Congress Questions the Bazooka

Some feisty questioning from Sen. Chuck Schumer (D-N.Y.) directed at Treasury Secretary Hank Paulson over the $700 billion sum Paulson is asking Congress for, as the Senate Banking committee hearing wears on.

Schumer's question, in essence: Could you live with less? Could we give you, say, $150 billion now and come back in January and see how you did with what we gave you? It would help the American taxpayer feel a little less bad about this whole deal.

Paulson: "That would be a grave mistake."

Schumer: Why?

Paulson: "It's about market confidence and having the tools to do the job."

Schumer: "The confidence will be determined by how well it works initially, not by how much money you have in your pocket next to your bazooka."*

*Again, this is a reference to Paulson's comment from earlier in the year in which he compared Treasury's bailout firepower to "having a bazooka in your pocket." The bazooka, and Paulson's pocket, has popped up a number of times during this hearing.

At base, though, this is an important issue of perception. Schumer probably thinks the bailout plan will be easier to sell to his constituents by telling them: I'm not going to give Treasury all the money it is asking for. I'm going to give them some of it and see how well they do with it.

Paulson is arguing that the markets will rise and fall as much on confidence as anything else, and fears that if the markets think the government doesn't have enough money on hand to buy all the distressed assets, the crisis will grow worse.

-- Frank Ahrens

September 23, 2008; 12:33 PM ET  | Category:  business
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Comments

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I'm a liberal Democrat, who is pro-social services and wise gov't spending. But in this case, I'm a free-marketer. I don't want the government to be in the business of buying distressed assets. The economy has to re-invent itself on firmer footing. The $700 billion bailout will only keep this house built on sand upright standing temporarily. Let it fall down, and let's build on firmer ground.
PS, what exactly does Paulson think will happen worse case scenario if we don't do this bailout?

Posted by: Thinking in Philly | September 23, 2008 12:46 PM

We don't need bazookas, we need officials who would have prevented this from happening.

You failed to do your job Paulson. Quit early and let the next Administration take over.

Posted by: Bazooka Baloney | September 23, 2008 12:50 PM

Way to go Schumer, lets bankrupt another company you idiot liberal

Posted by: steve | September 23, 2008 1:00 PM

Is that a bazooka in your pocket, or are you just happy to make an obvious joke?

Posted by: Shecky Greene | September 23, 2008 1:02 PM

By your reckoning Richard Shelby switched parties Dem-Rep sometime today between 10 am and 12 noon. Actually, that particular slither was accomplished back in '94. Gotta keep up, Frank.

Posted by: kguy1 | September 23, 2008 1:04 PM

To all potential home buyers:

Hold off buying for at least 1 more year.

Prices will be dropping significantly.

Posted by: Michael | September 23, 2008 1:04 PM

My other question involves basic math. The bailout package is proposed to be $700 Billion. The number of possible bad home mortgages out there (possible since no one .. not even the investment firms .. appear to really know .. apparently everyone forgot how to do accounting) is somewhere around 1.5 million loans (or roughly 2-3% of total US mortgages). Well, if I take 700,000,000,000 and divide that by 1,500,000 I get $466,667. Now I don't know about you .. but even though housing prices have gone up I don't believe the average home costs $466,667 in the US .. and that is assuming the thing no longer has ANY value which is also not true. Down maybe 15%-(generously)30% but not 100% loss. So, what loans (or stories) are the Fed and American people buying? And W suggested the $700 Billion bailout first .. so what was his plan for this money?

Posted by: Jim M | September 23, 2008 1:05 PM

Use the money to bail out all foreclosed homeowners.
That will instantly restore full value to all the derivatives.
And we won't have to bail out the banks.

Posted by: Jon404 | September 23, 2008 1:18 PM

We should all be exceedingly grateful that Schumer and Frank are minding the store.

Give them the power to do what it takes to fix this.

They are the least contaminated members of the Senate, so we should take advantage of that fact and give ourselves a future.

-gala1

Posted by: gala1 | September 23, 2008 1:26 PM

Sorry Hank! Crooks on Wall Street are heading for the last round-up...Nice how you took care of your old company, Goldman Sachs, though...

Posted by: braultrl | September 23, 2008 1:32 PM

On 12 separate occassions the Bush Administration pressed for better oversight and stronger rules governing Fannie Mae and Freddie Mac, on each of those occassions, Schumer, Dodd, Clinton, Obama were among the democrats who stood in the way and insisted there was no problem. In 2003 S190 was defeated by Dems. This bill would've prevented Fannie Mae and Freddie Mac from doing what they did to implode the mortgage industry and in effect become the market for the questionable loans mandated by the dem Congress! Now this Schumer character sits there as though he had nothing to do with it. Clinton blames Republicans, of course, but it was her husband, Henry Cisneros, Janet Reno and Robert Rubin who claimed the deregulation as his major accomplishment, created the mess. And the dems did not want any investogations into Fannie or Freddie because it was the DNC's petty cash box!

