McCain Adviser: Treasury Doesn't Need Congress for Bailout
Since the $700 billion bailout plan went down in the House of Representatives by a 228-205 margin, talking heads and politicos have been looking for ways to circumvent Congress and give the executive branch the authority to perform a bailout without their consent.
Republican presidential nominee Sen. John McCain, R-Ariz., first made the suggestion to NBC News correspondent Kelly O’Donnell. His senior economic adviser, Douglas Holtz-Eakin, later confirmed to MSNBC that McCain said Congress has already given the Treasury Department authority to bail out Fannie Mae and Freddie Mac to the tune of a trillion dollars.
“This past summer, Congress passed and the President signed a housing relief bill that had a variety of things in it,” Holtz-Eakin said in an interview with NBC Washington correspondent Andrea Mitchell on MSNBC Sept. 30.
“Among them,” Holtz-Eakin said, “in addition to appointing a new regulator for Fannie Mae and Freddie Mac, that legislation contained the authority for purchases of mortgage-backed securities and other housing-related instruments. It simultaneously increased the debt limit of the
Holtz-Eakin explained this wouldn’t be the first choice of action but said it is an option that is available to the Treasury.
“So this looks like something that’s on the books. Obviously everyone thinks it would be better for Congress to take proactive action, provide the necessary tools for the Treasury to broadly deal with the problems in our financial markets,” he said. “But in the interim, there’s something that looks to be on the books that could be done and the senator just thinks we ought to take every option that is available to us and start to act to protect the American family and the business community against the fallout from this awful credit crunch.”
But CNBC “Street Signs” host Erin Burnett explained this wasn’t something that was likely under the current rules. Burnett told viewers of her Sept. 30 program the toxic mortgages distressing many of the beleaguered banks hoping for a Congressional bailout aren’t the same mortgages the Treasury Dept. has the authority to buy.
“We’ve been looking into this,” Burnett said. “And there is room for Treasury to maneuver in many ways. The best sense of this that we have gotten, though, is that money – even if it is all available and not all of it still is – would have to be used to buy Fannie and Freddie-backed mortgages and as we know, those are not really the toxic mortgages that are the problem here.”
Burnett said one possible solution would be for the Treasury Dept. to have Freddie Mac and Fannie Mae purchase these mortgages from the banks to get them on their books. However, Burnett said that would be unlikely under the current rules that govern the two former government-sponsored enterprises.
“Now some might say the Treasury could tell Fannie and Freddie to go out and buy some of the bad stuff, but keep in mind – Fannie and Freddie are right now owned by the government in a conservatorship,” Burnett added. “They would have to take some insurance out to do that is our understanding. That would cost quite a bit of money – likely not be a business decision which would be approved by the conservator. So it doesn’t seem that that plan in its simplistic sense make sense. Bottom line, though, is that there might be some ways for Treasury to maneuver.”