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Dodd: Paulson Admits Erring On Bailout Plan

After meeting in his office for an hour with Treasury Secretary Hank Paulson today, Sen. Christopher Dodd (D-Conn.) said Paulson admitted that his initial rescue/bailout proposal sent to Capitol Hill four weeks ago was flawed.

Paulson's first plan sought only the power to purchase illiquid mortgage-based securities, not to make direct investments in troubled banks.

Paulson was happy that lawmakers forced the Bush administration to accept a host of other options beyond the securities purchases, including the direct investment into banks announced today, Dodd said.

"Thank God," Paulson told Dodd, according to the senator's account.

"Had we been left with that [first Paulson proposal], we would be back here, I suspect, in special session seeking additional authority," said Dodd, chairman of the Banking committee.

"I think this is the right move in the right direction, and I applaud the secretary of the Treasury for taking this step," he added.

Since passage of the $700 billion rescue/bailout package, Dodd said many experts have suggested to him that a direct investment model would have better results, possibly producing $20 for every $1 of federal money put into the banks.

Dodd said Paulson indicated that the auctioning off of those mortgage-backed securities has become a secondary part of the bailout plan, less than two weeks after a hostile debate on Capitol Hill about the auction process and a fervent pitch by Paulson for that progam.

"Clearly it seems now you're going to have a lot more direct investment and less auction," Dodd said.

-- Paul Kane

By Frank Ahrens  |  October 14, 2008; 5:00 PM ET
Categories:  The Ticker  
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