Posted by: WallyG | September 23, 2008 1:34 PM

My impression is that Chuck Schumer is in way over his head with this one. It's as if I came to you and said, 'Quick! I need $1000 to bail my son out of jail' Now that's an example of a 'bail-out', no? But what you replied was, 'How about if I give you $100 and then we wait and see how it goes...'
LOL! That guy cracks me up sometimes.

Posted by: Kathywi | September 23, 2008 1:55 PM

This $700 billion is but one way to reestablish so-called confidence. It is a stopgap to reestablish confidence under the terms of what's been going on, protecting those who helped create and who for months pooh-poohed the present crisis as it developed.

Anyone who ever and looked at his own financial situation and figured that a winning lottery ticket would bail him out AND permit him to continue living in the same fashion that got him into his fix knows exactly what Bernanke and Paulson are trying to accomplish here; they are asking for a winning lottery ticket from America's taxpayers.

If this is really only about those bad mortgages bundled into those so-called illiquid assets, then it seems to me that the simplest, fairest, and least expensive thing to do is to create a form of foreclosure insurance to bail out the bad mortgages as they bob up to the surface.

But I suspect there's another problem. The problem is that these mortgage backed securities were intertwined with adjustable rate mortgages, which were expected to be paid off and turned over when the rate went up, based on a never ending growth in home values.

If my suspicion is in fact true, I contend that there is no confidence to be had in this scheme to back worthless paper with taxpayer dollars, because $700 million may not be enough (it already jumped 40% over the past weekend), and it is already weakening the dollar and threatening the very financial integrity of the United States.

With that in mind, one has to look past the present crisis to see what basic systemic changes in our form of government this plan entails. It sounds very close to the legislative branch being asked to cede its power of the purse to the executive branch. Now, that's been done before, in a great nation, when certain laws known as enabling acts were passed, by which the head of government--the Chancellor--and his cabinet were given control of the power of the purse. That nation was Germany and the Chancellor, of course, was Adolf Hitler.

I'm not suggesting that anyone in this scenario resembles Hitler, but I do insist that no single mortal human being should be given such power.

Our Founders created divided government for a reason. They expected government to function in this form in good times and bad. Their reasoning is readily apparent when one sees the spectacle of the very people who presided over the creation of this emergency insisting that they are the only ones who can clean it up, and that they should be given carte blanche with $700 billion to do so.

This sounds like a protection racket to me, like pure extortion. Or, like the arsonist who wants to be entrusted solely with the means to put out the fire he started.

Posted by: deja vue | September 23, 2008 1:57 PM

Just say NO NO NO
The bailout wont help and will cause other problems down the road

Posted by: Falls Church | September 23, 2008 2:19 PM

A bailout to "stablize" the markets will not solve anything. Only keep some parts spinning a little longer. House prices SHOULD fall. The stock market SHOULD fall. Credit SHOULD tighten up. Until we (individually and collectively) are living below our means in homes that reflect a reasonable market value, we are just living on borrowed time. Any "fix" should be addressed at tighter, not more, credit - lower stable housing prices, not propping up artifically high values - and supporting basic needs such as foodstamps, unemployment and healthcare for taxpaying citizens who will bear the full brunt of this wall-street/Bush Co manufactured calamity.

Posted by: Liz, Atlanta | September 23, 2008 2:38 PM

We are being asked to buy worthless pieces of paper to keep the people in business that created the worthless paper....and we will do it by printing more of what will soon become worthless treasury bills....only with the subsidies from China and Saudi Arabia have we managed to keep some credibility in our currency; what has this country become? God help us.

Posted by: Psoto | September 23, 2008 2:46 PM

How is this bailout supposed to build "confidence" when we aren't confident it will work?

Okay, we just "think positive," give them a blank check of $700 Billion, and immunity because he is already telling us he will do something illegal by asking for immunity, and the economy will be fixed????

With no oversight or reports for six months???? AFTER these people will be out of office and the NEXT administration will have to pick up their pieces????

I can't believe that Congress just didn't laugh in his face and say come back when you have a real proposal.

No. Don't hand these thieves a cent.

Posted by: Linda | September 23, 2008 3:50 PM

pls check if paulson get any benefits from this bailout plan... this former CEO of Goldman has done his utmost to protect them.... u guys still believe him ?

Posted by: US people are loser.. | September 24, 2008 9:13 PM

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