Today it’s the House’s turn to ask Hank Paulson and Ben Bernanke questions about the $700 billion bailout plan. The House is usually more populist than the Senate, but I imagine today will be especially lively, considering that everyone is up for re-election in six weeks. Congressmen will start making their statements at noon, but we’ll pick up with the liveblogging around 2:30 p.m., when Paulson and Bernanke are due to show.
It’s a long day for Bernanke: right now earlier today he testified in front of Congress’s Joint Economic Committee on the Fed’s economic outlook. You can read his opening statement here. I like watching Ron Paul explain to the Fed chairman how monetary policy works as much as the next person, but we decided to stand down on the minute-by-minute coverage on this one. There’s only so much liveblogging a Curious Capitalist can do.
The gist of Bernanke’s economic testimony is that things were looking kind of okay, but now pretty much everything is slowing down: unemployment claims are up, disposable income is down and starting to effect consumer spending, business investing is poised to slow, net exports are likely to soften, and housing—well, you know that story. In other words, when he says he’s worried about the financial crisis rolling into the real economy, he’s not playing.
Update: Meeting over. No casualties. Blow-by-blow after the break.
5:20 It’s over. Chairman Barney Frank hopes that Paulson and Bernanke aren’t offended by his “sincere wish not to speak to either of them for some time” (after the bill is done, that is). They aren’t. Anyway, this is Justin Fox, signing off for Barbara Kiviat and the entire Curious Capitalist team (which consists of, um, Barbara and me), and expressing the sincere wish not to do any more Congressional committee liveblogging for some time.
5:15 Gregory Meeks of Queens is asking some semi-interesting questions about who’s gonna manage the money, and Paulson is answering them. But I’m just too burned out at this point to type it in.
5:10 Ed Royce emerges from behind Southern California’s Orange Curtain to wonder if some of the stuff the Democrats want to load onto the bill, like amending bankruptcy law to allow bankruptcy judges to “cram down” (his words) mortgage workouts on lenders, wouldn’t make it harder for folks like you and me to get mortgages.
Paulson’s response, on the bankruptcy change: “We oppose it on policy grounds and believe it is inconsistent with what we’re trying to do here.”
Bernanke says there are good arguments on both sides and the Fed doesn’t have a dog in this fight.
5:06 North Carolina’s Mel Watt says the small bankers he talks to don’t think this is a big crisis.
Bernanke: “Small banks are a good shock absorber because they can come in and extend credit when others can’t.” But some small banks are in a lot of trouble, and they’ll all be able to participate in the auction/bailout/hoedown too.
5:03 Ginny Brown-Waite of Florida is wondering what the next crisis is. She hears it’s credit cards. What do you hear?
Cuz Ben Bernanke is hearing nuthin. “I don’t know,” he says, “but the system’s quite fragile.”
Then she asks about doing it on the installment plan rather than $700 billion upfront.
Paulson says the amount needed to be big to restore confidence, but “clearly this is going to be used over a period of time to buy assets.”
4:58 Now we’ve tax lawyer/CPA Brad Sherman from the San Fernando Valley. Wants to know if Paulson could reinvest the proceeds of any sales from the bailout fund.
“I certainly didn’t interpret it that way,” Paulson says.
Sherman asks if Paulson would tell President Bush to veto the bill if it said bailed-out entities couldn’t pay their CEO more than $1 million a year in “plain vanilla” compensation. “I believe we’re working constructively,” Paulson says. “I don’t want to talk about any vetoes.” Says he doesn’t want to negotiate the bill in the hearing.
“Would you under any circumstances recommend a veto?”
Paulson won’t bite. Says it’s “not fruitful” to talk about that stuff.
Sherman, with a slightly snotty smile (can smiles be snotty?) says he guesses all the problems with the economy must be the fault of lawmakers unwilling to bow down and do the Administration’s bidding.
Paulson moves his lips, looks sort of like a blowfish, but says nothing.
4:49 Frank tears into Feeney about Fannie/Freddie. “It is true, that for the first six years of the Bush administration, with a Republican Congress,” nothing was done to rein them in.
4:47 This Feeney’s a supply-sider. It’s all Fannie’s and Freddie’s and the Community Reinvestment Act’s fault. And now the Democratic Congress is gonna raise taxes and restrict free trade. He invokes Smoot Hawley. It’s gonna be the Depression all over again!
