Paulson pitches rescue deal to House committee

Regulators in for a tough ride when they pitch the Paulson Plan to the House Financial Services Committee

WASHINGTON, DC – US Treasury secretary Henry Paulson and chairman of the Federal Reserve Ben Bernanke will present their solution to the recent financial crisis – the Troubled Asset Relief Programme, also dubbed the Paulson Plan – to the House Financial Services Committee later today.

The regulators fielded tough questions on the bailout plan from the Senate Banking Committee yesterday over concerns regarding its implications for taxpayers and homeowners, but today’s hearing is predicted to be much more hostile. Barney Frank, chairman of the House Financial Services Committee, agrees action should be taken, but wants to make banks pay for their mistakes. He wants to save homeowners by allowing bankruptcy judges to force lenders to change the terms of mortgages on primary residences, while punishing banks by legislating on executive pay.

An issue likely to emerge again today is the inclusion of warrants in the plan that would convert Treasury investment in illiquid assets into equity in the companies helped. Yesterday Paulson stated this would not be advisable because he believed it would limit participation in the programme, causing it to fail in its aim of getting the market moving again.

The issue of legislating on executives’ pay, which both US presidential candidates have called for, might be a sticking point that Congress will need to reach a compromise on.

The call for regulation of the $58 trillion credit default swaps market by members of the Senate committee is also likely to be echoed today.