- The Washington Times - Wednesday, October 29, 2008

Give away $700 billion and you tend to attract a crowd, but a growing number of lawmakers and economists are criticizing the Bush administration for extending the massive Wall Street rescue plan far beyond what they had thought were its original limits.

In the three weeks since President Bush signed the bailout bill, the Treasury Department has pledged to purchase at least $163 billion in preferred stock to boost the capital of nearly 35 national and regional banks. In addition, life-insurance companies, automakers, stockbrokers, privately held commercial banks and even hedge funds are lining up to make their pitches to an increasingly sympathetic government.

Critics fear the expanded offer will lead to a free-for-all as rival industries fight for access to the bailout funds, while the federal government faces increasingly tough choices over which private companies to help and which to ignore.

“There are already a lot of people sniffing around at this money, and it has the makings to become a real feeding frenzy,” said Bert Ely, an Alexandria-based banking consultant.

Sen. Charles E. Schumer, New York Democrat, is one of several lawmakers who has said he is worried that financial firms will use the Treasury’s capital to bolster their balance sheets or to acquire other banks instead of approving new loans.

“I remain especially concerned that, in the Treasury’s zeal to make the program easily digestible for the banks, we’re feeding them a little too much dessert and not making them eat enough of their vegetables,” he told Treasury officials and bank regulators at a recent congressional hearing.

Mr. Ely predicted that the government will impose new conditions on the bailout money as the competition for the available dollars sharpens.

“As the number of claimants grows, I think it’s inevitable that the government, and certainly the new administration, will want to put new strings on how the money gets used,” he said.

The Treasury Department and its defenders say the rescue package was intended from the start to address the crisis in the broader credit markets, not just the problems of the commercial banks.

Nonetheless, Assistant Treasury Secretary Neel Kashkari, the point man in administering the $700 billion Troubled Asset Rescue Program (TARP), faced sharp questioning at a Senate hearing last week over the program’s first moves.

In addition, a miniature civil war has broken out in the insurance industry over participating in the rescue plan. The American Council of Life Insurers, a leading trade group, has welcomed the prospect that U.S. insurers, facing credit-rating problems, might get some taxpayer money.

But major property-casualty insurers, including Travelers Cos. and Chubb Corp., have attacked the idea that the industry should be eligible for taxpayer money under TARP.

Travelers Chairman and Chief Executive Officer Jay Fishman, in a letter to Treasury Secretary Henry M. Paulson Jr. on Tuesday, said his well-capitalized company did not want federal help.

Automakers are eager for a piece of the bailout fund, and the White House said it is open to the possibility.

In the face of bipartisan pressure from Michigan’s congressional delegation, White House press secretary Dana Perino confirmed Tuesday that the Bush administration has been in touch with the country’s biggest automakers about using some bailout money for their troubled financing arms.

General Motors Corp. CEO Rick Wagoner has taken the lead in seeking federal aid for the troubled automaker, Bloomberg News reported Tuesday.

The Financial Services Roundtable, a trade group for the country’s 100 largest financial services companies, has pushed hard for the Treasury program to expand beyond commercial banks to aid other credit-strapped industries, including stockbrokers, insurers, automakers and foreign-owned U.S. banks.

“Obviously, we want to see the program expanded to help as broad a range of industries that provide liquidity to the markets,” said Scott Talbott, the group’s senior vice president of government affairs.

Congress demanded as a condition for taking bailout aid that recipient companies accept limits on golden parachutes and executive pay levels, but an online survey found that at least some on Wall Street expect fatter bonus envelopes this year despite the global economic meltdown.

More than one-third of some 1,300 Wall Street employees surveyed expect a bigger bonus this year than last year even amid the worst financial crisis since the Great Depression, according to eFinancialCareers, a Web-based recruiting service.

Rep. Henry A. Waxman, chairman of the House Oversight and Government Reform Committee, sent a letter Tuesday to the first nine banks that earlier this month received the first $125 billion given under the bailout program for information on the pay levels for their senior officers.

In the letter, the California Democrat said the banks, which include such giants as Citigroup, Goldman Sachs and Bank of America, had spent or reserved a total of $108 billion for employee compensation and bonuses in the first nine months of this year, nearly the same amount as last year.

“While I understand the need to pay the salaries of employees, I question the appropriateness of depleting the capital that taxpayers just injected into the banks through the payment of billions of dollars in bonuses,” Mr. Waxman said in his letter.

Mr. Paulson did not include the equity-purchase idea in the emergency three-page bailout proposal he sent to Capitol Hill in late September. His original plan was to use the $700 billion to buy up “toxic” mortgages and mortgage-backed securities on the books of the nation’s financial firms, assets that had proved so worthless that the U.S. and world credit markets had begun to freeze up.

The plan was expanded under pressure from Congress, foreign governments and private economists who said the Paulson blueprint would not get capital to ailing lenders fast enough. When Britain and other European governments began purchasing stakes directly in their national banks to spur lending, the Bush administration quickly followed suit.

Mr. Kashkari told the Senate Committee on Banking, Housing and Urban Affairs that placing too many preconditions on how the new capital could be used would limit the attractiveness of the program. Mrs. Perino told reporters that the administration expected the bailout money to be translated quickly into loans.

Wayne, N.J.-based Valley National Bancorp, a healthy regional bank with $14.3 billion in assets, revealed this week that it had been approved to sell $330 million in nonvoting senior preferred stock to the Treasury under the TARP program.

In a telephone interview Tuesday, Valley National Senior Vice President Ira Robbins said that fears the banks will “hoard” the government money were misplaced. “Our mission is to promote economic growth by making loans, and we certainly don’t see ourselves as having a carte blanche to do whatever we want.”

But Camden Fine, chief executive officer of the Independent Community Bankers of America, a trade group for the nation’s 5,000 small community banks, said his members are angry over the prospect that bigger banks may use the federal bailout dollars not to make new loans but to acquire their smaller competitors.

“When you’re talking about using taxpayer money for something like that, I tell you I have a lot of my members who have real trouble getting their head around that,” Mr. Fine said.