WASHINGTON The leaders of the U.S. Senate Banking Committee rejected the Bush administration's Wall Street bailout plan on Tuesday but left room for negotiation about the proposal that would have the federal government buy up to $700 billion in soured investments.
"What they have sent us is not acceptable," Sen. Christopher Dodd, the Democratic chairman of the committee, said after a five-hour hearing to scrutinize the plan.
Alabama Sen. Richard Shelby, the panel's top Republican, said that the Senate would not give the plan a "rubber stamp" but he stopped short of outright opposition.
Over the weekend, the Treasury requested sweeping powers to vacuum up investments -- most tied to home mortgages -- that have frozen financial markets.
Dodd answered with 44 pages of legislative language that he said would increase oversight powers, give aid to borrowers facing foreclosure and see that the government gets a stake in any firm selling assets under the program.
Treasury Secretary Henry Paulson said he wants lawmakers to pass the legislation quickly to calm the markets.
Despite stinging criticism of the Treasury's approach at the hearing, no senator has stepped forward with an overt threat to block the administration's effort.
The rules of the Senate, unlike the House of Representatives, give individual lawmakers substantial power to delay or halt legislation, but Senate aides said there were no clear signs yet of that power being exercised.
Vice President Dick Cheney was spending much of Tuesday on Capitol Hill trying to address the concerns of his fellow Republicans in the House and Senate.
Other senators, including Republicans Jim Bunning of Kentucky and Jim DeMint of South Carolina, have expressed strong concerns. But the aides said these lawmakers also have stopped short of warning they would work to block the bill.
In a hearing room swarming with financial industry lobbyists and sign-carrying protesters, Sen. Mike Enzi said the plan presents "enormous cost and enormous risk ... if approved in its current form, this plan will cost every man, woman, and child in this country approximately $2,300.
"Unfortunately, the only plan more costly would be doing nothing at all," the Wyoming Republican added.
Paulson offered a plan on Saturday to authorize the government to use taxpayer funds to buy billions of dollars in bad mortgage-backed securities that were created by investment banks during the home price bubble.
Now that the bubble has popped, many U.S. homeowners, saddled with mortgages they cannot afford, are defaulting. As a result, securitized debt instruments that depend on those homeowners being able to repay their loans are now broken.
Banks and other institutions have recorded massive losses from their bad bets on these instruments, many of which are so complex that the banks themselves and the capital markets are unable to estimate accurately the potential for more losses.
Fear and confusion has spread through world capital markets, making banks unwilling to make new loans and threatening the stability of a global financial system that relies heavily on unprecedented amounts of leverage.
Paulson's plan would shift the broken securities into a government portfolio, which he says would allow capital markets to resume working.
At the hearing, Shelby complained that the Treasury's plan has little for those outside of the financial industry. It aims to rescue the same institutions that created the crisis with "sloppy underwriting and reckless disregard for the risks they were creating, taking, or passing on to others," he said.
"What troubles me most," Shelby said, "is that we have been given no credible assurances that this plan will work. We could very well spend $700 billion and not resolve the crisis."
(Additional reporting by Richard Cowan, editing by Leslie Gevirtz)