Bernanke says this ain’t no Great Depression, but that episode shows how financial problems can hit the economy. He agrees that Smoot Hawley and all were bad, but says the financial crisis was what caused the Depression, not that other stuff. That Bernanke is no supply sider.
4:43 Ackerman has started a meme here, now taken up by Florida’s Tom Feeney: It’s Little Orphan Annie bailing out Daddy Warbucks.
4:42 Gary Ackerman of Lon Gisland has an different take on the equity sharing issue: Why not get Wall Street to put up 10% of the $700 billion, and give them a share in any profits. “It’s pretty hard to get the private sector to put much money in when markets are as fragile as they are now,” Paulson responds.
Then Ackerman asks about the rating agencies’ culpability for the mess. Bernanke says you betcha, that’s an important issue. But we can’t deal with that now in this bill.
4:38 Walter Jones of Northern Carolina quotes Pat Buchanan, says we’re a debtor nation and that’s bad. Wonders why this legislation has to happen now.
“You can take three weeks, you can take four weeks, you can take six months and you’re not going to solve the problems you want to solve,” Paulson says. “You’re dealing with issues of major reform.”
Jones wonders how much all this additional borrowing will constrain the next president. (My column in the next issue of Time will sort of be about this debtor-nation stuff, by the way.)
“Our credit seems to be good,” says Bernanke. “The 10-year interest rate is below 4%. If we don’t do it, the fiscal cost to the economy is going to be greater.”
4:30 Steven LaTourette of Wisconsin wants Bernanke to explain to “the guy at home,” who’s angry about the bailout, what would happen without it. “Higher unemployment, fewer jobs, slower growth, more foreclosures,” Bernanke says (he says a bunch of other stuff too, but I can’t type fast enough). “This is going to have real effects on people at the lunch bucket level.”
Paulson: “He should be angry and he should be scared. And right now he’s more angry than he is scared. That puts us in a difficult position … But the fact is that if financial markets are not stabilized, things could be very severe.”
LaTourette then says something along the lines of, but why can’t one of you say, “If we don’t do this you’re gonna lose your job, lose your car, your kid’s not going to be able to get a college education”?
“You just said it,” Bernanke responds.
4:21Carolyn Maloney, who used to be my Representative (that is, I used to live in her district; now I live in Charlie Rangel’s), wonders what the incentive is for banks not just to sit on this money like the Japanese did or maybe invest it overseas. Many of her constituents–5% to 10% of whom are Wall Street zillionaires–wonder why we don’t buy banks’ preferred stock, she says. A lot of wondering going on in New York’s Fightin’ 14th. So much that, Barney Frank finally announces, there’s no time left for Paulson and Bernanke to respond to any of it.
4:15 Gresham Barrett’s daddy always told him you can’t borrow your way outta debt. This leads to a question about whether all this won’t weaken the dollar. “The secret to having a strong dollar is to have an economy that’s growing and is an attractive place to invest,” says Bernanke. “I don’t think the economy can recover when the financial markets are in such dire shape.”
Paulson says “too big to fail” has become a big problem. He says that a lot. But he says it’s just too scary out there right now to do anything much about it.
4:12 They’re back! Barbara’s not, though. She’s got, like, work to do. So this is Justin Fox, blogging for Barbara Kiviat at the Curious Capitalist. Nydia Velasquez asked Paulson something. “The focus is on the victims,” he responded.
3:33 Oh, okay, the vote is to keep federal spending at current levels until next March. I guess that is kind of important. I rescind my snark.
3:31 This is all very important. But not that important. We’re taking a break so that the Representatives can go to the floor and vote on some bill.
3:30 Paulson says during the course of the hearing today he wants to explain what happens if the plan isn’t passed—what happens to small businesses, retirement accounts, etc. I’m not sure why he didn’t just jump in and go ahead and explain those things.
3:24 Wait a second, is all of this hearing stuff just for show? Check out this story Massimo Calabresi and Karen Tumulty just posted on Time.com. This morning they talked to Paulson, who “seemed certain he’d get the massive new powers and huge sums of money he’s asking for, despite the feverish horsetrading and recriminations still unfolding on the Hill.” He told them: “We’re right in the period where the sausage is being made,” but “I clearly believe we’re going to get it done this week. We need to get it done this week.”
