Paulson, Schumer offer U.S. financial bailout plans

By Richard Cowan and Kevin Drawbaugh

WASHINGTON (Reuters) - A possible federal plan to calm financial markets and address the housing crisis began to take shape on Thursday, with rival proposals from U.S. Treasury Secretary Henry Paulson and Sen. Charles Schumer.

Paulson has been talking with congressional leaders about possibly setting up a federal agency to deal with the broken mortgage debt instruments that are choking global capital markets, said a congressional aide and a lobbyist.

"It's a modernized version of the Resolution Trust Corporation (RTC), which was used after the S&L crisis," said the aide, declining to be further identified.

Schumer offered a different idea in a speech urging that future federal capital infusions for banks be conditioned on their making loan modifications and other terms.

The New York Democrat proposed setting up a federal agency that would "provide capital to struggling financial institutions in exchange for an equity stake in the banks," similar to the Depression-era Reconstruction Finance Corp (RFC).

Under the proposal, banks would agree to "judicial loan modifications" and allow "bankruptcy judges to facilitate the refinancing of mortgage loans on primary residences, which is the major obstruction to efforts to help the housing market."

Schumer said the RFC-type measure would allow government and private efforts to modify loans, and avoid defaults and foreclosures that have been at the root of the economy's turmoil.

"The RTC model, by taking distressed assets off the books of troubled institutions, would simply transfer excessive risk to the U.S. government without addressing the plight of homeowners," said the statement from Schumer's office.

House of Representatives Speaker Nancy Pelosi left open the possibility of passing U.S. financial industry reform legislation this year.

"If we work together with the administration to do something before January, before the elections, all the better," she told reporters at a press conference.

President George W. Bush delivered a brief statement from the White House, saying he was prepared to take further measures to stabilize and strengthen the markets.

Corporate chief executive officers, in a meeting organized by the Business Roundtable lobbying group, met on Wednesday with administration officials and congressional leaders to discuss the events of recent weeks and what to do about them.

The CEOs' message to the officials was that "they shouldn't try to throw something together at the last minute that would potentially create more uncertainty," said Thomas Lehner, a director of public policy at the roundtable.

He added that the CEOs viewed the administration's actions thus far as "timely and appropriate."

Congress is trying to wrap up its work within a week or so, allowing lawmakers to campaign for re-election. On November 4, voters will pick a new U.S. president. All 435 House seats and one-third of the Senate seats are also up for grabs.

(Additional reporting by Jeremy Pelofsky, editing by Leslie Gevirtz)