California lawmakers skeptical of historic financial bailout

WASHINGTON — On the right there is Republican Rep. John Doolittle, who says the federal government cannot afford to be "the automatic savior" for every U.S. company facing financial peril.

On the left there is Democratic Sen. Barbara Boxer, who says that a federal bailout of the nation's financial industry cannot be used to pay "outlandish multimillion-dollar benefits to the same executives who ran their companies into the ground."

While the Bush administration is pushing for quick approval of a historic $700 billion bailout to calm Wall Street, skeptical Republicans and Democrats from California are pushing back, saying Congress must take its time in scrutinizing such a mammoth proposal.

"This is a very difficult situation," said Democratic Sen. Dianne Feinstein. "So there's a need for prompt action. But it should be prudent action."

For many, topping the California wish list is a plan to cap the salaries of corporate executives whose companies would benefit from the bailout.

"No financial institution that gets federal relief should pay its CEO more than $2 million annually," said Democratic Rep. Henry Waxman of Los Angeles, chairman of the House Committee on Oversight and Government Reform.

But that's easier said than done, said Republican Rep. Dan Lungren. He questioned whether Congress even has the legal authority to override private contracts that have set the level of pay for executives, saying it would be akin to trying to make something illegal after it's already happened.

Lungren, of Gold River, said administration officials have convinced him that something must be done. But he added: "It bothers me very much — the idea that somehow we're capitalists when you're making money and we're socialists when we have losses."

Bush administration officials have resisted efforts to link the pay issue to their proposed legislation. With few strings attached, it would allow the federal government to buy bad loans from flailing companies that have been hit hard by the nation's mortgage crisis.

Appearing before the Senate Banking Committee on Tuesday, Treasury Secretary Henry Paulson urged Congress to move quickly and "avoid slowing it down with other provisions that are unrelated or don't have broad support."

But so far, Democrats are holding firm in their demands, and many Republicans are urging a more methodical approach, as well.

"This is a financially challenging time for America," said Republican Rep. Kevin McCarthy of Bakersfield. "It's not a time for Washington politics ... but instead a time for leadership to protect America's working families and their hard-earned retirement and college savings."

Democratic House Speaker Nancy Pelosi of San Francisco said the financial crisis "is clear recognition that the party is over for the Bush administration's anything-goes, failed economic policies that have damaged our economy." She said Congress will pass a bill "in a bipartisan manner that will protect the taxpayers' interests," but that the legislation must rein in executive pay, include independent oversight and offer protections for homeowners facing foreclosure.

"We will not simply hand over a $700 billion blank check to Wall Street and hope for a better outcome," Pelosi said.

Under a competing proposal offered by Democratic Sen. Christopher Dodd of Connecticut, the chairman of the Senate Banking Committee, Paulson would be required to have "executive compensation standards" for companies that sell assets to the federal government. Dodd's bill would require those standards to include limits on incentives and incentive packages for executives, but it is broadly written and does not set a specific limit.

Feinstein called Paulson's plan "a nonstarter" because it would give him too much authority.

"To ask Congress to pass a $700 billion bill, and hand this to one person with no oversight, I think is not at all prudent," she said. "The Congress should not do that." She said Dodd's bill "is much better" because it would create an oversight body, mandate regular reports to Congress and limit executive salaries.

Similarly, Boxer said Dodd's plan is "moving us in the right direction," but she said that any aid package should include an extension of unemployment benefits, more money for home heating, and more spending on infrastructure projects as a way to create jobs. She said Congress must "move swiftly, but we must also move smartly," and she said that means insisting on better oversight of Wall Street to not repeat past mistakes.

"We must get to the root of the housing crisis and work to keep people in their homes through refinancing," she said. "If we don't, housing prices will continue to freefall and we will still be in a mess. In California, we have more foreclosures than any other state -- in August, more than 101,000 Californians received foreclosure notices and more than 33,000 lost their homes."

As part of any deal, Waxman said, Congress should demand more financial information from the struggling companies.

"We should not give bailouts to firms that continue to conceal their balance sheets from investors and the government," he said. "I support intervention to protect the functioning of our capital markets, but we need to consider alternatives to the president's plan."

Democratic Rep. Lois Capps of Santa Barbara called it "a crisis of massive proportions" and said she questioned the growing size of the proposed bailout. She said Congress must make sure that executives do not walk away with "golden parachutes" and that a bailout must include help for people who have been hurt by bad mortgages.

"I am extremely concerned about this historic intervention into financial markets, but I am worried that the costs of doing nothing would be even higher," Capps said.

As negotiations continue, the Bush administration is facing some of its strongest opposition from Republicans.

Doolittle, of Roseville, joined 30 other House Republicans who sent a letter to Paulson and Federal Reserve Chairman Ben Bernanke, asking them to stop using federal funds to save private firms.

While "no one wants to be the ones who says no to a fiscal rescue," they wrote, bailouts that delay short-term financial pain can ultimately cause much more damage to the economy in the long run.