Executives whose companies receive a piece of the US$700 billion (Dh2.57 trillion) US government bailout will have their pay packages strictly limited under proposals that are broadly supported by Congress, after pressure from the Democrats. The Bush administration was resisting the move as it scrambled to overcome widespread misgivings on Capitol Hill and swiftly push through its plan to rescue tottering financial firms by buying up their rotten assets.
Politicians in both parties are demanding changes to the administration's rescue proposal despite dire warnings from top economic officials of recessions, layoffs and lost homes if Congress doesn't approve it quickly. Both parties' presidential candidates also insist on alterations to the drastic prescription. "We have got to look at some alternatives," said Senator Richard Shelby, the top Republican on the Senate Banking Committee.
Democrat Sen Chris Dodd, the panel's chairman, said the Bush administration's position was "not acceptable". Congressional leaders say they are working to approve the rescue by week's end, but the chances of a quick deal were dwindling. "Just because God created the world in seven days doesn't mean we have to pass this bill in seven days," said Republican congressman Joe Barton. Democrat congressman Barney Frank, the House Financial Services Committee chairman, was in intense negotiations with Henry Paulson, the Treasury Secretary, on key elements of the plan. "As long as it looks as if we are seriously engaged, it's not too late" to act, Mr Frank said.
Law enforcement officials, meanwhile, said Tuesday that the FBI was investigating four major US financial institutions whose collapse helped trigger the bailout plan. Two law enforcement officials said the FBI was looking at potential fraud by mortgage finance giants Fannie Mae and Freddie Mac, and insurer American International Group. Additionally, a senior law enforcement official said Lehman Brothers Holdings also is under investigation. The inquiries will focus on the financial institutions and the individuals who ran them, the senior law enforcement official said.
Mr Frank has proposed adding substantial congressional oversight over the bailout and a requirement that the government make an effort to renegotiate as many of the mortgages it purchases in the rescue as possible to help strapped borrowers stay in their homes. Mr Paulson was said to be willing to accept those revisions. The administration was still battling calls from virtually every quarter of Congress to slap tight limits on compensation for executives whose firms get a federal rescue. Mr Frank wants the government to restrict the bailout to firms that deny their top people golden parachutes on their way out the door and institute a "clawback" rule to revoke bonuses paid for bogus gains.
Another influential Democrat, Max Baucus, proposed tax penalties on the compensation of top executives who earn more than the US president; their pay would only be tax-deductible up to $400,000. Large golden parachutes also would be taxed heavily under the plan by Mr Baucus, the Finance Committee chairman. Mr Paulson said such limits would discourage participation in the program. But the curbs appear to have widespread bipartisan support. "Clipping executive compensation is easy right now - everybody wants it," said Jack Kingston, the Georgia congressman.
Mr Frank also has been pushing to allow the government to buy equity - rather than just bad debt - in companies it helps so taxpayers can benefit from future profits. That idea is also gaining bipartisan support, but Mr Paulson argues it would hamstring the very companies the government is trying to help. He also is strongly opposed to another key Democratic priority: letting judges rewrite mortgages to lower bankrupt homeowners' monthly payments.
Democrats view that measure as the heaviest lift and the most likely to be dropped as part of a final deal. "I share the outrage that people have," Mr Paulson told the Senate Banking Committee yesterday. "It's embarrassing to look at this. I think it's embarrassing to the United States of America. There is a lot of blame to go around." Without the bailout plan, Mr Paulson and Ben Bernanke, the chairman of the Federal Reserve, have sketched out a grave scenario for lawmakers: Neither businesses nor consumers would be able to borrow money, and the world's largest economy would grind to a virtual halt.
* Associated Press