Vetting Treasury's rescue plan

By Emily Kaiser

WASHINGTON (Reuters) - Regardless of how much the government ponies up to salvage the financial sector, the global economic hangover may linger for years.

The Treasury Department has proposed buying as much as $700 billion in troubled assets from banks. Lawmakers hope to hammer out the details this week, although many sticking points remained, including questions over how to directly help homeowners struggling to pay their mortgages, and whether to cap Wall Street executives' pay.

"The crash phase of the Great Financial Crisis of 2008 would appear to be over," said Stephen Stanley, chief economist at RBS Greenwich Capital.

A draft of Treasury's proposal, obtained by Reuters on Sunday, showed that it was seeking permission to buy "troubled assets from any financial institution," a broad request that could entail taking on more than just suspect mortgage-related debt, and from foreign banks as well as U.S. firms.

However, Congress may be reluctant to approve such sweeping authority. Some key lawmakers were raising concerns that the plan concentrated too much power in the hands of the Treasury Secretary and needed more oversight.

"You can't give all this power to any one person, particularly a non-elected person ... without making sure conflicts of interest are dealt with, that people are treated fairly," New York Sen. Charles Schumer said on Sunday.

Paulson and Federal Reserve Chairman Ben Bernanke can expect a host of questions along those lines when they testify before several congressional committees this week. Bernanke was scheduled to address committees on Tuesday, Wednesday and again on Thursday, with Paulson joining him for two of those.

WALL STREET "FAT CATS"

Schumer, the Democrat who chairs the congressional Joint Economic Committee, said that after meeting with Bernanke last week, he understood what was at stake if lawmakers did not come up with a quick rescue plan.

"When I heard his description of what might happen to our economy if we failed to act, I gulped," he said.

Whatever form the rescue takes, it will certainly help to clean up banks' balance sheets.

However, it will not herald a return to the easy money days that helped to drive a global economic boom for most of this decade. Until lenders are confident that they will get their money back, they will continue holding tightly to their cash.

With U.S. elections looming in November, politicians are keen to convince voters that they did not squander tax dollars to rescue rich bankers and will no doubt insist that financial firms shoulder some of the losses.

"'Wall Street fat cats' are now going to be 'Public Enemy No. 1,' and a bipartisan crackdown is coming," Stanley said.

That means chastened banks probably won't be in any hurry to hand out money indiscriminately again, and it points to a prolonged period of tepid growth, not just in the United States but throughout the developed world.