Lawmakers rip ‘bait-switch’ banks bailout

House lawmakers Friday slammed the Bush administration’s handling of the $700 billion bank bailout plan even as their Senate counterparts were making plans to vote on another $25 billion in taxpayer handouts for the beleaguered U.S. auto industry.

Majority Leader Harry Reid confirmed that the Senate will return from a six-week break Monday to work on the aid package for Detroit’s Big Three carmakers, although there remain major doubts the bill could overcome a Republican filibuster or the strong opposition of President Bush to tapping the $700 billion bailout fund for the auto industry.

“The adoption of a robust recovery package should be the top priority of the upcoming lame-duck session,” Mr. Reid said.

But White House spokeswoman Dana Perino insisted the financial bailout plan was never intended for Detroit. The administration would support emergency loans to the automakers already approved by Congress, but not what Senate Democrats are proposing.

“Democrats are choosing a path that would only lead to partisan gridlock,” Mrs. Perino said in an interview with the Associated Press.

Across the Capitol, the Treasury Department’s point man for the financial rescue plan was taking heat from both parties at a contentious House oversight hearing.

Treasury Secretary Henry A. Paulson Jr. earlier this week confirmed that the bailout funds would be used primarily to re-capitalize banks and other financial firms through direct stock purchases, not to purchase so-called toxic mortgages and other assets from lenders as the Bush administration originally intended.

“This is a classic bait-and-switch,” said Rep. Dennis J. Kucinich, Ohio Democrat and chairman of the House Oversight and Government Reform subcommittee on domestic policy told Assistant Treasury Secretary Neel Kashkari. Mr. Kucinich said lawmakers had reluctantly supported the bill because they thought it would be used directly to purchase assets and help homeowners facing foreclosure.

“I think it’s fairly obvious that Congress would never have passed this had it known how Treasury would marshal the resources it was given,” Mr. Kucinich complained.

California Rep. Darrell Issa, the panel’s ranking Republican, said Mr. Paulson “gave us all assurances that he aimed to get rid of these [toxic] assets by selling them off. He got the money and immediately said, ‘What auction?’”

The field of companies seeking federal help expanded again Friday as four major insurance companies - Hartford Financial Services, Genworth Financial, Lincoln National Corp. and the Dutch parent company of Transamerica - applied to buy savings and loans in order to qualify for bailout money.

Mr. Kashkari said the Treasury Department was “using all the tools” from the emergency law to deal with the crisis. Using the $700 billion solely to buy up bad mortgages would only help roughly 3.5 million homeowners, he argued, while stabilizing the U.S. banking sector and revamping government guidelines on mortgage lending would help all mortgage holders.

“Our system is stronger and more stable than just a few weeks ago,” he said.

The unhappiness over the bank bailout could spill over into the debate over helping the auto industry. The House is tentatively set to return for its own lame-duck session Wednesday, to take up the Senate bill.

Patrick Archambault, an analyst for Goldman Sachs Group Inc., said in a letter to clients that the mood on Capitol Hill left it “highly uncertain” whether an auto industry aid package could pass this year.

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