3:22 Rep. Waters wants to know about foreclosures, about helping ordinary folk. Paulson says as the government owns more of these securities, they’ll have more leverage in dealing with the mortgage servicers—and will be more likely to be able to rewrite the terms of loans, if necessary, to prevent foreclosures.
3:21 Frank says there are some votes the Congressmen are going to have to go to in 10 minutes, but they’ll come back afterwards.
3:20 Bernanke says if this process they want to try doesn’t work, there will be other ways to purchase assets or use capital to support the banking system. He uses the word “flexible.”
3:17 Rep. Pryce asks about alternatives. Paulson talks about how Japan put capital directly into their banks. The government then basicaly ran the banks. Paulson says they want to take a different approach—and it’s different than anything you can find historically. They want price discovery for the bad assets, so that once we know what the assets are worth, private capital will be comfortable re-entering the market. And the government doesn’t wind up owning the banks.
3:14 This is funny: Rep. Frank says Paulson doesn’t have much time to answer that question. Each round of Q&A is supposed to keep to 5 minutes. Okay, so Paulson (quickly) says that $1.7 trillion worth of commercial paper (short-term lending) is in money markets. Businesses need this money to fund daily operations. So when the market seized up, what Treasury did is guarantee money markets for a year. (They committed up to $50 billion, for a point of comparison to the $700 billion now being requested.)
3:11 Kanjorski says the average American doesn’t understand what it means when Paulson says this is going to cost us “far less than the alternative.” He wants concrete examples. He says he was talking to someone on Wall Street who explained to him that between 11 and 11:30 last Thursday there was a run on money market funds—that operations had to be suspended so that they didn’t fail. He says Paulson and Bernanke need to explain that sort of thing, and how that would wind up impacting ordinary Americans.
3:10 Rep. Kanjorski says the House is quite far along on the legislation—I’m pretty sure he said it now runs more than 42 pages.
3:08 Bernanke rolls out the phrase “working capital.” The cost to the taxpayer, while not trivial, is far less than the purchase amount, he says. “One of the objectives of the program is to try to figure out what these things are worth. There’s a possible win-win situation here,” he says—by bringing liquidity to the market, the program itself should bring the price of these assets up from their rock-bottom fire-sale prices.
3:06 Paulson says they’d be buying assets, and if done properly, as housing recovers and those assets are sold, money will be recouped. He said he can’t say how much, but the total spent will be far less than it seems right now.
3:05 Rep. Bachus wants to know what’s in the program to protect taxpayers, to make sure money is recovered when the assets bought by the government are eventually resold.
3:04 Bernanke says community banks may have not made subprime loans, but they did make residential loans and commercial loans, and there could be problems there, too.
3:01 Paulson says the program they’re proposing is not aimed just at big financial institutions. It’s meant to address systemic concerns. He thinks the way to get real price discovery about mortgage-related assets is to include hundreds, even thousands, of institutions—including S&Ls and credit unions.
2:59 Rep. Frank says there’s a risk that community banks “will be victimized.” A lot held stock—now worthless—in Fannie and Freddie. He wants to give those banks tax relief, since the government caused them to take that loss. The Fed is looking at that, Bernanke says. Frank also wants them taken into account with the new program.
2:51 Bernanke reads his prepared statement, which I’m pretty sure is the exact same one from yesterday.
2:42 Paulson is making his prepared remarks.
2:39 Rep Bahcus: “We can’t kill the messenger. Secrtary Paulson and Chairman Bernanke are alerting us to serious problems in our economy. Oddly enough, some blame them, but they’re both capable public servants.” Bachus suggests Congress stick around until they find a solution—and if anyone doesn’t like what Bernanke and Paulson propose to work with them to come up with a better idea.
2:33 Rep. Pryce says Congress can’t make a move without the consent of the American people—and they don’t have that yet. Pryce is looking for a tutorial for one of her Ohio constituents: “Explain to her how this is not a bailout of Wall Street executives.” She wants to know what the worst-case scenario is if they don’t act. “I want you to make the case to me today so that I can make the case to my constituents. Yours is sales job, gentleman. I’m not sold, but I’m here with open ears.” I like the framing.
2:32 Hello there! Part II, here we go.
Barbara!