance to the financial and credit markets. As the Ranking Republican on the Senate Budget Committee, he is viewed as a fiscal hawk.
Earlier in the day, House Minority Leader Rep. John Boehner (R-OH) wrote to House Speaker Nancy Pelosi (D-CA) to stress his and the House Republicans’ desire for “needed improvements” to the Paulson plan. In his letter, Rep. Boehner wrote that the so-called agreement of September 25 was not one that had the support of House Republicans who would be critical to passage in that chamber. He also outlined the House Republican Conference’s (HRC) alternative proposal which would craft a system to charge insurance premiums on mortgage backed securities (MBS) and use that along with private money gained through removing regulatory and tax barriers to fund the program. However, recent news reports indicate that House Republican leaders seem to be backing away from the insurance provision.
Rep. Boehner also noted in his letter that the HRC plan would:
- Require participating firms to disclose to the Treasury Department the value of their mortgage assets on their books, the value of any private bids within the last year for such assets, and their last audit report;
- Mandate that Government Sponsored Entities no longer securitize any unsound mortgages to limit federal exposure for high risk loans;
- Call on the Securities Exchange Commission (SEC) to audit reports of failed companies to ensure that the financial standing of these troubled companies was accurately portrayed;
- Ensure that Wall Street executives do not benefit from taxpayer funding;
- Call on the SEC to review the performance of the credit rating agencies and their ability to accurately reflect the risks of these failed investment securities and;
- Recommend that Congress create a blue ribbon panel with representatives of Treasury, SEC, and the Federal Reserve Board to make recommendations to Congress for reforms of the financial sector by January 1, 2009.
Boehner concluded the letter writing that “I ask you and your Democratic colleagues to give the House Republican working group’s proposals serious consideration as this process moves forward. If such consideration is not given, a large majority of Republicans cannot – and will not – support Sec. Paulson’s plan.” Rep. Blunt will be pushing this proposal in the negotiations.