Congress Pushes for Oversight in Historic Wall Street Bailout

Sept. 22, 2008— -- Congress and the White House may be closer to agreeing on a $700 billion Wall Street bailout package.

In a briefing with reporters this afternoon, Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, said the Bush administration and Congress have worked through conflicts on a provision that would allow for the creation of an oversight board to review how the $700 billion would be spent.

Both Democrats and Republicans in Congress have been calling for the board.

Frank said the Bush administration was worried that the creation of the board would delay the implementation of the bailout. But, he said, after members of Congress assured the administration that the bailout could begin as soon as possible, and that the board could be created later, the administration's pushback on the oversight provision stopped.

Two serious sticking points remain -- whether bankruptcy judges can be given the power to renegotiate the mortgage payments for homeowners, and whether any of the $700 billion could be spent on executive compensation.

A top administration official told ABC News that President Bush was prepared to yield on the executive compensation issue, and could support legislation that would limit compensation.

"There are no lines in the sand on individual provisions. The only line in the sand is on getting greedy on this proposal," one top Republican told ABC News' George Stephanopoulos.

Republicans realize this is not the most popular ground to stand on and that there is a "moral and political hazard" if executives at firms getting government help are making huge profits.

That sentiment stands in constrast to a statement earlier in the day from deputy White House spokesman Tony Fratto, who urged Congress to not insist on a cap for executive compensation.

"We certainly understand and are sympathetic to the sentiment regarding the pay of CEOs and senior management of these firms, but we have to focus on the problem, and the problem is that we need these firms to participate in the program and sell us this debt. Having punitive measures would provide a disincentive for firms to participate, and that would make the program much less likely to succeed," Fratto said.

Both houses of Congress have drafted bills that would require an oversight board and assurances that no taxpayers' money would be used to finance golden parachutes for executives whose companies were at the heart of the economic crisis.

Original Plan Rebuffed

The White House had originally pleaded Congress to quickly pass the bailout package without any changes.

Instead, both houses drafted bills that would require an oversight board and assurances that no taxpayers' money would be used to finance golden parachutes for executives whose companies were at the heart of the economic crisis.

The Senate proposal went even further than the House bill by including a measure that would give judges the power to rewrite mortgages that were in danger of default to lower monthly payments and avoid foreclosure.

Congress balked at giving Treasury Secretary Henry Paulson a blank check to buy up a mountain of virtually worthless mortgages that posed the biggest threat to the banking industry since the Great Depression.

Paulson insisted Sunday that it was only "a matter of days" before credit dried up completely and he argued against any changes to his proposal, including protection for homeowners or a cap on executive compensation.

Bush added his voice to the urgency of the legislation today and urged Congress to quickly pass the measure and to drop its plans for amendments, saying their demands would "undermine the effectiveness of the plan."

"Indeed, the whole world is watching to see if we can act quickly to shore up our markets," Bush said.

Big Banks Make Moves to Avoid Further Woes

In an indication of how fast the banking industry was deteriorating, Goldman Sachs and Morgan Stanley, the country's two remaining investment banks, sought and were quickly granted a late-night change in their designation. The federal government allowed them to be reclassified as bank holding companies.

In return for tighter regulation under their new designation, Goldman Sachs and Morgan Stanley would gain greater access to central bank funds and would find it easier to buy retail banks.

Morgan Stanley also signed a letter of intent to sell 20 percent of its company to Japan's largest bank, Mitsubishi UFJ Financial Group.

As Congress resumed haggling over what kind of authority to grant the Treasury Department, the most consistent demand from Republicans and Democrats alike was for an oversight board to be established to keep an eye on the buying and selling of a mountain of virtually worthless mortgages and debts that American banks and investment houses have accumulated, and that now threaten to torpedo the country's economy.

Key members of the House and Senate objected to Paulson's demand that he be granted the authority he asked for -- without any additions or qualifications -- and that it be done quickly.

"He's being entirely unreasonable," Rep. Barney Frank, D-Mass., the House Banking Committee chairman, told "Good Morning America."

Frank was joined by Rep. Christopher Shays, R-Conn., in telling "GMA" that they would insist that an oversight board be created to keep an eye on the country's massive investment.

"We will have a strong oversight board" that will report to Congress monthly, Frank said.

"I don't trust anybody to have the amount of money he asked for," Frank said.

Congress Wants Oversight Board for Historic Wall Street Bailout

Frank also made a point of wanting to cap those multimillion dollar golden parachutes for executives, even when their companies go bankrupt -- or cost taxpayers billions.

"We want to limit those as a condition for giving them aid," Frank said. "If Secretary Paulson would agree to that, we could move quickly. But if he insists somehow that that's a terrible thing, then it slows it down."

Paulson said on Sunday that action to limit executive bonuses could be done later, and he didn't want the rescue operation to be "punitive."

Republican Shays resisted being rushed into something.

"Many of us voted to go to a war that we regret," Shays told "GMA." "I think there are a number of members who say we need enough time. I'm not talking a week, but enough time to debate this."

In addition, there is resistance to Paulson's proposal that the bailout include foreign companies, an idea to which Shays gave some qualified support.

"Foreign companies have helped to keep us afloat," Shays told "GMA." "We want them to invest in our economy. We don't want them to go away."

Senate Echoes Call for Debate on Economic Package

On the Senate side, there were similar demands for some changes in Paulson's bailout blueprint.

Senate Banking Committee Chairman Sen. Chris Dodd, D-Conn., said there must be oversight, and he wants to structure the package to ensure that taxpayers are the first to be paid back "once conditions in the industry stabilize and recover."

He added that "the last thing any of us want is to be back here in a month coming up with some new plan because this didn't work. It's important that we act quickly, but it's more important that we act responsibly."

Some in the financial world are also lobbying for changes. They want the bailout to be expanded beyond banks to cover other financial services industries, and are arguing against Democratic efforts to reduce mortgage rates for those facing foreclosure.

Despite Paulson's alarming scenario described on Sunday morning news shows, by the end of the weekend, political opposition was growing.

Sen. John McCain, the Republican presidential candidate who recently said the fundamentals of the economy were strong, told NBC's "Today" show, "We are in the most serious crisis since World War II."

AIG Executive Rejects $22 Million Severance

Earlier McCain said he would insist on an oversight board because he is "greatly concerned that the plan gives a single individual the unprecedented power to spend $1 trillion on the basis of not much more than "Trust me."

He suggested candidates for the board, such as billionaire financier Warren Buffett, former Massachusetts Gov. Mitt Romney and New York City Mayor Michael Bloomberg.

McCain also said that the final deal must make sure that taxpayer cash did not pay for bonuses to executives whose firms had to be rescued.

One executive actually rejected his bonus.

Shareholders of the giant insurance company American International Group, which was given a $85 billion government lifeline last week, were scheduled to meet Monday.

AIG's fired CEO Robert Willumstad informed the company that he would not accept the $22 million severance payment that was part of his contract, The Wall Street Journal reported.

Despite the objections, House Speaker Nancy Pelosi predicted Congress would pass a package this week.

ABC's Ann W. Compton, Jake Tapper, George Stephanopolous and Alice Gomstyn contributed to this report.