Paulson will have no peer under bailout deal
NEWS ANALYSIS
The Treasury secretary will gain sweeping, even unparalleled authority with Congress' compromise rescue plan.
WASHINGTON — Despite all the constraints Congress supposedly wrapped around him, Treasury Secretary Henry M. Paulson is about to become the most powerful mortgage financier of the modern era -- most likely of any era.
Buried beneath the 100-plus pages of detail that Paulson's financial rescue plan has picked up during its 10-day journey from a Bush administration wish list to a bipartisan congressional compromise is the striking fact that the Treasury secretary got almost everything he sought -- an eventual $700 billion and the authority to spend it largely as he sees fit.
To be sure, congressional bargainers did make one huge change.
And in the process, they created a potential stumbling block as the Treasury tries to stabilize the deeply damaged financial system by acquiring toxic mortgage-backed securities.
Under terms of the compromise announced Sunday, any firm selling troubled assets to the government would have to give Washington the right to take an ownership stake in the firm -- a more sweeping requirement than had been expected. While the aim is to let taxpayers profit when the financial system eventually recovers, administration officials worry that generally healthy companies may be discouraged from getting involved -- thereby reducing the effectiveness of the rescue effort.
Whether that turns out to be a big problem remains to be seen, however, and for the rest, Paulson's new powers will be almost breathtaking in their scope.
He and his successor will have the right to buy not just mortgage-related securities at the heart of the crisis, according to the language of the bill, but under some conditions could buy any financial instrument "the purchase of which is necessary to promote financial market stability."
Moreover, the legislation encourages him -- in fact, requires him -- to combat the nationwide wave of home foreclosures by pushing mortgage service companies to rewrite some loans and to cut the interest rates or even the principal for financially strapped homeowners.
It even gives him the politically explosive power to cut deals with foreign, not just U.S., banks in some cases.
"This is unquestionably the biggest bailout in American history," said Wesleyan University economist Richard S. Grossman, a scholar of financial crises. "I'm as nervous as everybody else about Paulson having all this power, but who else are you going to give it to?
