WASHINGTON - Bush administration officials crafting the massive government bailout of the mortgage markets made clear last week that credit unions will be included in the program.
"We have proposed a program to remove troubled assets from the system-a program we analyzed internally for months, and had hoped would never be necessary," Treasury Secretary Henry Paulson said during a congressional hearing on the plan. "Under our proposal, we would use market mechanisms available to small banks, credit unions and thrifts across the country."
Paulson, testifying on the bailout before the House Financial Services Committee, said credit unions and other participants will benefit in two ways from the proposal to buy $700 billion in distressed mortgage assets. They will benefit by the stabilization of the markets, first, but also by the ability to establish a value for their mortgage securities.
Under the proposal, which was expected to be reviewed by Congress over last weekend, the Treasury would buy troubled assets from banks, savings and loans, credit unions and insurers, then either manage them or sell them into the market, recreating liquidity in the vast mortgage securities market that has dissipated in recent weeks.
While the biggest beneficiaries in the credit union movement would be the corporates (see related story), leaders were insisting last week that all credit unions would benefit and cited cases of individual institutions with large holdings of distressed assets.
"This is much bigger than the corporates," said NAFCU President Fred Becker, who was working to ensure a credit union role.
"It's incumbent on CUNA to make sure (credit unions are included)," said Dan Mica, president of the trade group. "We can't wake up the next morning and find that credit unions are disadvantaged."
NCUA was also working to convince lawmakers to ensure a credit union role. New NCUA Chairman Michael Fryzel just six weeks on the job told key lawmakers that the historic financial crisis has frozen credit availability and pushed up the costs of borrowing for credit unions, like banks and investment firms, in arguing for a place in the bailout. "Those (credit unions) with concentrations of mortgage-related securities are finding it increasingly difficult to meet their members' liquidity needs," Fryzel said in a letter to key lawmakers. "The credit union system has seen liquidity capacity contract and the cost of borrowing increase sharply in recent weeks, with no indication that the trend will abate."
Paulson and Federal Reserve Chairman Ben Bernanke ran into cynicism and opposition as they tried to explain their bailout plan at separate hearings before the Senate Banking and the House Financial Services committees.
"These bailouts should be as welcome as malaria," said Rep. Walter Jones (R-NJ), who worried about the impact on taxpayers and on average homeowners.
"On the one hand, we have financial peril, on the other hand we may have taxpayer bankruptcy down the road," said Rep. Jed Hensarling (R-TX). "Inaction is not an option. However, the Paulson plan is not the only option on the table."
An angry U.S. Rep. Brad Sherman, a California Democrat, took the Bush administration to task for the tough stance it was taking in negotiations. He insisted that numerous conditions be attached to the bailout plan that would include close congressional oversight of the bailout; curbs on executive compensation for participants in the bailout and a phase-in of the plan over a few years. Republican Sen. Richard Shelby of Alabama criticized the bailout during a hearing by the banking committee. "This bailout continues its ad hoc approach but on a much larger scale," he said of the attempts by the Treasury and Federal Reserve to curb the financial crisis.
Republican Sen. Elizabeth Dole of North Carolina called the bailout "incredibly expensive" and "rapidly concocted." (c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com/ http://www.sourcemedia.com/
