Corporate Governance

Sen. Chris Dodd (D-Conn.) said that the decision to bailout insurance giant AIG with a $85 billion federal loan shows that the financial crisis is worsening.

Dodd, chairman of the Senate Banking Committee, also blamed the crisis on Bush administration policies. He called on federal officials to answer how the bailout will affect taxpayers and to lay out their plan to steady the economy.

"I appreciate Chairman Bernanke and Secretary Paulson informing me of their decision regarding AIG. This decision is a clear sign that the financial crisis

Treasury Secretary Henry Paulson on Monday requested and received permission to skip a Tuesday appearance before the Senate Banking Committee -- but is going ahead with an afternoon speech at the Brookings Institution, irritating Banking Committee Chairman Chris Dodd (D-Conn.)

Paulson was supposed to speak before Dodd's committee about last weekend's federal takeover of Fannie Mae and Freddie Mac, but asked Dodd to cancel the hearing after Monday's meltdown in the U.S. financial markets.

When Dodd's office later learned of Paulson's planned appearance at Brookings, they issued this statement: "It is regrettable that the Secretary has said he is too engaged in the current crisis to come before the Congress, yet is available to give speeches on the same day he was scheduled to testify. Chairman Dodd intends to reschedule this hearing at the earliest opportunity and to continue to aggressively exercise the Committee's oversight functions."

Earlier, Dodd had announced Tuesday's hearing was being cancelled but signaled he still wanted answers from the Bush administration.

"The economic crisis facing our country is deepening, as we saw over the weekend with the failure of Lehman Brothers and the sale of Merrill Lynch. To fully understand the implications of these events, we need to learn more about the Administration's involvement, and its plans going forward," Dodd said. "The Banking Committee has played a vital role both in revealing the pattern of lax regulatory oversight that helped to create this financial crisis, and in addressing related economic problems by crafting comprehensive legislation passed earlier this year. As Chairman, I will continue to work on solutions to help Americans weather this storm, including strengthening the housing sector, developing a second stimulus package, and restructuring the regulation of the financial sector."

Dodd and Paulson already have some differences. In a conference call last Monday with reporters, Dodd expressed anger that the Treasury secretary had kept him uninformed of the administration's impending takeover of Fannie Mae and Freddie Mac. The senator reminded reporters that Paulson himself had told the Banking Committee earlier this summer that such steps were unlikely.

-J. Taylor Rushing

Sen. Richard Shelby (R-Ala.) backed government efforts to aid the takeover of embattled investment firm Lehman Brothers, but he said that government intervention shouldn't involved taxpayer money and shouldn't be offered to troubled car makers.

"The government right now, Treasury and the Fed among others, they're trying to work a deal with no government money, as they should," said Shelby, the ranking Republican on the Senate Banking Committee, on Fox Business Network. "I hope that works. But a little money would be better than a lot, but no money at all by the taxpayers would be the best situation."

Government officials are talking to potential buyers of Lehman Brothers, which has suffered about $7 million in losses over the past two fiscal quarters. The Treasury Department has already engineered bailouts this year for investment bank Bear Stearns and mortgage companies Freddie Mac and Fannie Mae.

Shelby, like other Republicans, voiced disappointment over the increased role of government in the finance and mortgage sectors but he stopped short of condemning it.

"The government never regulated, you know, the Treasury, the Fed, the -- never regulated the investment banks. Now they've got a window there, they're involved in everything," Shelby said.

He added: "I wish that we had a doctrine that nothing was too big to fail. Would it cause trouble? Will it cause heartache? Absolutely. But the market would react and recover much quicker than we're doing trying to nurse patients back to health."

Shelby said that the government should draw the line when it comes to helping troubled car makers. The companies, seeking to retool factories so they can build more fuel-efficient cars, plan to lobby the Senate on Friday for taxpayer-funded loans.

"I would say no to them," Shelby said. "I think they're not too big to fail. They've got a lot of chance now to retool. It costs money. They've seen this coming a long time."

Democratic Senatorial Campaign Committee Chairman Charles Schumer (D-N.Y.) and Sen. Jack Reed (D-R.I.) on Tuesday wrote federal officials to urge against any generous financial package for the outgoing chief executives of Fannie Mae and Freddie Mac, calling any bonus pay "out of line" in light of the taxpayer costs for the U.S. government's takeover of the companies.

Schumer and Reed sent the letter to Federal Housing Finance Agency Director James Lockhart to call attention to a combined $24 million in severance pay due to be paid to the two CEOs, according to the senators. Fannie Mae is led by Daniel Mudd and Freddie Mac is led by Richard Syron.

Schumer announced the letters at a noon news conference in the Senate.

Treasury Secretary Henry Paulson announced a plan Sunday to place both companies into conservatorship. Paulson also plans to replace both executives, which Schumer and Reed say would trigger the severance awards under their contracts.
Schumer and Reed said Lockhart could adjust the executives' severance packages under a provision in the housing legislation passed by Congress earlier this year.

