WASHINGTON — Democratic lawmakers are considering adding several provisions to a legislative proposal from the Treasury Department that would create a government entity to buy illiquid assets from banks.
How many changes they seek could affect whether the plan passes. If Democrats seek too much, bipartisan support could fall apart. Treasury officials were pressing lawmakers Friday to try and keep the bill as clean as possible, while they continued to draft specific legislative language.
Lawmakers are already pressed for time. They are hoping to start debate on a bill as early as Tuesday, with final passage next week before they adjourn until after the election.
It was unclear what Democratic leaders would ultimately decide to seek. The options include a provision that would let judges rework loans in bankruptcy proceedings — an idea the financial services industry vigorously opposes.
Democrats are also considering whether to require restrictions on companies that use the facility, such as giving the government an ownership stake in the companies or limiting executive compensation. Also in the mix were potential provisions to compel more servicers to make loan modifications and other ideas for stemming the tide of foreclosures.
Observers said some of these ideas will get thrown out as Congress works on the bill.
"There would be a tendency to want to load it up, but given what the circumstances are, I would bet they would get to a deal," said Oliver Ireland, a partner at Morrison & Foerster LLP and a former Federal Reserve Board official.
Democrats have ruled out broader changes, such as adding a stimulus package to the bill or broader bankruptcy reform. Observers said changes directly related to the facility's operation are more likely to be included.
Senate Banking Committee Chairman Chris Dodd cautioned against loading the bill up too much.
"This will not be a Christmas tree," the Connecticut Democrat said Friday. "This is not going to be a piece of legislation that involves every idea that everyone's had that they want to attach to this."
Keith Hennessey, director of the National Economic Council, echoed the warning. "The way to get something done quickly is for it to be done cleanly," Mr. Hennessey said at the White House. "There are lots of other issues where there are big differences among various members of Congress and with the administration. I think our hope would be that those not slow this down."
Mr. Paulson was short on details when he announced the plan Friday morning. He said that it would cost "hundreds of billions" of taxpayer dollars, and that it was needed to stabilize the housing market and prevent further deterioration. He acknowledged concerns about the cost of the program, but he said the cost would be far less than the alternative.
"The underlying weakness in our financial system today is the illiquid mortgage assets that have lost value as the housing correction has proceeded," Mr. Paulson said. "These illiquid assets are choking off the flow of credit that is so vitally important to our economy."
Sources say that the program would mostly cover mortgage assets, but that a broad swath of other assets could be eligible. Treasury would hire asset managers to help determine the pricing for the assets, sources said. Officials were said to be working over the weekend to draft a legislative proposal.
The bill was just one of several steps Treasury and the Fed took Friday to help stabilize the markets. Treasury also announced it would create a temporary $50 billion fund to provide insurance to money market mutual funds that met certain criteria. The Fed announced a new liquidity facility to help backstop such funds. The Fed would not lend directly to such funds, but would lend instead to depository institutions and bank holding companies through the discount window.
The Fed approved an interim final rule Friday establishing a "temporary limited exception" from leverage and risk-based capital requirements for banks so they can facilitate the commercial paper purchases.
