WASHINGTON Given another day to consider the Treasury Departments plan to backstop Fannie Mae and Freddie Mac, lawmakers were considerably less enthusiastic and seemed likely to make significant changes. Some Senate Banking Committee members were downright skeptical, arguing that the plans costs must be pinpointed.
Testifying before the panel Tuesday at a hearing on the plan, Treasury Secretary Henry Paulson said his agency should have temporary but unlimited authority to buy the government-sponsored enterprises debt. Sen. Richard Shelby of Alabama, the committee's No. 1 Republican, told reporters after the hearing: "I've never known Congress to give an open-ended blank check for somebody to fill in, including the administration. I think we have to be careful about that. I do understand why you need ambiguity sometimes, but when you are dealing with the taxpayers' money, I don't think ambiguity has a place."
Though Republican members seemed more skeptical than Democrats, the concern was bipartisan. Senate Banking Committee Chairman Chris Dodd was cautious about the plan, signaling he intended to take more time to review it.
"Inaction is not an option, but we have to think this through," the Connecticut Democrat said. "I want to sit down and talk with people to make sure we don't do something we regret."
Other Democrats openly wondered if giving the Treasury more power was absolutely necessary.
"I want to know what happens if I don't vote to give you that authority," Sen. Jon Tester, D-Mont., asked Paulson. At issue was draft legislation the Treasury offered Monday to help restore confidence in Fannie and Freddie. The language would temporarily remove the dollar limit on their line of credit. The Treasury secretary would be able to buy any obligations or securities of the GSEs "in such amounts as the secretary may determine." That authority would expire Dec. 31, 2009.
Paulson said that unlimited authority was the best way to assure the market that the Treasury was ready to step in and that providing the market with confidence will ensure his agency would never have to use the expanded authority.
"The way to minimize the chance that this facility will ever be called upon is to take any questions off the table and provide as much flexibility as possible," he said.
The idea of giving the Treasury unlimited authority to buy debt and equity stakes in the GSEs clearly bothered several lawmakers. "You want unlimited credit some of us at this table don't like that idea," said Sen. Jim Bunning, R-Ky. "We're a little skeptical."
Lawmakers also voiced concerns about the Federal Reserve Board's role. The draft said a new GSE regulator would have to consult with and consider the views of the Fed "prior to issuing any proposed or final regulations, guidelines, or directives concerning the prudential management and operations standards" of the GSEs.
Paulson tried to clarify that the Fed's role would be secondary. "Let me be clear the Federal Reserve would not be the primary regulator," he said. "As I have said for some time, the Fed already plays the role of de facto market stability regulator, and we must give it the authority to carry out that role. Clearly, given the scope of the GSEs' operations in world financial markets, a market stability regulator must have some line of sight into their operations."
But Sen. Dodd said that may be going too far, and he seemed unlikely to support that aspect of the plan.
"I've tried to think about another example where one regulator would have to statutorily consult with another," he said. "Statutorily requiring it take this to another level. I'm uneasy about what we are trying to achieve here."
Sen. Dodd pressured Fed Chairman Ben Bernanke on whether he wanted the central bank to have a consultative role. Bernanke said he thought "we could be helpful" to the GSE regulator.
Sen. Dodd also asked Bernanke whether he was seeking "veto power" over the regulator.
After a long pause, the Fed chief responded: "No, I don't think so. We'll do whatever Congress wants."
Sen. Charles Schumer, D-N.Y., seemed more willing to give the Fed enhanced power. "When GSEs present systemic problems you need someone to do this," he said.
Speaking with reporters after the hearing, Sens. Dodd and Shelby indicated they planned to change the Treasury's proposal, but they did not say how. "These ideas have some value, but we want the benefit of examining them more closely and making the final determination of what they ought to look like before they are added to this bill," Sen. Dodd said.
Problems concerning the Treasury proposal also surfaced in the House. Financial Services Committee Chairman Barney Frank has said he intends to add the language to a housing bill scheduled for a vote this week, but Republicans rebelled against the idea Tuesday.
Rep. Spencer Bachus of Alabama, the panel's No. 1 Republican, said there was no reason to move hastily to expand the GSEs' line of credit now that the Fed has given them access to its discount window.
"Making such broad changes in a precipitous manner without adequate study and analysis is unprecedented and, perhaps, unnecessary," he wrote in a letter to Rep. Frank. It appears "this intervention by the Federal Reserve will be sufficient to provide adequate liquidity for these enterprises to meet any obligations for the near future."
Rep. Bachus was backed by House Republican leaders, who sought to ensure the Treasury plan would be considered as a separate measure instead of being added to the housing package.
Speaking later with reporters, Rep. Frank was clearly frustrated that Republicans were balking at a request from the Bush administration. "I knew I was taking on a lot of responsibility when I became chairman of the Financial Services Committee," he said. "I didn't know I was going to become the referee of the Republican family disputes."
The Massachusetts Democrat also previewed changes he was likely to make to the housing package. He acknowledged that a concern he had last week about the GSE regulator's effective date has been "kind of subsumed," but he said it remained an issue.
New Treasury and Fed authority "will be granted right away," Rep. Frank said, but the "long-term regulations won't happen right away."
He also said increasing the conforming loan limits was vital "not just in the highest-cost areas but for the whole country." In addition, he said $4 billion of community development block grant funding for municipalities would be removed from the housing package and passed as part of a separate bill.