"We find it way out of line that these two executives will be rewarded with millions of dollars in bonus compensation at a time when taxpayer dollars may have to be deployed to cover any financial losses caused by errors in management," Schumer and Reed wrote Lockhart. "It has been reported that Mr. Mudd and Mr. Syron stand to make more than $24 million in severance payments as a result of your actions over the weekend to place the companies in conservatorship."

-J. Taylor Rushing

Sen. Chuck Schumer (D-N.Y.) said that both of the presidential campaigns are reacting responsibly to the government plan to rescue mortgage giants Fannie Mae and Freddie Mac.

"Yes, I think Barack Obama and John McCain are saying pretty close to the same thing," Schumer said on CNBC Monday. Schumer was responding to praise in the same interview by former Treasury Secretary John Snow for both presidential candidates, whom Snow sees as looking for a "real solution" to the crisis that won't hurt taxpayers.

Schumer added: "They might, should each be president, have a different solution -- somewhat different solution. But I think they realize and just about everybody realizes that the first job is to stabilize these markets."

Schumer also said that the plan to stabilize markets will have broad congressional support.

"[Treasury Secretary Henry] Paulson went out over the weekend to reassure all of us that there is not some grand scheme as to what should be put in place after the markets are stabilized; that they were going to, if you will, punt that to the next administration," he said.

Schumer also said that the first job of the government right now is "to prevent this recession from heading further south."

"I think there's a broad middle here," he said. "There'll be some on the far left who say, you know, 'Just go after the high-ups,' and there'll be some on the far right who say, 'Get the government out now to let things crash.' Neither of those would serve us very well right now as a country, as a world, and as citizens, bond holders, mortgagers or taxpayers."

Sorting through Saturday's 72-13 vote on the Senate housing bill, one finds a curious split between the chamber's two top Republicans: Minority Leader Mitch McConnell of Kentucky voted for the bill, while Minority Whip Jon Kyl of Arizona opposed it.

The likely, unsurprising answer: Politics. McConnell is facing a somewhat challenging re-election this fall from Democratic businessman Bruce Lunsford, while Kyl doesn't face voters again in the Grand Canyon State until 2012. Kyl was also joined by 12 other senators, all Republicans, in opposing the bill.

Still, McConnell and Kyl are usually in lockstep on most major votes, and their staffs take pains to emphasize that the two leaders work in harmony.

Speaking publicly on Tuesday, McConnell said "most of my members share [the] view that we need to wrap this up. It's been going on for a while, and it's time to -- time to finish it."

Kyl issued a statement that blamed his opposing vote on the bill's cost and ineffectiveness.

"In Arizona and across the nation, homeowners are having a hard time making their mortgage payments, but the legislation Congress approved today is not aimed at helping them," Kyl said. "Rather, it is designed to bail out mortgage lenders and the two big government enterprises Freddie Mac and Fannie Mae. In fact, the bill will place an immense financial burden on every American taxpayer, including those who are struggling to make their mortgage payments, and waste billions of dollars in misguided efforts to help lenders deemed 'too big to fail.'"

-J. Taylor Rushing

Put Rep. Paul Ryan (R-Wis.) down as a skeptic of the government bailouts of mortgage giants Fannie Mae and Freddie Mac.

The ranking Republican on the House Budget Committee said on CNBC Monday that he has long been a critic of the government-sponsored mortgage companies and has tried to limit their activities for years.

"Fannie has -- and Freddie have all the benefits of being a private company with none of the risks," Ryan said. "And so, you know, I've been one of these GSE hawks for a long time, and now those chickens are coming home to roost. Now we don't have many options. We've got to get through this rough patch. What I'm worried about is, after the dust settles, what is it all going to look like?"He added: "Are we socializing credit risk in this country? Are we socializing investment risk? Are we going down that path? Are we going down the path of having this debt put on our books, a 50 percent increase in the public debt?"

The Times' reporters file dispatches on Hillary Clinton's Jay Leno appearance and about Barack Obama's church. Clinton tried to defuse the recent controversy over her account of a 1996 Bosnia trip by joking about it on The Tonight Show, John Broder writes. Catrin Einhorn reports that the Trinity United Church of Christ has received threats as more people have learned about its former pastor, Rev. Jeremiah Wright.

Since Rep. Al Wynn (D-Md.) announced last month that he's leaving Congress in June for a lobbying firm, Republicans have said that the "congressman/lobbyist" shouldn't be serving (something that The Hill reported Wednesday).

Liberal bloggers are also calling on Wynn to step down now.

In her call for Wynn to leave, MyDD's Natasha Chart notes that the firm Wynn will join, Dickstein Shapiro, represents AT&T and a host of other big firms who could benefit from legislation in the House.

Chart writes: "If the House votes on telecom immunity, energy or global warming policy, a final version of the farm bill, or a bailout of our nation's utterly irresponsible financial services sector... on whose behalf will he be voting?"

The non-profit group Citizens for Responsibility and Ethics in Washington (CREW) also wants Wynn to skedaddle because of conflict-of-interest concerns.

Before accepting the lobbying post, Wynn was scheduled to leave at the end of the year. He lost a primary against Donna Edwards in February, thanks partly to attacks from liberal blogs Open Left and Daily Kos that viewed him as too close to big business.